Energy Is Overbought–Here’s Why

BOND MARKET RECAP

2/15/2005

March Bonds finished down 0-12 at 115-27, 0-09
off the high and 0-06 up from the low.

March 10 Yr Treasury Notes finished down 0-050 at
112-180, 0-055 off the high and 0-020 up from the low.

The Treasury market came under more
significant liquidation than has been seen recently and even more surprisingly
managed the gains in the wake of economic readings that should have been
supportive of prices. In other words, the market appeared to be in a liquidating
posture or simply balancing positions ahead of the Greenspan testimony. Some
suggested that rising equity prices undermined the bonds but we just don’t buy
into that sentiment. We suspect that the market is concerned about initial Fed
comments which could suggest the US economy continues to recover despite the
contrary evidence provided in the recent flow of scheduled economic reports.

Technical Outlook

BONDS (MAR) 02/16/2005: Stochastics trending
lower at midrange will tend to reinforce a move lower especially if support
levels are taken out. The cross over and close above the 18-day moving average
indicates the longer-term trend has turned up. The close below the 1st swing
support could weigh on the market. The next downside objective is 115-09. The
next area of resistance is around 116-02 and 116-14, while 1st support hits
today at 115-16 and below there at 115-09.

TNOTES (MAR) 02/16/2005: Stochastics trending
lower at midrange will tend to reinforce a move lower especially if support
levels are taken out. The major trend could be turning up with the close back
above the 18-day moving average. The close below the 1st swing support could
weigh on the market. The next downside target is now at 112-110. The next area
of resistance is around 112-215 and 112-265, while 1st support hits today at
112-140 and below there at 112-110.

 

STOCK INDICES RECAP

2/15/2005

March S&P finished up 4.4 at 1210.7, 2.6 off the
high and 4.7 up from the low.

March S&P E-Mini closed up 4.5 at 1210.75. This
was 5.25 up from the low and 2.75 off the high.

March Dow closed up 45 at 10838. This was 53 up
from the low and 17 off the high.

For most of the session the stock market mounted
an impressive upward tilt. In fact, the market almost totally discounted the
disappointing economic readings released early in the session. Apparently an
unsolicited buyout offer for Circuit City prompted the market to mount a strong
upward thrust around mid session. We are surprised that the weakness in the US
Dollar and the initial rise in energy prices didn’t put the market on a downward
tilt especially since the market will be confronted with Federal Reserve
Chairman dialogue on Wednesday and Thursday. However, we are also surprised that
the market failed to buckle under news that the US was still considering further
measures against Syria.

Technical Outlook

S&P 500 (MAR) 02/16/2005: Studies are showing
positive momentum but are now in overbought territory, so some caution is
warranted. The cross over and close above the 18-day moving average indicates
the longer-term trend has turned up. There could be more upside follow through
since the market closed above the 2nd swing resistance. The near-term upside
target is at 1217.47. The next area of resistance is around 1214.35 and 1217.47,
while 1st support hits today at 1207.05 and below there at 1202.88.

SP EMINI (MAR) 02/16/2005: Daily stochastics have
risen into overbought territory which will tend to support reversal action if it
occurs. The cross over and close above the 18-day moving average indicates the
longer-term trend has turned up. With the close over the 1st swing resistance
number, the market is in a moderately positive position. The next upside target
is 1218.00. The next area of resistance is around 1214.50 and 1218.00, while 1st
support hits today at 1206.50 and below there at 1202.00.

NASDAQ (MAR) 02/16/2005: Momentum studies are
rising from mid-range, which could accelerate a move higher if resistance levels
are penetrated. The major trend could be turning up with the close back above
the 18-day moving average. The market setup is supportive for early gains with
the close over the 1st swing resistance. The next upside objective is 1577.37.
The next area of resistance is around 1562.25 and 1577.37, while 1st support
hits today at 1534.75 and below there at 1522.38.

 

CURRENCY MARKET RECAP

2/15/2005

March US Dollar finished down 40 at 8360, 45 off
the high and 14 up from the low.

