'Sell in May and Go Away' -- Don't Discount Old Adages…
BY AL MARTIN
(May 17, 2009) In last week's trade, we began to see the equities roll over from a substantially overbought condition as the Obama Regime's "Trio of Touts," a/k/a Ben Bernanke, Timothy Geithner and Larry Summers, all attempted to let some air out of the Second Speculative Bubbles that the Regime created in equity and commodity prices. We think it likely that the so-called Third Bear Market Rally will now be reversed. We have established a close under 900 in the SPMs. The next area down to look for would be a close under 870, with significant sell-stops at 868.75 and lower. We look for lower equity prices in the coming week's trade.
Also we saw the bonds pick up well late week, despite a little retracement in Friday's trade. Next week is also a buy week in Treasury offerings with corporate muni calendars remaining light. We would expect the Treasuries to have another good week. We are still trading the USM contract from the long side.
Also we have been continuing to trade the June Dollar contract from the long side. We saw the contract back above 8300 in Friday’s close, a sign, we feel, that equity prices are going to back off. With the Euro and the Pound also backing off, the Yen remains the bugaboo, but we would expect that it will give up its recent strength.
With Oil backing off from the $60 area in the June contract, we had shorted the contract from $58 and up, in 50 cent increments, covering at $56.50 in Friday's trade. We would expect the Oil to fall back.
The June Gold contract did break above resistance at $930. However there are sellers above in the $933-938 area. Don’t get excited about the Gold, unless we can establish a close above $940. With deflation building globally, the Gold remains fundamentally overbought.
The July Sugar contract backed up at 15 cents. The Touts had to give up the Brazilian Sugar story as Brazil said it would not increase Sugar Ethanol production. Also with revisions in USDA forecasts, look to see US Sugar at plus 2 million tons in the coming season.over previous estimates
The July Orange Juice contract continued to stall in the 94 cent area. Juice has simply been shilled along with the rest of the commodities with cash Juice still trading around 76 cents. We think the July contract remains overbought.
The July Lumber contract is also coming under some pressure. We were waiting for a rally back to the low 190s. We only got rallies up into the upper 180s. However we still like shorting the Lumber around the 190 area.
Late week back-offs in Grains remain bearish for the Soybeans and not as bullish for Corn, as had been previously thought. We believe the Corn is coming back down under $4. We think the Wheat is 75 cents overbought. and the Beans continue to be $2 overbought relative to supply/demand balances.
The Pork complex is continuing to be under pressure late week with the July Pork Belly contract establishing a new weekly low. Pork complex prices still look lower, and we still expect the July Belly contract to test the 68 cent area.
The July Copper contract, of which we were consistent short sellers through out the week on rallies to the 204 area, closed just above $2 in Friday's trade. However the Copper now looks lower, and we are expecting a retest of the 1.91 area as soon as the 1.9750 support area gives way.
The July Coffee and Cocoa contracts continue to be subject to shill. The Coffee contract remains about 20 cents overbought. We doubt that Colombia can continue to withhold supplies, and we like shorting the contract at current levels. The July Cocoa contract, which is active closer to supply/ demand fundamentals, came down to test the 2260 support area in Fridays trade and we would look for a retest of that area.
The July Cotton contract finally broke late week. We had been sellers on Friday on the way down, taking 2 cents out of the trade. Cotton still remains 20 cents overbought relative to supply/demand fundamentals.