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Financials: June Bonds are currently 18 higher at 142’10, 10 Yr. Notes 7.5 higher at 119’10 and the 5 Yr. Notes 4 higher at 113’13.5. Earlier this week the 10 Yr. finally edged above the 3.0% yield making a high at 3.03% before backing off to this morning’s 3.01%. The spread in terms of yield between the 30 Yr. and 10 Yr. appears to have stabilized holding at 18 basis points for the week. Over the last week we tried the long side of the market only to be stopped out with a 20 tick loss. As mentioned last week, taking a long term view of the chart patterns re: the 30 Yr. Bond and the 10 Yr. Note I conclude that the 30 Yr. has a good deal more on the downside before approaching the first level of support in the 137’00 area and ultimate long term support at 128’00. The 10 Yr. Note on the other hand has neared long term support of 117’00. The question is now how to play this: I hesitate to have a naked short futures position and recommend the following alternatives. Buy out of the money puts, buy out of the money put spreads, sell near the money call spreads. The buying or selling of spreads offer the least amount of risk and consequently limited profit potential. Another alternative would be doing a yield curve spread, believing that as/if the Bonds work lower from here the yield curve should widen, this entails going short 3 Bonds/long 5 10 Yr. Notes.
Grains: July Corn is currently fractionally lower at 395’0, May Beans 3’0 higher at 1030’0 and July Wheat 3’6 lower at 495’2. I remain short the May Beans and am looking for a break to cover the position, ideally below 1020’0. A close above 1041’0 will be a signal that the market may be headed high and short positions should be covered.
Cattle: Live and Feeder Cattle started the week with an opening that left a chart gap to the upside on the June LC and may have confirmed a near term bottom (as mentioned in last week’s “Report”) after the release of last Friday’s Cattle on Feed Report which showed an eight percent reduction in placements. I believe this is the first reduction in 12 months. That being said, I believe the pace of marketing will continue to increase over coming months as the market gets through the increases witnessed in those prior 12 CoF reports. I will be a seller of June LC in the 106.00-108.00 area.
Silver: July Silver is currently 2 cents higher at 16.60. I continue to hold a small long position despite the downside action caused by a rally in the Dollar as a result of the 10 Yr. yield pushing above 3.0%.
S&P’s: June S&P’s are currently 9.00 higher at 2653.50, down from 2701.50 a week ago. I am still recommending long put and/or put spreads. If you are long puts, roll your position into a lower strike price and take some monet “off the table”.
Currencies: I remain on the sidelines.