Treasury bonds vs. Ten-year notes (NOB spread) - The June NOB spread (T-bonds - T-notes) recently hit a multi-month low of 2-29. Further support is at the weekly Fibonacci .618 retracement at 2-16.5 (as measured between last year's weekly low of 27/32nds and last year's weekly high of 5-07). If the NOB spread does not establish support here it could continue to erode to last year's weekly low of 27/32nds. Technical resistance is at the daily February high of 4-17 (premium T-bonds). Major technical resistance would start to be encountered about a half-point higher: The daily contract spread high was 5-01 in December, the 2006 weekly closing high was 5-07, the weekly January 2006 high and the weekly February 2006 high were both at 5-01, the 2005 weekly closing high was 5-03, the 2006 monthly closing high was 5-08, and the 2005 monthly closing high was 5-14. Obviously, this is an important wall of price resistance and an ideal spot to look for an entry on the short side of this spread. Bottom line: Look for an opportunity to short this spread if it trades near the 5-00 mark. Current Trade Strategy: Stand aside.

Ten-year notes vs. Five-year notes - The June 10-year notes/5-year notes spread has now formed a possible head and shoulders top pattern on the daily chart: The September 25th high of 2-24.5 (premium 10-year notes) would be the left shoulder, the November 30th contract high of 3-00 would be the head, and the March 13th high of 2-24.5 would create the right shoulder. A decline from here could take this spread back to the daily January low of 1-31 followed closely by the weekly Fibonacci .618 retracement at 1-28 (as measured between last year's weekly low of 1-04 and the November weekly high of 3-03). If this spread does not establish support here it could plummet to last year's weekly low of 1-04. Technical resistance on the weekly chart is located between the November weekly high of 3-03 and the January 2006 weekly high of 3-05. A breakout above these highs could flatten the yield curve even more and send the spread up to the psychological 4-00 area. Bottom line: Watch to see if a trade set-up materializes near 3-00. Current Trade Strategy: Stand aside.

Treasury bonds vs. Five-year notes - The June T-bonds/5-year notes spread finds important technical support at the daily January low of 4-31 (premium T-bonds). If this low is broken the spread should quickly hit the weekly Fibonacci .618 retracement at 4-13 (as measured between last year's weekly low of 1-31 and last year's weekly high of 8-10). Near term technical resistance is at the daily February high of 7-09 (premium T-bonds). Bigger technical resistance is clustered between the daily contract high of 8-00, the weekly November high of 8-10, and the January 2006 weekly high of 8-02. A strong breakout above this price barrier could allow the spread to catapult to the 2005 all-time high of 9-28. Bottom line: Watch to see if a set-up to get short materializes near 8-00. Current Trade Strategy: Stand aside.

Treasury bonds vs. Two-year notes - The June T-bonds/2-year notes spread finds important technical resistance at the head and shoulders top on the monthly chart: the 2003 high of 12-03 is the left shoulder, the 2005 high of 14-23 is the head, and the 2006 high of 12-03 is the right shoulder. A strong close above the 2006 high of 12-03 could indicate that the flattening yield curve will push this spread all the way up to the 2005 all-time high of 14-23. The June T-bonds/2-year notes spread finds support at the daily January low of 7-17. Further support is at the weekly Fibonacci .618 retracement at 7-02 (as measured between last year's weekly low of 3-29 and last year's weekly high of 12-05). If the spread does not stabilize in this area it could plummet to last year's weekly low of 3-29. Bottom line: Watch to see if a trade set-up materializes near 12-00. Current Trade Strategy: Stand aside.

