Energy Slightly Lower — Here’s Why

Technical Outlook

#BONDS (JUN) 5/19/2004: The market tilt is
slightly negative with the close under the pivot. Near-term resistance for bonds
is at 105.15 and then again at 105.27, while swing support hits at 104.25 and
below there at 104.15. A positive signal for trend short-term was given on a
close over the 9-bar moving average. Stochastics are at mid-range, but trending
higher which should reinforce a move higher if resistance levels are taken out.
The next upside objective is 105.27.

T-NOTES(JUN) Momentum studies are trending higher
from mid-range which should support a move higher if resistance levels are
penetrated. The near-term upside objective is at 109.23. It is a mildly bullish
indicator that the market closed over the pivot swing number. Near-term
resistance for the T-Notes is at 109.14 and then again at 109.23, while swing
support hits at 108.31 and below there at 108.25. The market’s short-term trend
is positive on a close above the 9-day moving average.

STOCK INDICES RECAP

5/18/2004

The stock market came into the US session with a
positive international tilt and managed to respect that tilt for most of the
session. Some traders suggested that slightly softer US housing readings reduced
the threat of higher interest rates while other suggested that weaker energy
prices provided the lift. We have to think that the market was significantly
short, saw the overnight strength and decided to bank profits. In short there
were still seem to be plenty of geopolitical uncertainties ahead and therefore
the recent down trend in prices is probably still lurking in the shadows. So
far, the Fed has played down the inflation threat and the threat from rising
energy prices but the market has probably seen some of the May losses as a
result of energy prices. Therefore, having a second straight day of lower energy
prices could give stocks a change to follow Tuesday’s gains with short covering
on Wednesday.

Technical Outlook

#S&P500 (JUN) 5/19/2004: The close over the pivot
swing is a somewhat positive setup. Underlying support comes in at 1087.35 and
1084.28, with overhead resistance at 1093.65 and 1096.88. The close below the
9-day moving average is a negative short-term indicator for trend. The crossover
up in the daily stochastics is a bullish signal. The near-term upside objective
is at 1096.88.

S&P E-Mini (JUN): A bullish signal was given with
an upside crossover of the daily stochastics. The next upside target is 1099.88.
With the close higher than the pivot swing number, the market is in a slightly
bullish posture. Near-term resistance for the S&P Mini is at 1095.25 and then
again at 1099.88, while swing support hits at 1085.25 and below there at
1079.88. The market’s close below the 9-day moving average is an indication the
short-term trend remains negative.

NASDAQ (JUN) A negative signal for trend
short-term was given on a close under the 9-bar moving average. The market setup
is supportive for early gains with the close over the 1st swing resistance. The
market should run into resistance at 1404.25 and above there at 1410.88 with
support at 1391.75 and 1385.88. The daily stochastics have crossed over up which
is a bullish indication. The next upside objective is 1410.88.

MINI DOW (MAR) The close below the 9-day moving
average is a negative short-term indicator for trend. The market should run into
resistance at 9993 and above there at 10021 with support at 9922 and 9879.
Momentum studies are still bearish, but are now at oversold levels and will tend
to support reversal action if it occurs. The next downside target is now at
9879. The close over the pivot swing is a somewhat positive setup.

CURRENCY MARKET RECAP

5/18/2004

There was very little direction in the Dollar
Tuesday, as the Dollar opened a little weaker, came under pressure off the US
housing starts but then found support off the inflation talk from the US Fed.
The Canadian Dollar made the biggest gains against the Dollar and that might
suggest a bottoming potential in the Canadian as the Canadian has been extremely
volatile over the last several sessions. While the Dollar could have lost ground
to the Euro off its weak housing sector information, the Euro zone numbers
created enough concern for growth in that area that neither the Dollar, nor the
Euro managed to dominate.

Technical Outlook

#CURRENCIES 5/19/2004: YEN (JUN): A negative
signal for trend short-term was given on a close under the 9-bar moving average.
The market has a slightly positive tilt with the close over the swing pivot.
Swing resistance is targeted at 87.99 and above there at 88.29, with the yen
finding support around 87.44 and below there at 87.19. The market back below the
40-day moving average suggests the longer-term trend could be turning down.
Daily stochastics declining into oversold territory suggest the selling may be
drying up soon. The next downside objective is 87.19. The market is approaching
over sold levels on an RSI reading under 30.

