SIEGEL TECHNICAL MARKET UPDATE
(May 18, 2000) NOVEMBER SOYBEANS: Concern that southern and western sections of the Midwest will receive below average rainfall continues to provide support to the oilseed market. Indeed, lighter-than-expected showers on Wednesday left traders worried that subsoil moisture will remain low, leaving the new crop vulnerable to summer drought. The sharp rally on Thursday morning quickly recovered half of the losses incurred the past two weeks, giving a further hint of the volatility yet to come. Export potential remains promising, with China purchasing some U.S. beans regardless of the strong U.S. Dollar. Ideas that farmers will hold back on selling beans in lieu of higher prices this summer is another factor that could help propel the market over the next few months. Continue to buy the breaks.
Recommendation--Look to buy near $5.60/bu. Sell Stop--$5.40/bu., close only. Objective--Initially, $6.00/bu.
JULY UNLEADED GASOLINE: The weekly chart reveals the proximity of gasoline prices to the critical $1.00/gal. level and the 10-year high posted in March. Continued worries about falling crude and product stock levels, amid increasing global demand, are keeping the bulls understandably aggressive. Dialogue out of OPEC remains bleak and suggests that the Mideast cartel will not be increasing crude oil production any time soon. Besides gasoline, falling distillate stocks have also spawned a strong advance in heating oil, which only compliments the enduring strength in the energy complex. As long as the bullish fundamentals remain in tact, the odds will favor seeing higher prices. However, considering current price levels, the potential for sharp corrections are always possible.
Recommendation: We remain wary of assuming long positions at current price levels and will stand aside.
JUNE S&P 500 STOCK INDEX: Although the Fed's decision to hike rates 1/2% was anticipated and already priced in the market, there still remains considerable uncertainty over increasing inflationary signs and additional fed tightening in the months ahead. With investors reluctant to jump back on the bulls' bandwagon and T-bond prices sliding, we see potential for further weakness and a drop to the May low at 1382.50. Below this level, the February/April "double bottom" looms at 1350.
Recommendation--Look to sell near 1450. Buy Stop--1500, close only. Objective--Initially, 1382.50.
JUNE U.S. TREASURY BONDS: The bears remain the dominant force as increasing concern over inflation and further interest rate hikes by the wary Federal Reserve is keeping rallies short lived. This week's $2 billion buy back of old bonds had little impact on the market--the "buyback" euphoria that had inspired buyers throughout the first four months of the year having clearly fizzled out. Chart wise, the next leg on the down trend could see June futures drop back to 90-00. Nevertheless, the oversold slow stochastic will still keep us in a neutral corner.
Recommendation--Continue to stand aside.
JULY WHEAT: The approach of the U.S. winter wheat harvest and unwinding of overbought wheat/corn spreads weighed heavily on the food grain market this week. Although we see lower carryover supplies and increasing world demand supporting prices, the down turn in the overbought stochastic suggests that more selling may occur in the near term. A decline back to $2.65/bu. now seems probable.
Recommendation--Look to buy near $2.70/bu. Sell Stop--$2.60/bu., close only. Objective--Initially, $3.00/bu.
JULY LEAN HOGS: Long liquidation incurred over the past two weeks has caused prices to retrace nearly 50% of the February/April rally. Weakening packer profit margins and the poor response of loin prices to seasonal demand factors appears to have spurred the correction. While technically oversold, this market needs a round of constructive news to get the bulls reinvigorated once again. We expect to see a near-term bottom posted very soon.
Recommendation--Look to buy near 68 cents/lb. Sell Stop--66.50 cents/lb., close only. Objective--74 cents.
JULY SUGAR: Reduced production in Brazil and Europe this season with possible imports to China continue to underpin sugar prices. Estimates that Brazilian sugar exports could drop below 6 million tones from 12.1 million last year suggest substantial problems with this year's crop. Technically, this market remains highly overbought and vulnerable for a correction. Accordingly, we anticipate a drop back to 6.5 cents/lb. as the bulls take a short breather.
Recommendation--Look to buy near 6.5 cents/lb. Sell Stop--6 cents/lb., close only. Objective--Initially, 9 cents/lb.
JULY CORN: Undoubtedly, the wetter weather moving into the Midwest has served to offset some of the drought scare. Prices have fallen back to the $2.30/bu. support and are now attempting to find a bottom. We expect talk of a rain-blocking ridge on global weather maps for the U.S. and China will keep some of the weather premium in tact and forestall a significant collapse. However, a close below $2.30/bu. will leave the $2.23-1/2/bu. chart gap as our next downside target.
Recommendation--Maintain long positions. Sell Stop--$2.30/bu., close only. Objective--Initially, $3.00/bu.
May 18, 2000 Siegel Trading Company, Inc. 118 North Clinton, Chicago, Illinois 800-422-9903
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