GDP numbers showing slower than expected growth in Q2 helped to turn stocks, and growth focused commodities like crude oil, bearish on Friday. I expect a choppy volatile slide to continue in crude oil, rbob and heating oil, with rising supplies and a strong dollar helping to pressure prices. Also, a continuation of a hurricane-free Gulf of Mexico should help shorts reenter the market. Natural gas remains a contrarian buy with long term call options to play the volatility pop on a spike rally.
Stocks took it on the chin last week as a bad GDP number put growth fears into the forefront of investors’ minds. This will be short lived as the Obama Sunday night deal on the debt ceiling will likely be all the market focuses on for the next couple of days as the House and Senate do their political musical chairs to get this passed before the August 2nd deadline. I recommend selling into a Monday rally in the S&P as this is really just the beginning and doubt will quickly reenter the market. Bonds remain avoidable, but should see buying on a weaker stock market. Obviously the attention of the world markets will be on the U.S. debt ceiling issue, but I believe that the debt ceiling issue is not the issue at all. The most important component of this debt ceiling issue is that a credit rating issue and inflation forecast adjustment will come out of this whole thing. The dollar remains a buy on a dips, hitting a cycle low earlier this year and setting up a big rally. The euro and pound are sells, but the best short opportunities might be found in the Canadian and Australian dollars as they approach a critical cyclical turning point. The Japanese yen is in a clear bull breakout and could become very volatile, spiking in the near term to potentially hit my forecast that:
The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever.
The global growth outlook remains key to the grain puzzle as the heat wave passes and traders focus on demand. Look for strong selling across the board in grains, with particular attention on soybeans and corn.
Hogs and cattle both offered bullish trends last week, a pattern that should end this week with significant selling on the horizon. Look at December cattle deep out of the money puts and shorting Dec lean hog futures at current levels with a stop above 92.
Gold and silver remain choppy but bullish as investors use it as a flight to quality safe haven. You can argue that gold is an inflation hedge all you want, and that gold has not kept up with the price of inflation over the last several decades, but the reality is that a debt consolidation by the federal government sets the stage for an epic collapse in these metals markets. Timing aside, which I have admittedly pegged wrong here for some time, it is recommended that put positions in gold, silver, and copper are established at current levels ahead of this debt ceiling issue being resolved.
Coffee is below key support but hasn’t collapsed just yet, however I continue to recommend put positions here with a sub-$2 target before year’s end. Cocoa fell back into its channel and should see significant downside on a break below 2850. Cotton remains bearish but is a market to avoid. OJ is a strong sell with straight puts recommended. Sugar is also significantly overbought and is a strong sell with straight puts. Lumber looks ugly on a technical level and is a sell.
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