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SIEGEL TECHNICAL MARKET UPDATE
JULY SOYBEANS: While this weeks price action was mostly positive, the bulls still need to see the old-crop July contract push conclusively into new high ground to suggest that higher prices remain in the offing. We remain firm in our belief that this market must eventually reckon with the critically low stocks and continued strong world demand for beans and meal. Private analysts now see the USDA eventually dropping the carryover to 110 million bushels, which would equate to less than a 20-day supply. This would be the lowest level seen since the 103 million bushels left at the end of the 1976-1977 season. We continue to believe that this market is destined to drive towards $10.00/bu. as higher prices will be needed to ration the dwindling U.S. supply. Perhaps Monday's round of government production and supply/demand estimates will be the catalyst needed to launch this market to its next plateau. For those not yet long, a drop back to $8.78/bu. could afford an excellent buying opportunity.
Recommendation--Maintain long positions. Sell Stop--$8.25/bu., close only. Objective--Initially, $9.20/bu.
JULY WHEAT: The past three weeks have not been good for the food grain bulls. Reacting to improved growing weather for most of the world's producers and widespread confusion over the extent of the recent U.S. winter wheat freeze damage, nervous traders have pressured prices over 57 cents/bu. from the contract high posted on April 21. However, with the USDA ready to issue its first 1997-98 balance sheet for U.S. wheat on Monday, some pre-report "evening up" is now evident. As the USDA will incorporate an "all wheat" production category, grain analysts will be watching for any reduction implied by losses to spring wheat acreage due to the April flooding and cold spring temperatures. The market could receive a boost if the USDA estimate comes in on the low side. The average forecast for "all wheat" is 1.576 billion bu., versus 1.478 last year. Reports from the Kansas crop tour now underway could also have an impact on near-term volatility, especially if the scouts find more (or less) damage than expected. Technically, support near $4.00/bu. remains intact and the stochastic highly oversold. Prices have now retraced 62% of April rally and appear poised for a nominal rebound. A close above the trend line resistance at $4.20/bu. could reignite buying interest and propel the market back to $4.50/bu. Conversely, a close below the critical $4.00/bu. could set the stage for further deterioration back to the $3.80/bu. level. As we feel that this market is poised for an upside correction, new long positions may be considered.
Recommendation--Look to buy near $4.00/bu. Sell Stop--$3.96/bu., close only. Objective--$4.50/bu.
JULY CORN: Ideas that the increased rate of corn planting will spawn more acres and a bin busting crop this fall has the bears well entrenched. Though rain has slowed planting this week, traders still anticipate nearly 3/4 of the crop is already planted. Exports remain fair at best. All in all, expectations of a large crop are difficult to refute. Moreover, with nearly a 1 billion bushel carryover projected for seasons end, a new-crop yield approaching the 5-year average would cause 1997/98 ending stocks to jump substantially. Nevertheless, at this point in time, some analysts assume that most of the good news is already behind us and that any bit of bullish news could have an exaggerated effect on this oversold market. Indeed, should the weather turn unfavorable during the growing season, or soybean prices skyrocket, the bulls could get a reprieve. However, we admit that conditions would have to deteriorate considerably to drive prices back to last years level. Technically, the charts confirm that corn remains in a steep downtrend. Prices have now retraced 62% of the January/April rally leaving the stochastic highly oversold. We continue to look for a pivot point low and possible rebound back toward $3.00/bu., but have not ruled out seeing lower prices. If the bulls cannot regroup, a break to $2.72/bu. would appear probable. We see few surprises appearing in the upcoming crop report, just a reaffirmation of the high planted acreage and the potential of substantial new-crop production.
Recommendation--Aggressive: Look to buy near $2.78/bu. Sell Stop-- $2.72/bu., close only. Objective--$2.95/bu.
JULY UNLEADED GASOLINE: With API stocks 13.24 million barrels below last year and peak driving season approaching, the odds favor a jump in gasoline prices. Reports of refinery problems in the gulf are also a plus for the bulls. Stay long.
Recommendation--Maintain long positions. Sell Stop--59 cents/gal., close only. Objective--65.50 cents/gal.
JULY SUGAR: This market remains pressured by ample world supplies. However, news that a Russian/Cuban oil/sugar swap deal is in the works has kept prices from collapsing. We see a correction to 11 cents/lb. as a selling opportunity.
Recommendation--Look to sell near 11 cents/lb. Buy stop: 11<$E1/4> cents/lb. Objective--10<$E1/2> cents/lb.
JUNE LIVE CATTLE: The prospect of increasing cattle numbers and technical resistance at the April high appears to have stymied the bulls. The down turn in the stochastic and recent price action suggests that a correction is now underway.
Recommendation--Look to sell above 65 cents/lb. Buy Stop--66 cents/lb., close only. Objective--64 cents/lb.
JULY COFFEE: The bulls remain tenacious as reports of Brazilian port problems tend to aggravate supply worries fostered by the poor South American crop. While top picking grows more tempting by the moment, the charts remain bullish. Accordingly, we'll continue to favor a sideline stance.
Recommendation--Stand aside.
S&P 500 STOCK INDEX: Clearly, the posting of a new historic high speaks for itself. While this now overbought market is prime for a correction, we'd be foolish to count out the bulls. Trend line support near 790 is a probable downside target. However, talk of a rally to the 900 level should not be discounted.
Recommendation--Stand aside.
JUNE GOLD: A dearth of fundamental news has this precious metal range bound. Some see a technical base developing and a possible rebound back to the $350/oz. Trend line resistance. Nevertheless, we continue to see little reason to vacate our neutral corner.
Recommendation--Stand aside.
JULY PORK BELLIES: Having retraced 38% of the sharp March/April advance, bellies appear ready to recover some lost ground. We anticipate the rally off the May 5 pivot point low extending to the contract high at 95 cents/lb.
Recommendation--Look to buy near 90 cents/lb. Sell Stop--$86 cents/lb., close only. Objective--$95 cents/lb.
JULY CRUDE OIL: The ascending bottoms and rising stochastic hold promise for the bulls. A solid close above $20.50/bbl. would serve to inspire technical minds and raise sights another $1.00/bbl. higher.
Recommendation--Look to buy near $20/bbl. Sell Stop--$19.50/bbl., close only. Objective--Initially, $21/bbl.
JUNE U.S. TREASURY BONDS: Increasing signs of a softer U.S. economy have breathed new life into the credit markets. Complimented by a bullish wave count, the odds now favor a push through 110-00 to the trend line one full point higher.
Recommendation--Look to buy near 109-16. Sell Stop--109, close only. Objective--111-00.
JUNE U.S. DOLLAR INDEX: Even though betting against the greenback has been a losing proposition for some time now, the charts suggest that a pull back may now be underway. Should the bulls fail to regroup near the 9500 level, another 100 points could be lost as prices fall back to the April low near 9400.
Recommendation--Stand aside.
JULY COCOA: Technical factors continue to dominate price action in cocoa. However, expectations of better Ivory Coast production remains a solid plus for the bears. We're looking to sell near the $1450/mt. trend line resistance.
Recommendation--Look to sell near $1450/mt. Buy Stop--$1500/mt., close only. Objective--$1325/mt.
JULY COPPER: The reign of the "red metal" bulls continues in earnest as strong demand and low stocks spells higher prices. Indeed, this weeks breakout generates a new swing objective to $1.14/lb. However, we feel this overbought market still should be viewed from the sidelines.
Recommendation--Stand aside.
May 8, 1997
Siegel Trading Company, Inc.
549 Rnadolph,
Chicago, Illinois
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