EURO (JUN): Momentum studies are rising from
mid-range which could accelerate a move higher if resistance levels are
penetrated. The near-term upside target is at 1.2001. The defensive setup, with
the close under the 2nd swing support, could cause some early weakness. Swing
support for the Euro comes in at 1.1883, with overhead resistance at 1.2001. The
close above the 9-day moving average is a positive short-term indicator for
trend. The close below the 40-day moving average is an indication the
longer-term trend is down. More selling pressure is likely given yesterday’s gap
lower price action on the day session chart.

PRECIOUS METALS RECAP

5/18/2004

After seeing gold and silver trade in opposite
directions early in the session Tuesday both markets weakened and close poorly.
The fact that the Dollar was not giving off a clear cut direction might have
prompted some recent longs to take profits and exit in gold while some recent
fund buying in silver might have stopped out due to technical chart violations.
In any regard it has to be disappointing to gold bulls that the market could be
so weak in a session where the US Fed talked about a slight rise in inflation
concerns. In short, gold is still lacking a bullish theme and doesn’t even seem
to be searching aggressively for a theme.

Technical Outlook

#P-METALS 5/19/2004: SILVER (JUL): The market
tilt is slightly negative with the close under the pivot. Initial support for
silver is at 560.8 and below there at 554.4 with resistance likely at 570.3 and
575.3. A positive signal for trend short-term was given on a close over the
9-bar moving average. Rising from over sold levels, daily momentum studies would
support higher prices especially on a close above resistance. The next upside
objective is 570.3. The daily closing price reversal up is a positive indicator
that could support higher prices.

GOLD (AUG): Support for gold today comes in near
374.03, while resistance is pegged at 381.03. A crossover down in the daily
stochastics is a bearish signal. The next downside target is now at 374.03.
Short-term indicators on the defensive. Consider selling an intraday bounce. The
market setup is somewhat negative with the close under the 1st swing support.
The close below the 9-day moving average is a negative short-term indicator for
trend.

COPPER MARKET RECAP

5/18/2004

The copper market managed a short covering bounce
Tuesday but could have stayed down aggressively when one considers the weak
housing starts numbers and the ongoing negative dialogue flowing from China.
Overnight the Chinese continue to threaten more tightening and suggested that
CPI prices above 5% would force them to hike interest rates. Around the lows
Tuesday both the funds and the small specs were buyers and without that interest
we would have expected prices to finish moderately lower. While the stock market
might have bounced Wednesday, the macro economic uncertainty remains high and
that in turn should keep the bull camp in copper off balance.

ENERGY MARKET RECAP

5/18/2004

The energy complex was mostly lower Tuesday but
the most the trade would suggest is that profit taking was behind the slide.
Because the market was presented with a series of favorable demand projections
ahead of and into the early trade we are a little surprised that profit taking
was allowed to dominate the action. We still have to wonder if there isn’t some
kind of move afoot in the US to deflate energy prices. While it is a toss up on
the summer gasoline waiver rumors are circulating that the Democrats want to
make refilling the SPR a big campaign issue. The amount of demand increases
floated by OPEC for 2004 are surprising and should have given prices a lift.
However, some traders think that a special meeting ahead of the next OPEC
meeting might yield some added supply and in a sense take the edge off the bull
case.

Technical Outlook

#ENERGIES 5/19/2004: CRUDE OIL (JUL): The
defensive setup, with the close under the 2nd swing support, could cause some
early weakness. Support for crude is keyed on 40.06 and below there at 39.79,
with resistance pegged at 40.79 and 41.25. The close above the 9-day moving
average is a positive short-term indicator for trend. A crossover down in the
daily stochastics is a bearish signal. Momentum studies trending lower from
overbought levels is a bearish indicator and would tend to reinforce lower price
action. The next downside target is now at 39.79.

UNLEADED GAS (JUL): A bearish signal was
triggered on a crossover down in the daily stochastics. Stochastics turning
bearish at overbought levels will tend to support lower prices if support levels
are broken. The next downside objective is 129.61. There could be some early
pressure today given the market’s negative setup with the close below the 2nd
swing support. Resistance today is at 134.71, while support should be found
around 129.61. The gap lower on the day session chart is bearish and puts the
market on the defensive. A positive signal for trend short-term was given on a
close over the 9-bar moving average.