March Euro finished up 0.56 at 130.22, 0.35 off
the high and 0.56 up from the low.

March Euro Dollar closed unchanged at 97.0175.
This was 0.0025 up from the low and equal to the high.

March Canadian Dollar closed up 0.21 at 81.21.
This was 0.34 up from the low and 0.19 off the high.

March British Pound finished up 0.68 at 189.24,
0.11 off the high and 1.2 up from the low.

March Swiss closed up 0.61 at 84.15. This was
0.46 up from the low and 0.16 off the high.

March Japanese Yen closed up 0.66 at 95.92. This
was 0.56 up from the low and 0.18 off the high.

The Dollar started out weak, managed a recovery
and that showed some late weakness. However, it was clear that some Dollar bears
were afraid to remain short around the lows Tuesday, probably because of the
uncertainty surrounding the upcoming Fed testimony. We have to think that yet
another day of weak US economic readings from the US will leave the Dollar
undermined into the key testimony. In the past the Chairman of the Federal
Reserve has managed to provide support to the Dollar and has typically talked up
the US recovery!

Technical Outlook

YEN (MAR) 02/16/2005: Positive momentum studies
in the neutral zone will tend to reinforce higher price action. The major trend
has turned down with the cross over back below the 18-day moving average. The
market’s close above the 2nd swing resistance number is a bullish indication.
The near-term upside target is at 96.56. The next area of resistance is around
96.29 and 96.56, while 1st support hits today at 95.55 and below there at 95.09.

EURO (MAR) 02/16/2005: Positive momentum studies
in the neutral zone will tend to reinforce higher price action. The cross over
and close above the 18-day moving average indicates the longer-term trend has
turned up. The market’s close above the 2nd swing resistance number is a bullish
indication. The near-term upside target is at 131.07. The next area of
resistance is around 130.67 and 131.07, while 1st support hits today at 129.77
and below there at 129.26.

 

PRECIOUS METALS RECAP

2/15/2005

April Gold closed unchanged at 427.3. This was
2.3 up from the low and 1.4 off the high.

March Silver finished up 0.02 at 7.36, 0.045 off
the high and 0.15 up from the low.

 

Gold and silver traded on both sides of unchanged
Tuesday but eventually finished down on the session. Seeing gold and silver weak
isn’t that surprising but considering the moderate decline in the Dollar, the
bulls in the precious metals have to be disappointed. We suspect that many
traders are holding out for a potential volatility event in the action Wednesday
or Thursday following the Greenspan dialogue, but we also think that the metals
remain short term overbought and slightly vulnerable.

Technical Outlook

SILVER (MAR) 02/16/2005: Daily stochastics have
risen into overbought territory which will tend to support reversal action if it
occurs. The cross over and close above the 18-day moving average indicates the
longer-term trend has turned up. A positive signal was given by the outside day
up. With the close higher than the pivot swing number, the market is in a
slightly bullish posture. The near-term upside target is at 752.9. The 9-day RSI
over 70 indicates the market is approaching overbought levels. The next area of
resistance is around 745.8 and 752.9, while 1st support hits today at 726.3 and
below there at 713.9.

GOLD (APR) 02/16/2005: Stochastics are at
mid-range but trending higher, which should reinforce a move higher if
resistance levels are taken out. The cross over and close above the 18-day
moving average is an indication the longer-term trend has turned positive. It is
a mildly bullish indicator that the market closed over the pivot swing number.
The near-term upside objective is at 430.7. The next area of resistance is
around 429.1 and 430.7, while 1st support hits today at 425.5 and below there at
423.4.

 

COPPER MARKET RECAP

2/15/2005

March Copper closed up 1.90 at 145.85. This was
1.00 up from the low and 0.10 off the high.

The copper market showed no weakness like the
precious metals markets and might have benefited from a sharp decline in the US
Dollar. However, it would seem like copper is a prime benefactor of fund buying
and as long as the stock market shows strength, the softness in the regularly
scheduled economic reports apparently isn’t going to derail the copper rally. It
is also clear that copper prices were being lifted by labor concerns in Chile as
workers there were supposedly slowing output in an effort to influence
bargaining. Considering that recent buying spree was has become quite
significant and has been mostly carried out in the face of slack economic
reports and rising LME stocks we are growing more skeptical of the price
structure in copper.

