Crude, Copper Plunge After Big Holiday Rally

Commodities crumbled Tuesday, falling by their most in eight weeks as energy, metals and agricultural investors unwound much of the heady gains made on thin holiday volume over the past two weeks.

The Reuters-Jefferies CRB index dropped 2 percent in its sharpest one-day fall since mid-November after investors and traders worldwide returned to work from holidays to find many markets had run up to their highest in two years or more.

Crude oil fell more than 2 percent on Tuesday while soybeans dipped almost 1 percent, both having hit their highest since mid-2008 in recent days. Soft commodities fell harder, with cocoa down more than 3 percent.

Copper fell 2 percent in New York, its sharpest drop since Dec. 15, after having hit a succession of record highs as traders figured the constrained supply and a lack of substitutes made it one of the top picks for 2011.

Activity across all markets picked up dramatically as traders returned from holiday, with volume at mid-session already in excess of any day over the past two weeks. (more)

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The American Dream - Viva Las Vegas Style

With every New Year’s resolution, optimism and even the expectation that the future will get better has long been a staple within the popular culture. By nature, people want to believe in a better society. The American Dream means different things to diverse people, but it always had a vision for great achievements and daring exploits. America was great because she dared to forge an independent and freedom loving country.

Las Vegas is the kind of region that evokes strong and varied reactions. Many people see Vegas as freedom and a state of mind, while others curse it as a Sodom and Gomorrah, den of iniquity. Yet when you strip away the glitz, glamour and gambling, you get down to the real guts of the metropolis – MONEY. (more)

Buy or Sell: Silver and Treasuries?

There’s very little to report from the broad market this week because precisely nothing happened since we last spoke. Our sell call went out two weeks ago, and we stood 50 Dow points higher at the beginning of the day than we did then, with not a whole lot of movement achieved higher or lower along the way. Volume, of course, has been negligible during this same the period, a phenomenon that should come to an abrupt end now that the holidays are over. The coming week’s trade, including today’s bull run, should prove decisively which way we’re headed for the near term.

That said, there have been developments worth reporting, foremost among them a condition that persisted for the entire month of December. Believe it or not, the S&P 500 traded in overbought territory every day this last month. That is, price action on the index remained more than one standard deviation above the 50 day moving average for the entire period, a condition that most observers agree constitutes ‘overbought’.

What Does it Mean?

Possibly nothing. There’s not a lot of correlation between stocks, or even whole indices, trading in overbought territory for extended periods of time. That said, it’s certainly not prudent to be a buyer at this stage. If the market remains overbought for another week or two, maximum, there will very likely be some sort of retreat that brings both price and sentiment back to historical norms.

As far as shorting the market goes – as we recommended in our last missive, Short Bunny – the overbought data adds a few more pounds to an already weighty short-sell argument.

This might, too: (more)

Three Sectors Ready to Lead 2011 (IJR, XLK, FDN)

The predictions are in and today begins the 2011 market year. I have read everything from the markets crashing to a 50% gain in equities this year. As with every year only time will tell and the key is to take what the market gives and be disciplined enough to capture the move up or down. The one word that summarizes all the discussions is optimism. In fact, that is the one word I would use to describe the year, optimism. The outlook is optimistic the economy will improve, jobs will grow and the overall global economic picture will be healthy.

With that in mind there are three sectors to watch as we begin the new year. First, small cap stocks (IJR), the January effect revovles around small cap stocks. The statistics show January is the month that sets the tone for the sector. Thus, we should pay attention to the sector heading into the new year. Technically the small cap stocks have been performing nicely already. In December IJR was up 7% for the month. One would have to ask if the January effect came in December as the Santa rally came in early December versus the end of the month? I still like the outlook for the small cap stocks and for that matter mid-cap (IJH). The chart below shows the pullback to support last Friday and the solid uptrend in play as we begin the new year. (more)

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Watch CDS Prices

Vigilantes Sidelined as Growth Tops Deficit Among Treasury Swap Investors

The worst performance by Treasuries since the second quarter of 2009 reflects prospects for faster U.S. economic growth rather than concern that rising budget deficits will drive investors away from government debt.

While the average yield on Treasuries rose to 1.89 percent from 1.42 percent at the end of September, according to the Bank of America Merrill Lynch Treasury Master index, the price of credit-default swaps tied to U.S. debt declined to 41.5 basis points from 48.4 basis points at the end of September, Bloomberg data showed. The dollar rose 1.5 percent against an index of currencies of six major U.S. trading partners.

The drop in swap prices and the greenback’s strength shows bond vigilantes aren’t ready to punish the U.S. for its spending. Pacific Investment Management Co. and JPMorgan Chase & Co. raised their growth forecasts after President Barack Obama agreed to extend George W. Bush-era tax cuts as reports show gains in retail sales, manufacturing and consumer confidence.

“More than anything else, it’s a growth story,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “From the fiscal stimulus to the monetary stimulus to the tax extensions, it’s the belief that the U.S. government is all in.” (more)

DPZ: How to Net a 15% Gain From This Fast Food Trade

Domino's Pizza Group ((NYSE:DPZ)) is the world's largest pizza delivery chain by market cap.

The pizza company operates more than 9,700 franchised and company-owned stores across the globe and appears set to grow further.

Domino's is booming internationally, especially in India, where 70 new stores were built this year. As the country's number one restaurant chain, same-store sales were up 41% in the first half of 2010.

In the United States, same-store sales increased 11.7% in the third-quarter, and the company projects more than 19.2 million pizzas will be sold this year.

Around the world, cost-conscious consumers have been choosing Domino's. That's because, at many locations, customers can buy two medium, two-topping pizzas for just $5.99 each. These pizzas feature a reinvented recipe with sweeter sauce, higher quality cheese and garlic-seasoned crust. (more)