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Hot Chocolate

Cocoa – Cocoa futures are trading higher for the sixth consecutive trading session, bolstered by tight supplies and rough weather conditions. The seasonal Harmattan winds from the Sahara have been fiercely blowing over the main growing region during a dry past week. If the arid conditions persist, the likelihood of a very small midcrop increases dramatically, which could lead to tight supplies over the summer. Ivory Coast arrivals set to begin October 1st are up by over 60,000 tons over the 2006-07 crop year, but the pace has slowed recently. There are also indications that supplies from neighboring Cameroon may be tight. Cocoa has gotten some outside market support due to the slumping Dollar, which may continue if the greenback is unable to stabilize. March Cocoa is close to testing recent highs of 2237 and prices may need to break above these levels to get some renewed buying pressure. The market is approaching overbought conditions on the 9-day RSI, which could put some downward pressure on the market in the near term. Support comes in at 2193, 2173 and 2161, while resistance can be found at 2225, 2237 and 2257.

Wheat – Wheat finished limit up in the front month March contract on a slumping U.S. Dollar and lower shipping costs, both of which could keep export demand strong for the old crop. Wheat received quite a bit of outside market support, as there was a broad rally in commodity prices. Old crop supplies remain very tight and the recent tightening of spreads between old and new crop seem to have reversed over the past few trading sessions. Widening spreads can be attributed to the weak greenback and lower shipping costs, as both of these factors would indicate the possibility of strong short-term demand, but it is unknown if these conditions will persist. Export controls by Russia and Argentina have also aided prices and opened the door for more U.S. exports. The limit move pushed March Wheat toward the recent high close of 962.50. A breakout above this recent high could spark buying and bring about a test of the $10 mark. Momentum has turned sharply higher and is outpacing RSI, suggesting a bullish near-term bias. Support comes in at 943, 923 and 913, while resistance can be found at 973, 983 and 1003.

S&P – Stock futures are higher this morning on renewed confidence and expectations that durable goods orders will rise. In his State of the Union Address last night, President Bush indicated that he wants Congressional legislators to put aside partisan politics and put together a stimulus package quickly. There has been some skepticism on how quickly such a package could be put into action because of the vastly different way in which the two political parties want to offer aid to consumers. Durable goods orders, released at 7:30 AM CST, are expected to rise 1.5 percent after falling the previous 4 months, which could hint that there is some life left in the economy. Consumer confidence is expected to fall to 87 percent, but it would not at all be surprising to see the figure come in closer to 85 percent due to the bad press the economy has gotten recently. Traders are betting that Wall Street will be able to bully the FOMC into a half point rate cut on Wednesday, lowering borrowing costs. March e-mini S&P futures were not able to make much headway technically, despite rallying strongly yesterday. 13,900 remains the barrier that the market may have to cross in order to gain a bullish bias. Support comes in at 1323.75, 1293.00 and 1275.75, while resistance can be found at 1371.75, 1389.00 and 1419.75.

Rob Kurzatkowski, Commodity Analyst