 

ENERGY MARKET RECAP

2/15/2005

March Crude Oil closed down 0.18 at 47.26. This
was 0.16 up from the low and 0.54 off the high.

March Heating Oil closed down 0.31 at 129.13.
This was 0.38 up from the low and 1.87 off the high.

March Unleaded Gas finished down 2.16 at 125.64,
3.36 off the high and 0.54 up from the low.

March Natural Gas finished up 0.08 at 6.18, 0.02
off the high and 0.11 up from the low.

March Propane closed up 0.00 at 0.75. This was
equal to the low and 0.01 off the high.

The energy complex traded on both sides of
unchanged but crude and unleaded showed significantly more selling than heating
oil. While the market would seem to be mixed on the impact of the coming weekly
inventory report we suspect that more declines will be seen in product stocks
and that crude stocks will show a minor increase. Undermining prices were
suggestions from OPEC members that the cartel might need to leave quotas
unchanged at the March meeting and that is disappointing for those that were
generally expecting to see a production cut in the next meeting. With the Press
noting that energy prices were up for six days in a row, it is clear that the
market has reached a short term overbought condition.

Technical Outlook

CRUDE OIL (MAR) 02/16/2005: Stochastics are at
mid-range but trending higher, which should reinforce a move higher if
resistance levels are taken out. The major trend has turned down with the cross
over back below the 18-day moving average. The daily closing price reversal down
is a negative indicator for prices. The market’s close below the pivot swing
number is a mildly negative setup. The next upside target is 48.05. The next
area of resistance is around 47.61 and 48.05, while 1st support hits today at
46.91 and below there at 46.66.

UNLEADED (MAR) 02/16/2005: Positive momentum
studies in the neutral zone will tend to reinforce higher price action. The
close below the 18-day moving average is an indication the longer-term trend has
turned down. The market’s close below the 1st swing support number suggests a
moderately negative setup for today. The near-term upside objective is at
130.24. The next area of resistance is around 127.59 and 130.24, while 1st
support hits today at 123.69 and below there at 122.45.

HEATING OIL (MAR) 02/16/2005: Stochastics are at
mid-range but trending higher, which should reinforce a move higher if
resistance levels are taken out. The close under the 18-day moving average
indicates the longer-term trend could be turning down. The market tilt is
slightly negative with the close under the pivot. The next upside target is
131.75. The next area of resistance is around 130.25 and 131.75, while 1st
support hits today at 128.01 and below there at 127.26.

 

CORN MARKET RECAP

2/15/2005

May Corn finished down 1 at 207 1/2, 3/4
off the high and 1 up from the low. December Corn closed down 1/2 at 231. This
was 3/4 up from the low and 1/2 off the high.

Ideas that futures are overbought and that the
market has already experienced a significant amount of short-covering in the
past week helped trigger the early sell-off today. March corn recovered to close
at psychological pivot at 200 and above the opening which is slightly positive.
Slow export demand news and fears that a continued rally could slow demand
helped to trigger the selling. Indonesia officials indicated overnight that they
hope to need to import less than 1 million tons this coming year as compared
with 1.3 million tons last year due to improved production outlook for the
coming season. Fears of increased planted acreage in the US this year added to
the negative tone. In addition, basis was mixed with some locations weaker based
on talk of increased producer selling. However, gulf basis was higher which
helped support the nearby futures. Support for March corn comes in at 198 3/4
and 197 with resistance at 201 1/2 and 203 3/4.

Technical Outlook

CORN (MAY) 02/16/2005: The market back below the
40-day moving average suggests the longer-term trend could be turning down. The
upside crossover of the 9 & 18 bar moving average is a positive signal.
Stochastics are at mid-range but trending higher, which should reinforce a move
higher if resistance levels are taken out. The cross over and close above the
18-day moving average indicates the longer-term trend has turned up. The market
tilt is slightly negative with the close under the pivot. The next upside target
is 209. The next area of resistance is around 208 1/4 and 209, while 1st support
hits today at 206 3/4 and below there at 205 3/4.

