Riding Momentum
Contracts on the TradingMarkets Momentum-5 List rallied, resulting in good gains in the grains. Grain markets are continuing to see upside following last week’s surprisingly strong planting and crop carry-over report from the USDA.
August beans
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PowerRating) added another 9 1/2 to 490. Corn
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PowerRating) also spurted 4 1/2 to 211 1/2 ahead of today’s pollination report.
Stock index futures rallied mildly but failed to close above the mid-point of Friday’s downside expansion bar, generally a sign of additional weakness. Head-and-shoulders topping patterns loom and all three indices appeared today on the Implosion-5 List.
Bonds
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PowerRating) triggered above the high of the low bar of an eight-bar pullback-from-highs setup as traders trained their focus on weakness in the economy. Basis September closed 16/32 higher at 100 28/32.
The strong dollar was also taking center stage as economists tried to determine if and when the US economy will rebound. The dollar hit fresh highs last week, but the Group of Seven industrialized nations meeting in Rome over the weekend made no joint statement about recent strength in the dollar, a factor that could slow foreign nations exports and economic recovery. Without coordinated resolve to mitigate the strength of the dollar, the buck looks set to continue higher.
There is also the possibility that the dollar will strengthen in a flight-to-safety scramble from second- and third-tier currencies. The Turkish, Brazilian and South African currencies — the lira, real and rand, respectively — each hit all-time lows last week. Currencies from Eastern Europe, the Polish zloty and Hungarian forint, have also been hard hit as smaller economies reel from a global slowdown. These fundamental developments provide the backdrop for additional upside in the dollar.
Still following through on Friday’s Turtle Soup Plus One Buy signal, euro FX futures
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PowerRating), the most heavily weighted currency in the dollar index basket, rallied early this morning but were capped by the June 28 gap (down) which could continue to exert pressure on this market. The euro hit a year-to-date and contract low on Thursday.
The Japanese yen
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PowerRating), from the Implosion-5 List, is in a technical situation that could also benefit the dollar: a head-and-shoulders top that suggests a test to new contract lows in a potential move twice the distance from the .8530 head to the .8200 neckline. The measured move analysis implies a test to .7880. Recent downswings also suggest the potential for a symmetrical third downswing of .0250 points from the .8140 swing high, which correlates with the measured move.
Sep silver
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PowerRating) is also in a nasty H&S top that implies a test down to 400.
Energies slipped slightly after rebounding from three — or more — month lows.
Unleaded gasoline
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PowerRating) rallied initially to test the prior breakdown-from-a Pullback-Off-Lows point: the June 26 low in the .7720 area.
Cocoa
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PowerRating) triggered out of an eight-day Pullback From Lows setup following Friday’s spike tail that corresponded with a test of the 980 congestion range. Cocoa is poised for a larger-than-normal move as it is a Multiple Day Low Volatility setup.
A new addition to the Implosion-5 List, September coffee
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PowerRating), lapped higher but still tumbled in its biggest decline in 10 days to hit a new 10-day and contract low. The intraday plunge came as coffee triggered an Off The Blocks sell setup — lap-up openings in Implosion markets trigger when a market trades below the low of the prior session’s last hour — which coincided with the intraday, morning low. Coffee finished down .85 at 54.95.
October sugar
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PowerRating) came back after matching a one-month low Friday. Notice how this contract rebounded in the spirit of a Turtle Soup Plus One Buy pattern, occurring just one day after the setup’s signal to close up .30 at 8.68.
Cotton did one of the strongest things a market can do coming off lows: it gapped open and closed on its highs. Basis December rallied 1.04 to close at 42.18.