HEATING OIL (JUL): The defensive setup, with the
close under the 2nd swing support, could cause some early weakness. Heating oil
should encounter support around 99.51, with resistance is at 103.41. The close
below the 9-day moving average is a negative short-term indicator for trend. A
crossover down in the daily stochastics is a bearish signal. Momentum studies
trending lower from overbought levels is a bearish indicator and would tend to
reinforce lower price action. The next downside target is now at 99.51. More
selling pressure is likely given yesterday’s gap lower price action on the day
session chart.

CORN MARKET RECAP

5/18/2004

The inside day failed to provide hopes for
follow-through to the upside after the Monday reversal as the long liquidation
selling trend of the large trader continued. The weather forecast continues to
show a warm and wet pattern which is ideal for early plant growth and
development into early June. The longer the weather remains favorable, the more
comfortable traders will become in adjusting yield estimates higher for the
coming year. The crop is 92% planted as compared with 77% as the 5-year average
and emergence has reached 63% from 44% on average for this time of the year. The
heat units are high with above normal temperatures and the moisture is also
running ahead of normal this month in many locations which means that the crop
could be pollinating 2-3 weeks earlier than normal and well before the heat of
the summer. Midwest processors improved their basis bids by 2-3 cents this
morning in order to attempt to entice producers to move more old crop corn onto
the market. December corn support comes in at 283 and 281 1/2 with 290 1/2 and
296 1/2 as short-term resistance.

Technical Outlook

#CORN (JUL) 5/19/2004: Momentum studies are still
bearish, but are now at oversold levels and will tend to support reversal action
if it occurs. The next downside target is now at 286 3/4. It is a slightly
negative indicator that the close was under the swing pivot. Market resistance
comes in at 297 3/4 today, with support at 286 3/4. The close below the 9-day
moving average is a negative short-term indicator for trend. Some caution in
pressing the downside is warranted with the RSI under 30.

SOY COMPLEX RECAP

5/18/2004

A near perfect weather forecast for this week,
more good weather for next week and continued macro economic concerns for the
China crushing industry helped to trigger another round of active long
liquidation selling from speculative fund traders. The liquidation trend until
could remain a significant factor until there is new news on the China front or
the weather front to slow the selling. Rumors that meal will be imported more
actively in the very short-run helped push meal lower and oil collapsed late in
the session as well with July oil moving to the lowest level since early
February. China exchange soybeans and meal moved sharply lower in overnight
trade which added to the more bearish demand psychology. If China demand stays
weak and more cancellations occur, the impact could be on cheaper prices in
South America for soybean meal and oil which could translate into increased
imports of the products to the US this summer. Representatives from about 20
crushing facilities in China have met and proposed to slash imports by 40-50% in
the second halve of the year to cut costs. Plantings reached 54% complete as
compared with 50-55% expected and 37% as the 14-year average for this time of
the year. At the lows of the day, July soybeans filled a gap left on February
23rd with 857 as next support and 882 1/2 and 899 as resistance.

Technical Outlook

#SOYBEANS (JUL) 05/19/04 The close below the 1st
swing support could weigh on the market. The next area of resistance is around
892 2/4 and 919 1/4, while 1st support hits today at 855 and below there at 844
1/4. A negative signal for trend short-term was given on a close under the 9-bar
moving average. Daily stochastics declining into oversold territory suggest the
selling may be drying up soon. The next downside objective is 844 1/4. The
market is approaching over sold levels on an RSI reading under 30.

MEAL (JUL): Momentum studies are still bearish,
but are now at oversold levels and will tend to support reversal action if it
occurs. The next downside target is now at 271.4. First resistance comes in at
289.3, with support at 275.8. The downside crossover of the 9 & 18 bar moving
average is a negative signal. The market setup is somewhat negative with the
close under the 1st swing support. Some caution in pressing the downside is
warranted with the RSI under 30.

BEAN OIL (JUL): A negative signal for trend
short-term was given on a close under the 9-bar moving average. Daily
stochastics declining into oversold territory suggest the selling may be drying
up soon. The next downside objective is 28.21. The swing indicator gave a
moderately negative reading with the close below the 1st support number. Daily
swing resistance is found at 29.39 and above there at 29.91. Support should be
encountered at 28.54 and 28.21. The market is approaching over sold levels on an
RSI reading under 30.

