Equities and commodities continue to trend higher as the economy continues to show signs of slowing. However, recent housing data has been positive and earnings out of U.S. corporations exceeded estimates. Granted, the estimates were lowered and much easier to beat.
From a technical perspective, the Dow Jones industrial average (DIA) completed a head & shoulders bottom July 18th. The minimum implied measuring objective is approximately 13,100-13,200. The bottoming formation adds to evidence that the trend is towards higher prices. I'm going to continue to add on reactions and lighten up rallies. Further, the S&P 500 (SPY) and Nasdaq 100 (QQQ) are trending higher. Personally, I prefer a combination of the Nasdaq and Dow Jones in my portfolio.
I will be watching the Philly Fed Manufacturing Index for an increase from the prior reading. The expectations suggest a pretty large increase and the market may be disappointed. Thus, a disappointing reading could prove to be a buying opportunity. It'll be interesting to see the reading of the index as equities continue to trend higher while the economy continues to slow. In other words, there could a dislocation between the fundamentals of the economy and the market. Further, we'll have to watch the headlines out of the Eurogroup meetings Friday for bearish catalysts.
As fear turns to hope, the 30-year U.S. Treasury bond may decline in the coming days. However, the decline may be limited as the Federal Reserve Bank of the United States purchases the securities and European sovereign debt crisis fears linger.
Corn, Wheat and Crude Oil
Corn is trading near a new minor high, a level where we may see some supply come into the market considering the gap formed earlier this week may be an exhaustion gap. The same goes for wheat. Although, the trends remains bullish and dips are buying opportunities. I'm plan on using dips to add to positions and rallies to lighten up.
Higher agricultural commodity prices becomes higher consumer prices or higher inflation and higher interest rates and lower stock prices. The lag time can be substantial.
Recently, the USDA designated 39 additional counties in eight states as primary natural disaster areas due to damage and losses caused by drought and excessive heat.
During the 2012 crop year, the U.S. Department of Agriculture (USDA) has designated 1,297 counties across 29 states as disaster areas, making all qualified farm operators in the areas eligible for low-interest emergency loans.
The U.S. is facing the largest drought since the 1950s, the National Climatic Data Center reported Monday, saying that about 55% of the country was in at least moderate short-term drought in June for the first time since December 1956, when 58% of the country was in a moderate to extreme drought.
The hot, dry weather in June, which ranked as the third-driest month nationally in at least 118 years, according to the center, made the problem worse.
The question, is the impact of the drought priced into the corn and wheat markets? Personally, I think both markets can trade higher, and I'm going to remain bullish on both markets until the facts dictate a change of opinion is warranted.