Yesterday seems like another holding day – flirting with the resistance levels – the action being mixed did give any indication if we would move higher or lower. However, it was rather clear that strength did NOT return after the previous day sell-off. The food (RICE) story is starting to hit all the news stations – as the concern in this country becomes PRICE (traditionally we never really think about famine in another country – to bad – but NOW because it IS affecting OUR prices we begin to take notice.) The news, of course sensationalizes everything, is reporting that this short fall in Rice from the Myanmar Cyclone is becoming rather serious on a Global scale. There are two issues to be concerned about – the first, obviously speaking, is the Food shortage itself – while we may not suffer in this country from shortages – the emerging markets are starting to see food riots and nationalization programs enforced to shore up supplies. The second is obviously prices – prices on grains are already very high – but seeing Rice continue to surge higher is becoming rather alarming. The two largest importers are tapping every pipeline of global supplies – forcing prices even higher.
Ever shipper, except Thailand, has curbed exportation of rice – shortening supply lines. The trickle affect to other “replacement” grains are now also rocketing. The United Nations has called for emergency aid on a GLOBAL scale for the first time as a “possible” food crisis mounts. Why is this serious? It’s not the traditional problem of ONE country having a food shortage – where other countries can pick-up the tab for that shortfall – this, as pointed out by the UN, is on a Global Scale.
One economist pointed to the problem as many emerging countries are seeing a MASSIVE shift of citizens that are moving into metropolitan cities from rural areas seeking jobs. In China and India – both seeing increase in their industrial and service expansion are seeing more citizens moving into large cities – thus shifting these countries from exporters to importers of grain. It is an interesting observation and if true can only mean that the demand for “instant” food supplies to these growing emerging countries is only going to increase – as people move from rural self-reliant areas to larger cities – seeking jobs.___________________________________________
Oil continues to rise
Just like with food and other commodities the emerging countries with China leading the charge is consuming more and the slowdown does not seem to be on the horizon. China’s advantage to oil consumption over the U.S. is that they will buy oil from ANY country without trepidation – they NEED it. While, true, U.S. oil consumption has remain relatively flat over the last 3 years – world consumption is expanding at 2% per year – with China up 5-7% per year. The weak dollar is not helping with price and it IS helping China and others. Even with the Chinese dollar semi-pegged to the U.S. dollar – it is slipping down from around 8:1 last year to 7:1 this year (over a 10% drop in the dollar). With oil breaking through 125 per barrel this morning – expect more pressure on the market.
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Futures Pre-Market
The futures are seeing pressure this morning – with oil and grain prices moving higher. The futures are front running the cash this morning by a few points – Expect to see Arb Traders putting pressure on the cash this morning.
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Support / Resistance
After the previous day sell-off and yesterdays lack of rally – it is going to take some investor optimism or good news (probably not) to push us back up to those resistance levels.
INDU 12800 / 13000 (That 12800 line is a short-term support – it looks like we WILL be testing it this morning. If we can’t hold 12800 we should move down sharply – however it is the close that counts.)
NDX 1950 / 2000 (We are slightly above the short-term support and it looks like we COULD test it today. Again – those overweight’s really drive this index – so keep an eye on them.)
SPX 1400 (We are slightly below the magic 1400 line and pressure in the futures show that we will be even lower at the opening. To see if this recent month of gains will hold – the SPX needs to get its head above 1400.)
RUT 700 / 720 (Just below that pivot point of the low resistance range is not showing the strength we need – if 700 does not hold – don’t expect to have a great week next week – unless the FED pulls another rabbit out of the hat.)
We are below those resistance levels and the market looks to be taking some heat from both oil and now the food problems. However – the end of the day could be another MASSIVE rally – if shorts get caught or the FED rides into the rescue with another short-term band-aid fix! But I doubt it!
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Conclusion
The Banking crisis continues? I thought the worse was behind us! Citi is talking about “winding down” $400 billion of assets over the next 3 years? What the HELL does that mean? It means that they have $400 billion of crap on their books that they HOPE to get out of over the next 3 years! I am really surprise that stock is showing ANY legs in the pre-market. I am still trying to figure out what “Wind Down” means? CEO Thompson of WHACKovia is now under fire and is now out the door after more write-downs in the 1st quarter and some questionable decisions. However – Wachovia is unchanged in the pre-market as well. I guess investors are just done with hearing all the problems and these stocks are not worth buying or selling – they have already been hit pretty bad.
The market should see pressure today from oil and grain prices rallying – the UN calling for a global food emergency is also sending some fear through the world markets. The VIX is still below 20, but expect that to change today. I don’t see any big rallies going into the close – UNLESS we get some surprise statements by the FED or some other news to ease concerns.
The market will remain volatile.
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