Euro bunds (10 yr.) vs. Euro BOBL (5 yr.) - After establishing a double bottom on the daily chart (between the January 29th low 6.22 and the February 13th low 6.24), the June bunds/BOBL spread rallied into resistance at a major daily Fibonacci .382 retracement and then turned back down. If the June bund/BOBL spread plummets below the double bottom on the daily chart, it could easily decline to last year's low of 5.54 on the weekly chart. On the other hand, if the spread can take out the daily March high of 7.43 it could run to the major daily Fibonacci .618 retracement at 8.17 (as measured between the contract high of 937 and the contract low of 622). Once the spread is at 8.00 or higher, it's time to start looking for a set up on the short side. Historically, the spread doesn't stay above 8.00 for very long. If the spread can clear the Fibonacci .618 retracement, expect it to close in on the all-time high of 9.11 on the weekly continuous chart. Bottom line: Watch to see if a trade set-up materializes to get short near 8.00 or higher. Current Trade Strategy: Stand Aside.

Eurodollars (calendar spread) - The December '08 Eurodollar/December '07 Eurodollar spread closed at new highs again. The December '08 Eurodollar is trading at a premium of 27 basis points over the December '07 Eurodollar. Therefore, the December '08 Eurodollar has an additional quarter-point rate cut priced in. (Remember that the price on a Eurodollar is inverse to the US interest rate so when the Eurodollar price goes up, the interest rate goes down). The uptrend is still intact as this spread has exceeded the previous month's high for five consecutive months now. Since the spread made the 2006 low last April on the daily chart, this spread has made minor pullbacks along the way. Until the spread reverses the current multi-month pattern of higher highs and higher lows, traders should employ a strategy of getting long on measured pull-backs. Bottom line: Buy dips in this bull market. Current Trade Strategy: Stand aside.

Currencies

Canadian dollar vs. Australian dollar - The June Canadian dollar/Australian dollar spread is now trading at the lowest level since June of '05. It is currently trading just above the major weekly Fibonacci .618 retracement at .0454 (premium Canadian dollar). Further support may not be found until the weekly 2005 low of .0162. Near term resistance is at the daily March high of .0812 (The June Canadian dollar/Australian dollar spread has only broken a previous month's high once in the last six months) and the weekly 18-bar Moving Average (The Canadian dollar/Australian dollar spread has not closed above this declining weekly 18-bar Moving Average since October). A breakout above a previous month's high and a close above the weekly 18-bar Moving Average could signal a trend change for this spread. If this occurs the spread could rebound to the current major weekly Fibonacci .382 retracement at .0916 (as measured between last year's all-time high of .1612 on the weekly chart and this year's current weekly low of .0484). Further resistance is at the current major weekly Fibonacci .618 retracement at .1181 (as measured between last year's all-time high of .1612 on the weekly chart and this year's current weekly low of .0484) in confluence with the weekly July reaction low of .1182 (old support). Bottom line: Still in a down trend, but nowhere near historic extremes. Current Trade Strategy: Stand aside.

Australian dollar vs. New Zealand dollar - After nailing support at a major weekly Fibonacci .618 retracement in January, the June Australian dollar/New Zealand dollar spread rebounded and closed back above the weekly 18-bar Moving Average for the first time since August. Near term resistance is at the daily March high of .1027 (premium Australian dollar). A close above it could cause a challenge of the current major weekly Fibonacci .382 retracement at .1067 (as measured between last year's all-time high of .1510 on the weekly chart and this year's current weekly low of .0793) in confluence with the weekly October and November reaction highs of .1077 and .1076. If the rally does not end here the spread may run to the current major weekly Fibonacci .618 retracement at .1236 (as measured between last year's all-time high of .1510 on the weekly chart and this year's current weekly low of .0793). Important technical support at clustered between the weekly 2005 high of .0803 (old resistance), the major weekly Fibonacci .618 retracement at .0799 (as measured between the 2005 all-time weekly low of .0360 and last year's all-time high of .1510), and this year's current weekly low of .0793. A weak close below eight cents could hammer the spread down to support just below the four cent area: the weekly 2003 low was at .0392, the weekly 2004 low was at .0395, and the weekly all-time low in 2005 low was at .0360. This would be an historically low price area for the spread worth monitoring for a long position. Bottom line: The spread just reversed direction to an up trend. However, we are more interested in buying at historic levels. Current Trade Strategy: Stand aside.