 

SOY COMPLEX RECAP

2/15/2005

May Soybeans finished down 3/4 at 535 1/2, 3 off
the high and 2 3/4 up from the low. November Soybeans closed up 1/4 at 547 3/4.
This was 2 3/4 up from the low and 2 off the high.

May Soymeal closed up 1.9 at 163.1. This was 2.3
up from the low and 0.9 off the high.

March Soybean Oil finished down 0.35 at 19.62,
0.27 off the high and 0.07 up from the low.

Talk of stressful weather for the southern Brazil
region as the crop can experience yield loss during the pod filling stage helped
trigger the call for a higher opening but news of weak crush demand and ideas
that futures are overbought helped trigger some light selling into the opening.
Weakness in palm oil futures overnight and fears that soybean demand is
switching to South American origin from the US soon helped to trigger some
selling as well. The NOPA monthly crush report was considered slightly
disappointing to demand this morning with the January crush pegged at 141.4
million bushels as compared with 140-145 million expected. The December crush
was 143.4 million bushels. In addition, the oil market came under selling
pressure from news of higher stocks (1.2 billion pounds at end of January from
966.4 million pounds at end of December) and higher yields during January (11.35
pounds per bushel from 11.28 last month). Talk that the surge higher in futures
on Monday attracted increased producer selling helped pressure the market this
morning and evidence of increased producer selling showed up in the form of
lower basis bids at processing plants in the western cornbelt. Resistance for
March soybeans comes in at 539 1/2 and 542 with support at 528 1/2 and 522 1/4.

Technical Outlook

BEANS (MAY) 02/16/2005: A positive indicator was
given with the upside crossover of the 9 & 18 bar moving average. Momentum
studies are trending higher but have entered overbought levels. The cross over
and close above the 18-day moving average is an indication the longer-term trend
has turned positive. It is a mildly bullish indicator that the market closed
over the pivot swing number. The next upside objective is 541 1/4. With a
reading over 70, the 9-day RSI is approaching overbought levels. The next area
of resistance is around 538 1/4 and 541 1/4, while 1st support hits today at 532
3/4 and below there at 530.

MEAL (MAY) 02/16/2005: Momentum studies are
trending higher but have entered overbought levels. The cross over and close
above the 18-day moving average is an indication the longer-term trend has
turned positive. The market setup is supportive for early gains with the close
over the 1st swing resistance. The next upside objective is 165.1. With a
reading over 70, the 9-day RSI is approaching overbought levels. The next area
of resistance is around 164.2 and 165.1, while 1st support hits today at 161.4
and below there at 159.4.

BEANOIL (MAY) 02/16/2005: The close below the
40-day moving average is an indication the longer-term trend has turned down.
Momentum studies are rising from mid-range, which could accelerate a move higher
if resistance levels are penetrated. The cross over and close above the 18-day
moving average is an indication the longer-term trend has turned positive. The
market setup is somewhat negative with the close under the 1st swing support.
The near-term upside target is at 20.21. The next area of resistance is around
19.93 and 20.21, while 1st support hits today at 19.53 and below there at 19.40.

 

WHEAT MARKET RECAP

2/15/2005

May Wheat finished down 2 1/2 at 306 3/4, 2 1/4 off the high
and 1 up from the low. July Wheat closed down 3 at 313 1/2. This was 3/4 up from
the low and 2 1/4 off the high.

News before the opening from the USDA that
100,000 tons of US wheat was sold to Iraq failed to provide much support as the
business was not a big surprise. A sharp drop of nearly 6 cents in Minneapolis
wheat helped pull Chicago wheat lower on the session. The market never recovered
and closed lower on the day. Ideas that futures are overbought after a 13 cent
jump off of Thursday’s lows helped trigger some selling. The positive technical
action of the past week has provided underlying support with speculators
liquidating part of their record net short position. A lack of weather problems
in any of the world’s key producing nations along with more moisture headed to
the central plains of the US for the weekend keeps the weather as a bearish
factor for the short-term. In addition, the EU wheat crop is also experiencing
good winter weather conditions. March wheat support comes in at 296 3/4 and 294
3/4 with resistance at 302 and 307 1/4.

