6/24/12
Welcome
to this week’s addition of the renowned Lewison Letter. Since my last writing on Wednesday
night, we saw on Thursday the S&P falling 30 points, to only rally the next
day 10 points, ending the week lower by only 20 points. This week will be another tough week
for the indices, with many important economic reports due out. Monday we will get a housing gauge with
new home sales due out, along with consumer confidence coming out on Tuesday at
9:00am. As usual, Wednesday will
bring the important crude inventories number at 9:30am. I’m expecting inventories to once again
be up, sending oil prices lower on tails of Saudi Arabia opening the spigots
and keeping oil supplies ahead of demand.
Thursday is important, as we will weekly initial claims numbers along
with Q3 GDP estimates due out at 7:30am.
Finally, on Friday, we will find out what the Chicago PMI number is,
along with the bi-weekly Michigan Consumer Sentiment report. That only caps the news out of our
country. Everyday this week,
expect something out of Europe that will once again have a great influence on
our markets. With all that being
said, I still see the S&P trading in a range of 1300-1360. I do want to point out that I think the
lows of the year have been made on June 4 at 1266, and I’m going to tell you
why you should absolutely be a buyer against that level. June 4 marked the first time all year
that Jim Cramer sounded bearish.
In fact, that was the bearish I’ve heard him in almost 12 months. When a stock market bull, turns that
bearish, that’s always a sign to me that the lows are in. Since that time the S&P has rallied
more than 70 points. So thank Jim
Cramer for that one. That week of
June 4th put in a bullish engulfing line (when the body of the
weekly bar, engulfs the entire body of the previous week). Additionally, June 4th was a
daily hammer doji line indicating not only a key reversal, but that volatile
price move is coming. It just so
happened the S&P rallied almost 100 straight points. So I will reiterate my bullish call on
stocks, but wait to buy until the market pulls back some more, closer to the
1300 level.
Next
I want to look back at the call I made on soybeans on Wednesday when I said
look for a high of $14.65/bushel.
Friday’s high turned out to be $14.64/bushel, before sinking to
$14.10/bushel as of this writing.
Trading the grains becomes easy now. You should be a seller of agriculture stocks against that
level, but as soon as soybeans break above $14.65, you should be a buyer as
that level should act as support.
As
of this writing, front month (August) crude oil is sitting at $79.82/barrel, up
just $0.08 from Friday’s close. If
you followed the oil market on Friday, it made a huge bounce of the low of
$77.56, rallying almost $3.
Normally I would say that this particular move is a significant
reversal, however, I’m calling this a dead-cat bounce off the lows since it
still finished the week down almost 8% or $5.35/barrel. Worldwide demand is still not even
close to the amount of oil available in the world, especially with Saudi Arabia
covering any Iranian shortfall. I
still see crude oil falling to $76/barrel, with a high of $81.53/sahre (this
was the low of a triple bottom breakdown that acted as support before oil
really broke down). I will say one
thing that crude has going for it, is a double bottom at $77.56, which equals
the low put in on October 3, 2011.
Friday’s move down to that level was the first retest before bouncing,
only what I think will be a level that is retested later this week, so get
short!
Remember
earlier when I was talking about June 4th as being the low of the
year for the S&P? Well, one
other important date to remember is June 1st, which was the high the
US Treasury market, with 10-year interest rates falling to 1.46%. Since then, rates have rallied 19 basis
points to 1.65%, above the key 1.50% level. In terms of points, Treasuries are down almost 2 full
handles from the high. Looking at
a daily chart, the 10-year has built a long head-and-shoulders formation at
all-time highs, which I think will finally represent the end to the 30-year
bull market. The way that the
stock market has traded, Treasuries should be much high, but they aren’t which
means that we may have finally hit a level where interest rates are so low that
investors no longer want to own them, but instead look for corporate bonds or
high dividend paying stocks. For
those who can’t buy/sell Treasuries in the futures market, you should be a
buyer of the TBT, which is the short side of US Treasuries.
Full
disclosure: I am currently long gold, short S&P puts, and long Cat
Calls.
Jeff Lewison
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