WHEAT MARKET RECAP

5/18/2004

The market managed to hold onto gains in spite of
a sharp drop in the other grains. Rumors of potential business with China helped
support the market on Monday and a lack of any confirmation of these rumors this
morning helped to trigger some selling overnight and into the session today. In
addition, the weekly crop progress report showed that crop conditions for the
winter wheat belt were unchanged on the week at 45% good to excellent. Kansas
crops are rated 35% good to excellent and 35% poor to very poor condition. The
hot and dry forecast for the southern plains is a double-edged sword as the
weather will help dry out fields in the eastern growing areas which have
received good rains recently but the western areas could encounter stressful
conditions if the hot and dry trend persists. Pakistan officials have decided to
import 1 million tons of wheat as a reserve buffer stock. Last years crop
production was near 19.25 million tons and the country consumes a bit over 20
million tons per year. The first tender for near 200,000 tons is expected soon.
In India, the shift in the government is likely to lead to no exports over the
near-term in spite of preparation to resume exports due to the larger crop just
harvested. Exporters had recently bought near 500,000 tons for export just
before the election but without government subsidy, deals do not pencil out.
Basis levels are steady with South Korea buying 20,000 tons of US wheat
overnight and tendering for 22,500 tons of US wheat. The oversold condition and
the technical reversal from yesterday has attracted follow-through technical
buying from yesterday and also some short-covering. Crop stress concerns seem to
be the primary supportive factor. July wheat support comes in at 368 and 366 3/4
with resistance at 375 and 379 1/4.

Technical Outlook

#WHEAT (JUL) 5/19/2004: The market has a slightly
positive tilt with the close over the swing pivot. Expect near-term support
around 366 and below there at 361, with resistance levels at 375 and 379. A
negative signal for trend short-term was given on a close under the 9-bar moving
average. Daily stochastics declining into oversold territory suggest the selling
may be drying up soon. The next downside objective is 361.

LIVE CATTLE RECAP

5/18/2004

June cattle closed moderately higher to
re-capture a portion of the recent losses with talk of an oversold condition and
the stiff discount to the cash market helping to support a short-covering
bounce. Talk that the Canadian border may not be open until after the November
elections helped provide some support. In addition, Japan and US officials began
two-days of talks to discuss conditions for Japan to lift their import ban on US
beef. Boxed-beef cut-out values were up 17 cents to $156.31 as compared with
$160.37 last week at this time. Slaughter came in at 130,000 head as compared
with trade expectations of 124,000-130,000 head. Positioning ahead of Friday’s
Cattle-on-Feed report added to the more positive tone.

Technical Outlook

#CATTLE (AUG) 5/19/2004: Momentum studies
trending lower at mid-range could accelerate a price break if support levels are
broken. The next downside objective is 82.52. The market setup is supportive for
early gains with the close over the 1st swing resistance. Support should be
encountered at 83.22 and below there at 82.52. Market resistance is at 84.27 and
then again at 84.62. A negative signal for trend short-term was given on a close
under the 9-bar moving average.

LEAN HOGS RECAP

5/18/2004

The hog market moved moderately higher on the
session to recapture some of Monday’s losses. Cash markets were mixed with some
locations firm which a weaker tone development from locations where packers have
already book a good portion of this weeks needs. Rains across the northern and
western sections of the mid-west helped to trigger increased producer selling in
the cash market as planting and fieldwork was delayed due to rain. The weekly
cold storage report is expected to show that frozen bellies increased by 500,000
all the way to a decrease of 500,000 pounds for the week. The average trade
estimate for the Monthly report on Thursday afternoon (April 30th stocks) came
in near 49 million pounds (range 46-51) as compared with 51.7 million pounds at
the end of March and 48.5 million last year. The 2-day lean index was up $1.14
to $82.27 as compared with $71.62 as of the end of April. Slaughter came in at
375,000 head as compared with trade expectations at 367,000-375,000 head. The
higher than expected slaughter could mean strong demand from packers for live
inventory.

