Trader Savvy Newsletter

August 3 , 2006

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Name: Lee Gaus

Company: EFG Group

Learn More About Today's Author
Years Trading: 30

Favorite Movie
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In my contribution of June 8, 2006, I was friendly to the U.S. T-Bond market and I remain friendly to the Bond market.  The housing market is cooling, the economy is slowing, the market appears to like what it is hearing from Treasury Secretary Paulson and there is talk that the Fed may be at the end of the raising of rates for at least the near term.  It is my opinion that we could see a near term high on or about August 10, followed by a dip ending on or about August 18.  For those looking at getting long Bonds I suggest you look getting long September Bonds around 107.24 to 108.00.

Over the next several weeks If September Bonds give us a Thursday close below 106.07, I suggest you consider exiting the position and look to fight another day.

Corn and Soybeans have just gone through the hottest, most extreme weather of the year with the temperature exceeding 100 degrees in some areas and the markets have done notta, zippo, no meaningful upside reaction at all.  I drove from Chicago to South Dakota on a personal crop tour in an effort to get a feel for what might be going on.  I have to say the crop in Northwest Iowa looked under stress, but was not doing as bad as I had expected.  The South Dakota crop has been hit hard (yawn) but that a bull market does not make.  For the second year in a row we have seen sections of the main U.S. corn-belt under extreme stressful conditions and the crop seems to be able to withstand the heat.  It appears to me that the genetics have narrowed the window of time in which extreme damage can occur due to heat or drought.  Soybeans appeared to go into the protective shrink as I was able to see clearly between the rows.  Anyone that has been long Soybeans based on drought heading into August can probably attest to the recuperative abilities of the Soybean plant given August showers.  There maybe opportunities in the Corn and Soybean market but I suggest you stand aside as in my opinion there are better opportunities elsewhere.

Cotton has almost become the lost child in the commodity euphoria even though it appears as actual damage to the Cotton crop has been done due to extreme temperatures. Frankly I think the Cotton market may be one of those markets where better opportunities are available.  It is my belief - maybe premature hope - that the major trend in Cotton is about to reverse to the bullish side.  We could well see increased volatility between now and around August 21 if indeed the trend change takes place.

I suggest one look at getting long Cotton around the 5600 level, and watching for a Thursday close over the next several weeks below the 5300 level as an indication I am also premature in commodities.

I am bullish the Aussie Dollar as all of my indicators have now turned higher.  This is also consistent with my conviction that U.S. Bonds are on the upswing.

I will look to buy the Aussie Dollar around the 7630 level, watching for a Thursday close over the next several weeks below 7455 as area to exit.  I think we could see a short term high around August 8, with a pull back into the middle of the month which may give you an opportunity to get long at favorable levels.

Going back to around the time that the Jim Rogers book “Hot Commodities” was released (recommended reading) Sugar began a significant rally.  Sugar rallied from a low of 5.27 the first part of February 2004 to a high of 19.73 almost two years later to the date. Since then, Sugar has come under pressure and I think Sugar will continue to decline.  All of my indicators have turned bearish and a significant rally is needed to reverse those trends.  I think we could see a short term upswing around the August 11 time frame and would look to go short on that rally. 

Over the next several weeks it will take a Thursday close above 1642 to change my thinking.

Note:  There is a substantial risk of loss in trading futures and options.  Any trades made based upon these recommendations are the responsibility of the person placing the order.

About Today's Author

Lee Gaus is a 54 year old industry veteran of twenty-six years. Lee began his career in the livestock feed business before becoming a grain merchandising/commodity trader with a leading international company.

In 1992, Lee established EFG Group along with his two partners who are long-time friends. Since then, Lee has traveled the U.S. conducting seminars and trading meetings for retail traders and commodity offices.

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