British pound vs. Euro currency - After peaking out at an all-time high in mid-January, the June British pound/Euro currency spread closed below the weekly 18-bar Moving Average for the first time since April 2006 and signaled a trend change. Therefore, traders should be focused on the short side of this spread. The spread then declined to an intermediate weekly Fibonacci .382 retracement and bounced. Currently, the June British pound/Euro currency spread is testing resistance at a weekly Fibonacci .382 retracement around 63 and a half cents. Further resistance is at the current major weekly Fibonacci .618 retracement at .6495 (as measured between this year's current all-time weekly high of .6735 and this year's current weekly low of .6107). If the spread does not peak out here it could challenge this year's current all-time weekly high of .6735 (premium British pound). If the June British pound/Euro currency spread stalls out and starts to decline again after nearing these technical resistance levels, traders should consider adding to short positions and risking above the bounce high of the move. Near term support is at this year's current low of .6052 on the daily chart. A close below it could cause a swift decline to the current intermediate weekly Fibonacci .618 retracement at .5787 (as measured between last year's weekly low of .5201 and this year's current all-time weekly high of .6735 ). If the spread does not stabilize here the spread could get plummet to the major weekly Fibonacci .618 retracement at .5372 (as measured between the 2003 all-time weekly low of .4529 and this year's current all-time weekly high of .6735) or even last year's weekly low of .5201. Bottom line: The trend is down so trade from the short side of this spread. Current Trade Strategy: Look for opportunities to get short after this spread backs off from resistance levels.

Euro currency vs. Swiss franc - The June Euro currency/Swiss franc spread reached a new all-time high of .5193 (premium Euro currency). Since this spread is in un-charted territory, there's no old highs to look to for resistance levels. It could keep moving toward the psychological 55 cent area. An important support level we are watching for to identify a trend change is the weekly 18-bar Moving Average. The Euro currency/Swiss franc spread has not closed below the weekly 18-bar Moving Average since December 2005. Therefore, a close below the weekly 18-bar Moving Average would be a major event that could signal that the bull run is over. If this happens, traders should look for opportunities to get short. This could lead to a quick decline to the 2004 and 2005 weekly highs of .4762 and .4761 (old resistance levels) followed closely by the current major weekly Fibonacci .382 retracement at .4757 (as measured between the weekly 2005 low of .4081 and this year's current all-time high of .5175 on the weekly chart). If support is not established in this area the spread could keep moving toward the current major weekly Fibonacci .618 retracement at .4499 (as measured between the weekly 2005 low of .4081 and this year's current all-time high of .5175 on the weekly chart). Bottom line: Watch for a close below the weekly 18-bar Moving Average and then look to trade this spread from the short side. Current Trade Strategy: Stand aside.

Euro currency vs. Japanese yen - The June Euro currency/Japanese yen spread reached a new all-time high of .4903 (premium Euro currency) on the weekly chart. Since this spread is in un-charted territory (like the Euro currency/Swiss franc spread), there's no old highs to look to for resistance levels. It could quickly tag the psychological 50 cent area. If it doesn't reverse there, it could add another nickel and hit 55 cents. Near term technical support is located at the weekly 18-bar Moving Average (the Euro currency/yen spread has not closed below the weekly 18-bar Moving Average since February 2006) followed by the most recent weekly correction low of .4617. Since last year's weekly low was established in February 2006, the Euro currency/Japanese yen spread has only broken a previous weekly correction low two different times. Therefore, a close below the weekly 18-bar Moving Average or a break below a previous correction low on the weekly chart could be used as indications of a trend change. If this occurs, look for a decline to the current intermediate weekly Fibonacci .382 retracement at .4134 (as measured between the weekly 2005 low of .2891 and this year's current all-time weekly high of .4903). If the spread does not establish support in this area it could decline to the weekly 2005 high of .3832 (old resistance). Bottom line: Watch for a close below the weekly 18-bar Moving Average and then look to trade this spread from the short side. Current Trade Strategy: Stand aside.

