CTS Spotlight for the week of November 19th, 2010

Hello and welcome back to CRI's CTS Spotlight

11/19/10: In a week that saw the US Fed Chairman defend his US domestic policy focused agenda (which should be the case) the long end of the yield curve has begun to rise appreciably. The US Fed's QE2 program is doing exactly what Mr. Bernanke desired in that the curve is steepening, money is starting to leave 'safe-havens' (in particular the Swiss franc) and one can't help but get the impression the general economic situation in North America is improving. While still a bit above my desired target, the US dollar has taken out the 'stops' (most recent resistance) suggesting the torrent of US dollar selling may be waning. As well, Money does seem to be leaving 'hard' assets and moving into 'soft' ones again. Enjoy the run while it lasts as this may be a trap. I say this now because as of last week all the equity markets that CRI follows are pointing higher. Not a signal in itself (when this happens) it is often a contrarian sign of the end of a sector's move. In other commodity markets, grains prices look 'toppy' while beef prices look strong. In our CTS Spotlight we look at a few of these markets and where prices may be headed.


Grains/Meats

1. Grains: The 2010 North American growing season was dominated by news of a European grain crisis (specifically Russian wild fires and talk of export bans). Most interesting here, wheat prices (upper right) have not moved higher since the initial news of export sales bans out of Russia. In fact, one could argue prices will have a very hard time moving higher in the coming years if the current triple top isn't broken soon. Prices just this week broke back below support and are now pointing substantially lower. The weakness in wheat prices is starting to have a negative impact on other grains. Oat prices (upper left) have put in a nice tight double top and are testing the up trend line. Should this fail there is plenty of room for prices to fall. Aside from regular 50% retracemnents, Oats have lots of gaps to fill in. Should the selling get going in earnest, price could easily see the lows of last spring again.


2. Meats: The recent win by the Republican's in the mid-term US congressional elections was a boost for American Cattle producers in that their collective voice will be heard much more if and when the Republican's are in charge of Congress. CRI has been suggesting beef prices want to go higher for some time (even did an OnlyDoubles trade last spring being long Feeder Cattle). While prices in Feeder's are way too volatile to take a position, any consolidation might represent a potential entry. Live Cattle on the other hand is currently sitting within 1.5 points of its breakout and might represent a nice entry. Should grain prices indeed top here, one could easily see meat prices move higher as both upside technical targets exist and beef prices in general have underperformed other commodity prices appreciation over the past ten years.

That steak you like so much is gonna get a bit more expensive :(

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com