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Afternoon US-Dollar wrap-up, daily live broadcast brought to you by Infinity Brokerage and the CME. Go here to get your complimentary up-to-the-minute analysis.

January 30, 2007

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Today's Featured Article

Be Wary of the Ides of March
By Sterling Smith

There is a stock market/Super Bowl rule that goes something like this: If the NFC team wins, the market moves higher; and if an AFC team wins, the market moves lower. Historically, there has been some validity to this idea, but it probably stems more from the fact the most NFC teams have been around longer, are more established and the stock market has a natural propensity to go higher.

Of course the stock market is maybe less famous for its year over year steady climb than it is for its sometimes spectacular blow offs. Many traders often dream of catching one of these spectacular moves, but more often than not the put sellers walk away with the cash in hand.

Those of you who read my daily writings know that until very recently I was bullish on the stock market, and the market co-operated very nicely and produced a very solid rally throughout the last half of 2006.

Looking forward into spring the possibility of correction seems rather likely to me. I see three things that feed into a spring setback in the S&P 500.

1. The price of oil appears to no longer be in decline. Oil prices have been sagging since about the middle of last year which is when the big rally on Wall Street started, and we seem to have found solid support right around $50/barrel and at the very least a corrective bounce seems very likely.

2. Interest rates are no longer falling. Longer term interest rates also started dropping very nicely in the middle of 2006 and things improved very well, but since the 1st of December rates have risen considerably. While I think in the near term we will be stable, I do think we will see them climb more over the course of 2007.

3. A rather vulnerable technical picture is forming. Markets, especially the stock market often run on momentum after they go beyond reasonable price levels. When weakness develops, and momentum shifts we could very well see a healthy downside move.

The stock market seems to suffer from so springtime vulnerabilities, and while they are not nearly as bad as the fall ones, a stock market that is fat as fat as this one is, after a run up is something we should all be aware of.

2007...another banner year for the gold?

When the commodity markets had there first of the year rumble, and everything seemed to go straight down for the first week of activity, the bears on the TV came popping out everywhere about how the bull market in commodities was coming to an end as the bears are taking over.

In my observations I think the biggest Bear you need to fear is a guy named Urlacher and if your name is Manning you probably have more to fear than the rest of us.

When we look at charts of this gold markets in comparison to the market of the late 70's/Early 80's we see some dramatic differences in how the two came about and the intensity of the moves.

Normal bull markets experience healthy corrections, much like the one I am looking for in the stock market. Gold is not immune to this sort of behavior and the sizeable pullback in my, opinion has created an environment where rallies can be well sponsored.

Wealth throughout the world is increasing has the boom in China begins to show additive effects elsewhere, and this should prove to be an inherent increase in the demand for gold.

More challenging currency markets may also send more money into the yellow metal to work as hedges against adverse currency moves. Political concerns are always at the top of the list for why people have an interest in gold, and we of course have now usual plate of political concerns.

The price of copper which, incidentally lead this entire rally higher, seems to have made a pretty solid bottom after an extreme tailspin and corrective bounces could be very severe in the copper, which in turn could stand to aide silver and gold.

Gold is of course a key hedge against inflation and looking around at every market I see more signs of inflation than of a lack of it. $50 crude is nobody's deal, and there is a real possibility that the low price of crude for 2007 may have already occurred. Other commodities particularly the grains look to just be entering there bullish phase.

So with that in mind here some predictions for the next few months:

1. The stock market will suffer a 7 to 12% correction from its 2006-2007 highs.

2. Gold will sometime is 2007 eclipse it's 2006 high.

3. The Chicago Bears will be the winners of the Super Bowl rather easily.

4. Rex Grossman will be the Super Bowl MVP...I know that sounds crazy but it is not nearly as crazy as predicting that the Cubs will be the World Series Champions.

Remember there is a risk of loss in trading.

REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF FUTURESONE AND STERLING J SMITH. THE INFORMATION REFLECTED HEREIN IS DERIVED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THIS INFORMATION IS NOT ASSURED AS TO ITS ACCURACY OR COMPLETENESS. OPINIONS EXPRESSED ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS MATERIAL AND ANY VIEW EXPRESSED HEREIN ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED IN ANY WAY AS AN INDUCEMENT TO BUY OR SELL COMMODITY FUTURES OR OPTIONS CONTRACTS. FUTURESONE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AFFILIATES MAY TAKE POSITIONS FOR THEIR OWN ACCOUNTS IN CONTRACTS REFERRED TO HEREIN. TRADING FUTURES INVOLVES RISK OF LOSS. DO NOT DUPLICATE.

This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way assured. No assurance of any kind is implied or possible where projections of future conditions are attempted.

Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, assurance or implication by or from FuturesOne or Sterling J Smith that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance.

About the Author

This week's author is Sterling Smith. FuturesOne Vice President and CTA, Sterling Smith, creator and publisher of the FuturesOne Power Index, is a veteran broker and widely quoted market analyst. Beginning in the futures industry as a risk manager for a large FCM, he moved to a major clearing firm and learned from some legendary traders. He incorporates the benefits of these insights to help every client construct better trading plans and to enhance their understanding of the marketplace.

Special Message From Our Author

Complimentary Daily Report from FuturesOne!

The FuturesOne Daily Report provides a quick and simple daily overview of all markets. It details trade recommendations and allows you to gain insight on market direction. Go here to get it NOW!

Disclaimer:The Commodity Futures Trading Commission has asked us to also advise you that trading futures is not without risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders! Opinions expressed by Fast Break authors are not those of FutureSource.