British pound vs. Japanese yen - The June British pound/Japanese yen spread recently traded at a fourteen year high in January. In February the spread closed below the weekly 18-bar Moving Average for the first time since last Spring and plummeted to a three month low. The decline off the highs was the largest correction since at least 2005. This "overbalancing of price" could indicate that the up trend that has been in place since mid-2005 has come to an end. Also, the pound/yen cross rate (British pound rate divided by the Japanese yen rate) nearly matched the 1998 high and reversed to trigger the same trend change as the spread. This left a nice double top formation on the weekly chart. The British pound - Japanese yen spread has rebounded back above technical resistance at the major weekly Fibonacci .618 retracement at 112.00 (as measured between the weekly close spread high of 114.22 and the weekly close March low of 108.42). Traders may want to consider getting short if it backs down from this area. However, a breakout to new highs should be a signal to liquidated the spread and cut losses. A breakout to new highs could send this spread on up to the weekly 1992 high of 118.22. If June British pound/Japanese yen spread breaks below the daily March low of 104.66 (premium British pound) it could plunge to the intermediate weekly Fibonacci .382 retracement at 102.31 (as measured between the weekly 2005 low of 83.05 and this year's current all-time weekly high of 114.22). Further support is at the weekly 1998 high of 97.57 (old resistance) or the weekly 2005 high of 96.71 (old resistance). Bottom line: The trend has reversed. Trade this spread from the short side. Current Trade Strategy: The short British pound (x2)/long Japanese yen spread entered at approximately 110.65 as per the March 23rd Trade Alert should be liquidated only on a two consecutive day close above 114.35.

Metals

Platinum vs. Gold - The platinum/gold spread is testing major technical resistance between a major weekly Fibonacci .618 retracement at $588.10 and the daily November spike high of $596.80. This may be an ideal spot to attempt a trade on the short side. However, if the spread does not back off here it could run to the spread high of $634.70 on the daily chart or even last year's all-time high of $655.90 on the weekly chart. Important weekly support is located at a double bottom between the weekly December low of $481.70 (premium platinum) and the weekly October low of $478.50. This double bottom happens to be just below a Fibonacci .618 retracement (as measured between the weekly 2004 low of $382.80 and the weekly 2006 all-time high of $655.90) as well. If the platinum/gold spread breaks this double bottom it could free fall to the psychological $400 area in confluence with the weekly December 2004 low of $395.10. (Note to traders: This spread should be traded as a ratio of two platinum: one gold since the platinum contracts control 50 ounces of platinum while the gold contracts control 100 ounces of gold). Bottom line: This is an extremely risky spread, but high risk-takers may want to look for set-ups to get short on rallies. Current Trade Strategy: The short July platinum (x2)/ long June gold spread entered at $583.20 as per the March 23rd Trade Alert should be liquidated only on a two consecutive day close above $636.00.

Energy

Crude Oil vs. Heating Oil - Here's a "no-brainer": Demand for heating oil rises in the winter due to the cold weather. Because of this, it is not unusual for heating oil prices to rise faster than crude oil prices during that time. However, the January '08 heating oil is trading at a premium to January '08 crude oil that has only been seen two other times in the last twenty-three years (on a weekly closing basis). There is a carry-charge on both contracts, but the January '08 heating oil contract is even higher due to the additional built-in premium for seasonal demand on the winter month deliveries. The trend for this spread is currently up as January '08 heating oil continues to outperform the January '08 crude oil. On a daily chart, this spread is at the highest level since September and it has retraced half of the decline between the spread high and the spread low. Since the spread low was established in mid-January there has only been three times that the spread has closed out the week lower than the previous week's close. We will continue to monitor this spread for a potential opportunity to trade it from the short side. Bottom line: We are monitoring this spread for a potential short trade. Current Trade Strategy: Stand aside.

