The Financials Pit Review: By PitGuru Kalvin O’Brian

U.S. Economy

The market has digested Friday’s news and it looks like this week will start little better. Merrill Lynch cut earnings estimates for several regional banks as well as the speculation their own earnings outlook may be in trouble.  Citigroup has warned that more write offs in the 2nd quarter may be in store.  In addition to that Moody’s downgraded its ratings on bond insurers MBIA and AMBAC. The markets will be heading lower with only a few bumps on the way down.

It appears bad news is in store for Fed chairman Ben Bernanke’s fight against inflation.  Skyrocketing oil prices are raising costs to ship outside goods into America giving encouragement to consumers to buy more domestically made products in turn allowing producers of those goods to raise prices. Ahead of this week’s meeting, this news brings home the point that it will be hard to substitute cheaper foreign goods to keep cost of living down. It will be interesting to see how they approach the inflation issue and it is likely some traders are looking for an earlier rate increase while most expect rates to remain unchanged until August.

Currencies

This week will bring employment, earnings and a study of consumer prices reports from Statistics Canada which should keep traders of the Canadian dollar on their toes. As long as higher crude prices hold, the Canadian currency will likely maintain its current price. It will take an extremely negative report or a reversal in crude to move this market lower.

Weak German economic data and lower business and consumer confidence across the European Union will likely put a damper on the Euro this week. Bad news has definitely called the possibility of an interest rate hike by the European Central Bank into question. The risk to growth will have to be weighed against the issue of inflation.

High fuel prices are cited as the reason for a possible dip in Japanese business confidence levels. The soaring costs of each stage of fabrication from base goods to shipping costs will probably be on everyone’s mind as exports start to slip. Watch for the Yen to slide as well.

The Energies Pit Review: By PitGuru Joe Marshall 

The trend for August crude oil is sideways-down. Thursday’s sharp sell off has changed the trend and Friday’s bounce from a trend line in the 132.50 area is not enough to trump Thursday’s action. We have a little bit of a trading range going here and it would not surprise me if that continued for another day or two. The inability to get sustained action over 138 will leave this market vulnerable to sell offs. The big number on the downside is 127.00.

The trend for July natural gas is up, but with recent action looking a little weak. Thursday’s reversal from new highs cautions for a few days lower action. Dips holding 1265-1270 should turn back up. Dips should be bought, but you can't look for a homerun, you are looking at trades picking up 15-25 cents and then getting out. A close above 1333 is needed to keep things going higher.

The trend for July heating oil is sideways -lower. Again, Thursday’s reversal sell off will keep pressure on this market for a few days. Thursday’s low of 370 should hold up, but it would not surprise me if it was tested again this week. Rallies into the 390 area should meet with some selling.

Friday’s rally is not enough to trump Thursday’s action. The trend for July RBOB gasoline is sideways-down.  Rallies capped by 350 should turn back down. This market could test 325 this week. Not a bad place to step in and get long not risking much. Maybe a seven cent stop, right below 319.

The Softs Pit Review: By PitGuru Jamie Fink

By far, the biggest story in last week's trade for this sector was in coffee. After threatening to break out of its channel one way or another, coffee exploded to the upside on Friday causing heads to turn. Spurred by the recent decline in deliveries for export in Brazil, coffee ended the week with one of the largest gains since last September. Sellers held back their beans and traders weighed this with the overhanging frost threat that will persist for the next month or so.