What’s Better About Your Summer Vacation

May 14, 2001
Marc Dupee

The price of wholesale gasoline took its biggest
tumble of the year as refineries that had been closed came back on-line and
eased fears that demand will outstrip supply as the heavy summer driving season
approaches. Refineries in Venezuela and Illinois resumed full operations,
scaling back concern that the clearer-burning reformulated grade of gasoline
required by environmental law during the summer will become scarce.Â

Unleaded gasoline
(
HUM1 |
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PowerRating)
sank more than 6% intraday when the contract bottomed at .9750. HUM1 settled
down .0403 at 1.0098. The past two days’ downside action and the May 7 engulfing
bar (outside bar down) together point to a top in this contract and imply lower
prices at the pump in the coming summer months.Â

In response to “customer requests,” The Chicago
Mercantile Exchange (CME) eliminated the initial 2.5% limit effective starting
today, May 14. The 5% and subsequent limits remain in effect. Hence, the first
limit level (where trading is halted between 10 and 12 minutes) for the remainder of the second quarter (the 5% level) for the
S&Ps is 55.00 and for the Nasdaq 100 futures, 85.00.Â

Traders are aware that the Fed’s FOMC meeting is tomorrow
and that rates are expected to be cut by 50 basis points. One of the best resources on Wall Street for determining
the likely Fed monetary policy action is Tony Crescenzi. In his column today on
TradingMarkets, Tony points out that since the Fed must “Heed The Tale Of
Two Markets,” it must strike a delicate balance. Tony says that tomorrow,
“The Fed must shift gears somehow, and will either have to shift
gears dramatically and choose either the 25-basis-point scenario, or fulfill
market expectations and cut rates by 50 basis points while delivering a policy
statement that gives guidance toward smaller, incremental moves and more
reactive policy for the near-term.“Â Â

Debt futures bounced back from Friday’s action when
they got slammed in their second-worst decline of the year. Data on factory
output, which fell slightly more than expected, and feeble capacity utilization
(at a 10-year low) highlighted continuing weakness in the manufacturing sector.
Although

T-bonds
(
USM1 |
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PowerRating) and

10-year notes
(
TYM1 |
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PowerRating)Â fell too far from their prior 20-day low on
Friday to
trigger today’s TS+1 Buy
setup, the Turtle Soup signals did provide an indication of today’s possible reversal.
T-bonds closed 14/32 higher at 99 20/32 and 10-years added 13/32 to 103
12/32.Â

The perception that the US economy will continue to
outperform the Euroland economy bolstered June dollar index futures
(
DXM1 |
Quote |
Chart |
News |
PowerRating).
Rallying for the sixth consecutive session, this contract has broken the
right shoulder of a head-and-shoulders pattern. A closer look shows that the
dollar index has broken head-and-shoulder-top formations at least twice before
in fractal, or repeating, patterns on the daily chart that have subsequently rallied. The DXM1 is on
the Momentum-5
List and closed .24 higher at 117.22.

Going the other way and demonstrating latent downside
momentum by posting on the New 10-Day Low List,

euro FX futures
(
ECM1 |
Quote |
Chart |
News |
PowerRating) are set up to move to their lowest levels of
the year (same for the correlated
Swiss francs
(
SFM1 |
Quote |
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News |
PowerRating)). The Swiss franc is indicating that this related
pair could make a larger-than-normal move by posting on the Multiple Days Low
Volatility List.Â

JulyÂ wheat
(
WN1 |
Quote |
Chart |
News |
PowerRating)Â bounced
higher for a third straight session off its delayed Turtle Soup Plus Two
(one day after the TS+1 reversal issued for May 9) signal. Poor planting
conditions, fewer acres planted, and hot weather are all contributing to higher
prices and the view that wheat could move substantially off its recent contract
lows as forecasters continue to scale back crop output expectations. Wheat
closed up 7 3/4 to 278 1/2.Â

What’s Better About Your Summer Vacation

BUY THE FEAR, SELL THE GREED

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