Heating Oil vs. RBOB Blended Gasoline - Looking at the December delivery contracts, heating oil is currently trading at a premium of nearly twenty-one cents above the price of RBOB gasoline. On a monthly closing basis, there have only been four times in the last twenty-two years that heating oil has been priced twenty cents or more above RBOB gasoline. On a weekly closing basis, there have been just twelve different times since 1985 that heating oil has been priced twenty cents or more above RBOB gasoline. History suggests that the December heating oil/RBOB gasoline spread is trading at a good place to look for a set up on the short side. The daily closing high of the Dec. '07 heating oil/RBOB gas spread was +2426 (premium heating oil) in December, +2498 (premium heating oil) in January, +2314 (premium heating oil) in February, and +2289 (premium heating oil) in March. A Fibonacci .618 retracement of the decline between the contract high of +2498 and the March low of +1772 could take the December '07 heating oil - RBOB gas spread back up to +2221. This area might be an ideal technical resistance level for traders to initiate a short spread position. However, a breakout to new spread highs should be taken as a signal to exit the short spread and cut losses. You can always get back in if a new signal is triggered. If the December heating oil/RBOB gasoline spread continues to trend lower, expect it to eventually invert so that the RBOB gasoline trades at a premium to the heating oil contract. Bottom line: Trade the December heating oil/RBOB gasoline spread from the short side. Current Trade Strategy: Work orders to short the December heating oil/RBOB gasoline spread as per the recent Trade Alerts. This spread should be liquidated on a two consecutive day close above +25.15 (premium December heating oil).

Livestock

Live Cattle vs. Lean Hogs - On the weekly chart, the live cattle/lean hog spread is trading just above 35 cents (premium cattle). On a weekly closing basis, there are only three other times when cattle had a premium this large over the hogs: in December 1998 cattle peaked out at a premium of 37.52 over hogs, in November 2003 cattle peaked out at a premium of 49.30 over hogs, and in January 2006 cattle peaked out at a premium of 37.65 over hogs. Historically, this is an ideal area to watch for a set up on the short side of the spread. However, the front month April contracts have only a couple of weeks left until expiration so there is really no time to trade it. The October cattle/hog spread recently traded just below 31 cents (premium cattle) so we will monitor this one. Since the low of the year was made in late January, the October cattle/hog spread has only had one weekly close that was negative. Also, this spread has only closed below the 18-day Moving Average once since late February. This shows that the trend is currently strong on the upside. Hopefully, the trend will continue to drive it toward the 34 area. Then we will vigilantly watch for a set up on the short side. If the October cattle/hog spread reverses it could drop down to the daily contract low of 22.65 (premium cattle). A break to new lows could pressure the spread down to the seven cent level or lower (premium cattle). Over the last twenty-six years, 2002 is the only year where the spread did not trade at 7.00 or lower on the weekly chart. Bottom line: Watch for a set up on the short side of the October cattle/hog spread. Current Trade Strategy: Stand aside.

Feeder Cattle vs. Lean Hogs - Historically, the feeder/lean hog spread likes to top once they trade near 49 cents (premium hogs) or higher. On the weekly chart, we can see that this spread has annual highs of 48.85 in 2002, 52.47 in 2003, 52.40 in 2004, 55.17 in 2005, and 53.40 last year. The October feeder cattle/lean hog spread just broke out to a new contract high of nearly 43 cents (premium feeders). If the rally persists, we will be very interested in looking for a set up to get short on a reversal signal after it trades near the 49 cent area. Since the low of the year was made in late January, there has only been two occurrences when the October cattle/hog spread closed negative for the week. Also, this spread has not closed below the 18-day Moving Average since late February. Hopefully, this will keep the momentum going and take this spread near 49 cents. Bottom line: Watch for a set up on the short side of the October feeder/hog spread. Current Trade Strategy: Stand aside.