Technical Outlook

WHEAT (MAY) 02/16/2005: The close below the
60-day moving average is an indication the longer-term trend has turned down.
The upside crossover (9 above 18) of the moving averages suggests a developing
short-term uptrend. Rising stochastics at overbought levels warrant some caution
for bulls. The cross over and close above the 18-day moving average is an
indication the longer-term trend has turned positive. The market tilt is
slightly negative with the close under the pivot. The near-term upside target is
at 310 1/4. The next area of resistance is around 308 1/4 and 310 1/4, while 1st
support hits today at 305 1/4 and below there at 304.

 

LIVE CATTLE RECAP

2/15/2005

April Live Cattle finished up 0.07 at 87.02, 0.12
off the high and 0.32 up from the low.

March Feeder Cattle closed up 0.12 at 100.25.
This was 0.40 up from the low and 0.05 off the high.

April cattle closed slightly higher on the day as
traders await cash trade this week and the discount to last weeks cash along
with some threatening weather into the weekend helped to support. Boxed beef
cutout values were down $.02 into the mid-session to $145.40 as compared with
$147.28 last week at this time. Slaughter came in at 117,000 head as compared
with 116,000-119,000 head expected. Packer bid developed at $87 in the panhandle
as compared with last weeks trade at $90 and $92 offers from feedlots.

Technical Outlook

CATTLE (APR) 02/16/2005: The downside crossover
of the 9 & 18 bar moving average is a negative signal. Daily stochastics
declining into oversold territory suggest the selling may be drying up soon. The
major trend has turned down with the cross over back below the 18-day moving
average. The close over the pivot swing is a somewhat positive setup. The next
downside target is 86.550. The next area of resistance is around 87.250 and
87.420, while 1st support hits today at 86.820 and below there at 86.550.

 

LEAN HOGS RECAP

2/15/2005

April Lean Hogs finished up 0.42 at 73.00, 0.07
off the high and 1.15 up from the low.

March Pork Bellies closed down 1.60 at 86.12.
This was 0.82 up from the low and 0.97 off the high.

Hog futures closed higher on the session finding
support from talk of higher cash prices for later this week and into next week
and ideas that the futures are oversold after recent sharp losses. Improving
packer demand due to improved profit margins along with ideas that producer
marketings might slow helped to support. Slaughter came in at 401,000 head as
compared with 396,000-402,000 head expected. Higher than expected slaughter
indicates strong demand from the packer and could help stabilize cash markets
this week. The 2-day lean index for the period ending Feb 11th came in at 68.39,
down.83 on the session and down from 71.89 last week.

Technical Outlook

HOGS (APR) 02/16/2005: The crossover up in the
daily stochastics is a bullish signal. Rising from oversold levels, daily
momentum studies would support higher prices, especially on a close above
resistance. The market back below the 18-day moving average suggests the
longer-term trend could be turning down. The upside daily closing price reversal
gives the market a bullish tilt. The market setup is supportive for early gains
with the close over the 1st swing resistance. The near-term upside target is at
73.950. The next area of resistance is around 73.600 and 73.950, while 1st
support hits today at 72.400 and below there at 71.520.

 

COCOA MARKET RECAP

2/15/2005

May Cocoa finished up 31 at 1592, 6 off the high
and 30 up from the low.

May cocoa traded higher Tuesday supported by a
weaker Dollar and more talk that arrivals at the Ivory Coast are beginning to
drop sharply as the end of the main crop season nears in March. The Coffee and
Cocoa Bourse estimated Ivory Coast arrivals to be down more than 125,300 tonnes
for the season beginning October through January 31st compared to the same
period during the 2003/04 season due to less cocoa supply rather than farmers
holding out for higher prices. As a result, Ivory Coast farmgate prices have
been firming this week.