Technical Outlook

#HOGS (JUL) 5/19/2004: Market positioning is
positive with the close over the 1st swing resistance. Resistance levels comes
in at 74.67 and 75.07 today, while support is around 73.22 and then 72.20. The
upside daily closing price reversal gives the market a bullish tilt. The close
below the 9-day moving average is a negative short-term indicator for trend.
Stochastics trending lower at midrange will tend to reinforce a move lower
especially if support levels are taken out. The next downside target is now at
72.20.

COCOA MARKET RECAP

5/18/2004

Cocoa prices were slightly higher on the session
Tuesday but still don’t seem to be garnering much support from potential
political problems in Nigeria. While Nigerian production isn’t nearly as
important as Ivory Coast production the cocoa market has recently been tracking
lower because there isn’t a direct threat against production and demand patterns
are at best muted. Apparently some specs were interested in speculating on a
bottom and around the lows Tuesday, we suspect that the fund short was
moderately oversold.

Technical Outlook

COCOA (JUL) 05/19/04 The sell-off took the market
to a new contract low. The daily closing price reversal up is positive. The
market has a slightly positive tilt with the close over the swing pivot. Cocoa
should run into resistance at 1332 and above there at 1340 with support at 1308
and 1292. Momentum studies are declining, but have fallen to oversold levels.
The next downside target is 1291.50.

COFFEE MARKET RECAP

5/18/2004

July coffee was able to close sharply higher as
fund liquidation dried up and roaster buying appeared when the market held near
support. Despite the rally, July coffee remains within the recent trading range
between 73 and 69 cents. Although the market is feeling the weight of the Brazil
harvest, traders are cautious about pressing the downside ahead of Brazil’s
winter freeze season beginning next month. No freezing temperatures are expected
in Brazil’s coffee growing region over the next 5 days. Coffee exports from
Brazil for May 1-14th were 577,340 bags, down 96,437 bags from the same time
period in April.

Technical Outlook

COFFEE (JUN) 5/19/04 The market setup is
supportive for early gains with the close over the 1st swing resistance. The
daily stochastics have crossed over up which is a bullish indication. The
near-term upside objective is at 74.00. The Coffee contract should run into
resistance at 73.30 and above there at 74.00 with support at 70.8 and 69.00. The
market’s short-term trend is positive on a close above the 9-day moving average.
Consider buying pull-backs since daily studies are bullish.

SUGAR MARKET RECAP

5/18/2004

July sugar closed 14 higher and just under
retracement resistance at 664 as speculative and trade house buyers were a bit
more active in hopes that the recent price break will attract increased
business. The market seemed to lack the new news to see much follow-through on
the bounce ahead of the record cane harvest in center-south Brazil. Funds were
light buyers but with funds already holding a hefty net long position, new
buying is likely to occur on strength, not weakness and the market will need to
show more active cash business at the current price level to rationalize a move
to a higher price level.

Technical Outlook

#SUGAR (JUL) 5/19/2004: Market positioning is
positive with the close over the 1st swing resistance. Swing resistance comes in
at 6.77, with support found at 6.45. The close above the 9-day moving average is
a positive short-term indicator for trend. Stochastics are rising from over sold
levels which is bullish and should support higher prices. The near-term upside
target is at 6.77.

COTTON MARKET RECAP

5/18/2004

December cotton pushed down sharply to the lowest
level since and the contract has lost ground in 6 of the past 7 trading
sessions. A decent start to the US crop and fears of increased world and China
production for the coming year helped pressure the market. On top of the China
demand concerns, the China Cotton Association expects China cotton production to
jump 23% this year to near 6 million tons due to better weather and higher
planted acreage. Certified Cotton stocks deliverable to the exchange (as of May
17th) was reported at 359,786 bales, down from 363,542 bales the previous
session with 3960 decertifications.

Technical Outlook

#COTTON (JUL) 5/19/2004: A negative signal for
trend short-term was given on a close under the 9-bar moving average. There
could be some early pressure today given the market’s negative setup with the
close below the 2nd swing support. Next resistance area comes in at 63.97 and
then again at 65.36, while support is targeted at 61.92 and 61.26. The market
back below the 40-day moving average suggests the longer-term trend could be
turning down. A bearish signal was triggered on a crossover down in the daily
stochastics. Stochastics turning bearish at overbought levels will tend to
support lower prices if support levels are broken. The next downside objective
is 61.26. The outside day down is somewhat negative. The market could take on a
defensive posture with the daily closing price reversal down.