Feeder Cattle vs. Live Cattle - In January the April feeder cattle/live cattle spread dropped to a multi-year low of only about a fifth of a cent (premium feeders). Historically, we like to be long feeders/short live cattle when the spread drops to even-money or even inverts. Feeders do not trade at the same price or a discount to live cattle very often. The spread has since reversed and rocketed back up to over twelve cents (premium feeders). The August spread is even higher at a premium of 19 cents (premium feeders). Now we are monitoring the opposite side of this spread! Historically, we like to be short feeders/long live cattle when the feeder cattle trades at a premium of 20 cents or more over the live cattle. In the summer of 2000 feeders peaked out at a premium of 20.57 over live cattle, in October 2001 feeders peaked out at a premium of 22.07 over live cattle, in the summer of 2004 feeders peaked out at a premium of 33.15 over live cattle (all-time record), in the summer of 2005 feeders peaked out at a premium of 32.62 over live cattle, and in June of last year feeders peaked out at a premium of 32.27 over live cattle. (Note to traders: This spread should be traded as a ratio of four feeders: five live cattle since the feeder contracts control 50,000 lbs. each and the cattle contracts control 40,000 lbs. each). Bottom line: Monitoring the August feeder/live cattle spread. Current Trade Strategy: Stand aside.

Grains

Soybeans vs. Wheat - After hitting an all-time low last fall, the soybeans/wheat spread has recovered and traded to the highest level in nearly two years. Historically, this spread has been a great buy when it trades at $1.40 or lower on the weekly chart (premium soybeans). It then tends to run back up to at least the $3.00 area. The July soybeans/July wheat spread exceeded $3.50 at the beginning of April. Going back to 1980, we can see that the spread is "pricey" when beans are trading $5.20 or more than the price of wheat. On the weekly continuous chart, this spread peaked out at $5.53 3/4 (premium soybeans) in 1983, $5.21 1/4 (premium soybeans) in 1984, $6.49 (premium soybeans) in 1984, $5.20 (premium soybeans) in 1997, and $6.57 (premium soybeans) in 2004. Therefore, if the bean/wheat spread gets above five bucks we will be looking for a set up to short the beans and get long on wheat, if it drops back below $1.40 or lower getting we will be looking for a set up to buy the beans and get short on wheat. Bottom line: We are monitoring this spread for a trade above five dollars or a trade below a buck and a half. Current Trade Strategy: Stand aside.

"Crush Spread" - Soybeans vs. Soy Meal & Bean Oil - When a soybean is "crushed", it results in soy meal and soy oil. The relationship between the prices of soybeans and these two soy derivatives is an important one as it is monitored by producers to determine whether to "crush" or process the beans or not. When the "crush spread" is high, producers will process more soybeans to take advantage of the bigger profit margins. When the "crush spread" is low, producers will usually scale back their operations until the profit margin increases again. The "crush spread" is calculated by subtracting the price of soybeans from the sum of soy meal plus bean oil. Since we are analyzing these market spreads from a technical and statistical viewpoint, we will skip the fundamental discussion of this spread. Instead, we will note that the new crop "crush spread" between November soybeans and December meal plus December bean oil is trading in the middle of it's twenty-six year range. The same spread for the 2008 soy crop is at a similar level. Therefore, we are not inclined to jump into a trade at the current time. However, we want to keep this spread on our watch list in the event that it reaches a historical extreme in the future. Bottom line: Nothing to do until there's a trade set up at historic extremes. Current Trade Strategy: Stand aside.

Soy Meal vs. Corn - In February, the price of soy meal dropped to a ten and a half year low against the price of corn. These two markets are related as both are used for feed by livestock producers. However, growing ethanol demand caused additional demand for corn. This is most likely why it outperformed soy meal. Since 1980, the only time that the meal/corn spread has traded at a price spread this low was in 1996. This suggests that this price level is a good time to consider getting long meal and short corn. Technically, this severe down trend reversed in late March when meal rocketed back up relative to corn. The September meal/corn spread broke above a previous month's high for the first time in the last seven months. This spread then pulled back to Fibonacci support area on the daily chart. Traders should consider buying the September spread (long meal/short corn) on pullbacks to support levels. Of course, a break to new lows should be taken as a signal to exit the spread and cut losses. You can always get back in if a new signal is triggered. Bottom line: Look for a set up to buy the September meal/corn spread on a pullback. Current Trade Strategy: Monitor for an entry levels.