Technical Outlook

COCOA (MAY) 02/16/2005: The cross over and close
above the 60-day moving average is an indication the longer-term trend has
turned positive. Momentum studies trending lower at mid-range should accelerate
a move lower if support levels are taken out. The cross over and close above the
18-day moving average indicates the longer-term trend has turned up. Market
positioning is positive with the close over the 1st swing resistance. The next
downside objective is now at 1550. The next area of resistance is around 1610
and 1622, while 1st support hits today at 1574 and below there at 1550.

 

COFFEE MARKET RECAP

2/15/2005

May Coffee closed up 5.20 at 120.60. This was
5.80 up from the low and 0.30 off the high.

The coffee market held support on a shallow
correction of just two days off of the highs before experiencing another round
of active fund buying. Speculative buying emerged to drive May coffee to new
contract highs, up 520 points on the day and to the highest level for nearby
futures in 5 years. A firm tone for the cash market in Vietnam and “less”
producer selling out of Brazil than traders had feared since producer loans were
no rolled-over for another year helped to support. Commercial shorts seem caught
short bought the market with trade houses thinking they could buy back shorts on
a more significant break. Commercial short-covering added to the bullish tone
late in the session.

Technical Outlook

COFFEE (MAY) 02/16/2005: A new contract high was
made on the rally. The daily stochastics have crossed over up which is a bullish
indication. Studies are showing positive momentum but are now in overbought
territory, so some caution is warranted. The major trend could be turning up
with the close back above the 18-day moving average. There could be more upside
follow through since the market closed above the 2nd swing resistance. The next
upside objective is 125.30. The market is approaching overbought levels with an
RSI over 70. The next area of resistance is around 123.60 and 125.30, while 1st
support hits today at 117.55 and below there at 113.15.

 

SUGAR MARKET RECAP

2/15/2005

May Sugar closed up 0.07 at 9.46. This was 0.12
up from the low and 0.01 off the high.

May sugar held support above Monday’s lows and
closed 7 higher on the session. Spillover support from the surge higher in the
other soft commodity markets and a lack of aggressive long liquidation selling
out of the March contract helped support. News that Pakistan dropped a
withholding tax of 6% on imports helped to provide support as the news signaled
that the government is still trying to encourage increased imports in order to
cool down the sharp rise in cash sugar prices in Pakistan. As of February 14th,
March open interest was down 18,868 contracts to 70,386 contracts with March
futures expiring on February 28th.

Technical Outlook

SUGAR (MAY) 02/16/2005: The daily stochastics
have crossed over up which is a bullish indication. Momentum studies are
trending higher but have entered overbought levels. The major trend could be
turning up with the close back above the 18-day moving average. The market setup
is supportive for early gains with the close over the 1st swing resistance. The
near-term upside objective is at 9.56. The next area of resistance is around
9.52 and 9.56, while 1st support hits today at 9.40 and below there at 9.31.

 

COTTON MARKET RECAP

2/15/2005

May Cotton finished up 0.44 at 46.91, 0.69 off
the high and 0.31 up from the low.

Cotton futures pushed moderately higher on the
session to close higher for the 5th day in a row. Strength in other industrial
and raw commodity markets and a potential shift in fund interest from the
short-side to the long side helped support the solid gains. Demand factors seem
to be in high gear and until prices move high enough to encourage increased
producer selling or discourage new demand, the market looks to remain strong.
Ideas that planted acreage may not increase in the US and might decline for the
coming year due to low pricing and hopes that China planted acreage drops helped
provide underlying support.

Technical Outlook

COTTON (MAY) 02/16/2005: Positive momentum
studies in the neutral zone will tend to reinforce higher price action. The
market now above the 18-day moving average suggests the longer-term trend has
turned up. A positive setup occurred with the close over the 1st swing
resistance. The near-term upside objective is at 48.00. The next area of
resistance is around 47.41 and 48.00, while 1st support hits today at 46.41 and
below there at 46.01.