Wheat vs. Corn - The July wheat/corn spread is trading just over 90 cents (premium wheat). Historically, this spread has been a great short sale when it trades at the $1.60 - $1.80 area (premium wheat). In the past, when this spread peaked out in this area it would reverse and decline to the 60 cent mark. Quite often it would continue it's decline and make it all the way down to a spread of only 20 cents. On the other side of the coin, this spread has been a great buy when it trades at 20 cents or lower (premium wheat). Historically, once the spread traded at 20 cents or lower it recovered and went back up to at least the $1.00 mark. Bottom line: This spread has to gain at least 70 cents or lose at least 70 cents before we are interested in establishing a position. Current Trade Strategy: Stand aside.

Corn vs. Oats - On a weekly closing basis, there are only four times in the last twenty-six years that the corn market has been priced near $1.80 or more than the oat market: in September 1983 corn reached a premium of $1.86 1/2 over oats, in April of 1984 corn reached a premium of $1.81 1/4 over oats, in July of 1996 corn reached a record premium of $2.88 over oats, and just a few weeks ago in February 2007 corn reached a premium of $1.79 3/4 over oats. (In late February, we sent a Trade Alert to our clients to notify them the spread was set up for a trade on the short side!) The spread has since plunged more than a dollar off the high. Historically, this spread is a good candidate for a short trade when it trades near $1.80 or higher. However, if the spread continues to plunge it could decline to 10 cents (premium corn) or less. If this takes place the spread would be at a price level worth looking at from the long side. Bottom line: Continue to monitor the corn/oat spread for a trade at historically extreme price levels. Current Trade Strategy: Stand aside.

Wheat vs. Oats - Historically, the wheat/oat spread has been a good trade on the short side once it reached $2.60 or higher (premium wheat). In October, the wheat/oat spread peaked out at $2.89 on the weekly continuous chart and has since declined to as low as $1.46 on the front trading month contracts. If it continues it's descent the spread could wind up south of 90 cents or lower. Historically, this would be the level where we want to start looking for a set up to buy the wheat/oat spread. Thanks to the carry-charge, the December wheat/oat spread is currently trading above $2.30. This December spread peaked out at $2.76 in August, $2.83 in September, $2.92 1/2 in October, $2.78 3/4 in November, $2.80 in December, $2.73 in January, $2.75 in February, and $2.63 1/2 in March. Therefore, traders have a shot at selling the December wheat/oat spread on a rally back near the $2.60 mark. Coincidentally, a rally to the current major Fibonacci .618 resistance area (as measured between the daily contract spread high of $2.92 1/2 and the daily contract spread low of $2.08 1/2) would price this spread at $2.60 1/2. Bottom line: Look for opportunities to short the December wheat/oat spread on rallies to $2.60 or higher. Current Trade Strategy: Stand aside.

Miscellaneous

Hogs vs. Corn - The cost of production in the hog business can be monitored by the price of corn. As a matter of fact, some figures put corn prices as representing as much as nearly three-quarters of what it costs to raise a hog. The hog: corn ratio is often used as a historical gauge to predict where hog supplies will be twelve to eighteen months out in the future. Traditionally, a ratio of 2:1 is used as it is roughly estimated that it takes about one 5,000 bushel contract of corn to feed the equivalent of two contracts of lean hogs. However, we want to look at this ratio a little different. What we want to do is compare the current underlying value of the contracts being traded in both markets and find the ratio that would give them close to an equal value. On February 22nd, the December lean hog contract closed at 68.35 cents a pound. Since a contract of hogs controls 40,000 pounds, the value of the contract on February 22nd was $27,340 (68.35 cents X 40,000 lbs). That same day the December corn contract closed at $4.27 3/4 per bushel. Since a contract of corn controls 5,000 bushels, the value of the contract on February 22nd was $21,387.50 ($4.27 3/4 X 5,000 bushels). To equalize the values, you would need approximately 12.7 contracts of December corn for every 10 contracts of December hogs. Rounded up, the ratio of corn: hogs is roughly 13:10. When a spread chart is created by subtracting 13 corn contracts from 10 hog contracts, we can see that the summer of 1996 is the only time since 1980 that this 13:10 spread ratio traded lower than the low hit in February. Also note that this spread has shifted substantially in favor of the hogs before the year was out. Obviously, history suggests that this could be a good level to be short corn and long hogs at a ratio of 13:10. On the daily chart, the 13:10 ratio spread between December corn and December hogs reversed substantially in late March. Technically, the trend has now changed. Traders should now consider buying the spread (with a 13:10 ratio) on pullbacks to support levels, such as the 18-day Moving Average or Fibonacci retracments. Of course, a break to new lows should be taken as a signal to exit the spread and cut losses. You can always get back in if a new signal is triggered. Bottom line: Buy pullbacks on the December hog/corn spread with a ratio of 13 corn to 10 hogs. Current Trade Strategy: Monitor for an entry levels.

Crude Oil vs. Sugar - OK, so this spread sounds a little far fetched. But hear us out on this one! The idea behind this spread is based on the observation that the price of crude oil can impact the price of sugar due to it's usage in ethanol. As crude oil prices rose substantially from 2004 to 2006, sugar rose as well. Sugar was rapidly being converted to ethanol In South America as Brazil grappled with gasoline shortages. Then as crude oil prices plunged in the latter part of 2006, sugar dropped substantially as well. We are going to look at this spread as a ratio to give the markets equal dollar value. To calculate this ratio, first find the underlying value of the contracts being traded in both markets. Then divide the largest value by the smallest value. This will tell you how may contracts of the cheaper market you need to equal the same value of that of the market with the larger premium. For example, October crude oil closed at $69.65 a barrel on April 2nd. Since each contract controls 1,000 barrels of crude oil the underlying value for one contract of October crude oil is $69,650 ($69.65 X 1,000 barrels). October sugar closed at 10.25 cents a pound on April 2nd. Since each contract controls 112,000 lbs. of sugar the underlying value for one contract of October sugar is $11,480 (10.25 cents X 112,000 lbs). Divide the value of the October crude oil contract ($69,650) by the value of the October sugar contract ($11,480) and you get 6.06. Therefore, we need roughly six contracts of October sugar ($11,480 X 6.06 = $69,568.80) to equal the value of one contract of October crude oil. The ratio of sugar: crude oil is roughly 6:1. Currently, the 6:1 spread ratio of sugar: crude oil is trading at levels only seen three other times in the last twenty-four years. In 1984, 1985, and 2005 this current level was met. Within a few months, the spread dropped severely and changed dramatically in favor of the sugar. The current 6:1 ratio spread between October crude oil and October sugar is still climbing on the daily chart as crude oil continues to outperform sugar. This ratio spread has not made a two consecutive day close below the 18-day Moving Average in the last two and a half months. Also, there have only been three times in the last three months when this spread ratio has changed in favor of sugar on a weekly closing basis. So a close below the 18-day Moving Average for two consecutive days could be a potential trigger to enter a ratio spread consisting of short one October crude oil and long six October sugar contracts. Of course, a breakout to new highs after the spread is entered should be taken as a signal to exit the short spread and cut losses. You can always get back in if a new signal is triggered. Bottom line: Watch for a reversal signal to enter the 6:1 ratio spread in October sugar vs. October crude oil. Current Trade Strategy: Monitor for an entry signal.

Disclaimer: There is risk of loss in all commodity trading. The data contained are believed to be reliable, but have not been independently verified by Pearce Financial. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such are subject to change without notice. Pearce Financial will not be responsible for any indirect, compensatory, or consequential damages, including loss of profits which may result from reliance on this data. Pearce Financial and/or its Principals and employees may or may not follow strictly any or all of the trading recommendations contained herein. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

© 2007 Pearce Financial, LLC
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