Don’t over think investment decisions
For June 29th– July 3rd 2009
By: Matthew Bradbard
At this point I’m not sure whether the global recovery has begun or this is just a head fake, who will win the tug of war between inflation and deflation, if Treasuries are the next bubble, if the buying from China is sustainable or when interest rates will be increased. All good questions and heated debates but what really matters is what is working, being agile and spotting opportunities where the risk/reward dynamic makes sense both long & short in commodities is what seems to be working.
To find out exactly how we are positioning our clients in commodity futures and options, Contact us today at 1-888-920-9997.
The DOE reported crude oil supplies were down 3.8 million barrels last week, supplies of gasoline were up 3.9 million barrels while heating oil supplies were down 100,000 barrels. August crude oil finished lower by $1.04 last week. On the weekly chart a bearish engulfing candle formed, if confirmed expect more downside. Continue to use a trade above $72 or below $67 to determine the next leg. Our clients will most likely be buyers between $62 and $65. August RBOB was lower by just over 4 ½ cents as prices are 22 cents off their highs from just 2 weeks ago. Use 1.8150/1.8300 as support with resistance coming in between 1.92/1.9350. If crude falters expect a trade down to 1.70/1.75; the 50 day moving average comes in at 1.7585. August heating oil retreated just over 4 ½ cents as well. Resistance is seen at 1.85 support at 1.75, the 50 day moving average in heating oil is at 1.6470. Crude and both product were down the last 2 weeks, what will this week bring?
The DOE reported underground supplies of natural gas were up 94 billion cubic feet last week to 2.020 trillion cubic feet. Supplies are now up 31% from a year ago. August natural gas was down 8 cents but did manage to close just over the 50 day moving average. Support is seen at 3.85 with resistance at 4.15 followed by the 100 day moving average at 4.27. We continue to accumulate October $5/6 call spreads for clients.
August live cattle traded higher by 10 ticks last week making their way to positive ground now three weeks running. We maintain that an interim bottom was made three weeks ago and since prices have moved 4% off their lows. We are still holding the long August live cattle/short October live cattle spread for clients expecting the spread to come in. Support at 81.60/81.80 with resistance at 82.90 followed by 83.50. August feeder cattle were higher by 72 ticks last week and in three weeks we’ve gone from oversold to overbought. Resistance is seen at 99.90 with support between 97.80/98.00.
The USDA reported there were 66.08 million hogs and pigs in the US on June 1st, down 2.0% from a year ago, roughly as expected. 5.97 million lean hogs were kept for breeding, down 2.7% from a year ago and less than expected. August lean hogs fell 3.80 last week or 6% to a new contract low. Currently some clients are short August futures and long (2) August 62 calls. There is little to no support on the daily chart, resistance comes in at 59.50.
Stocks: The Dow ended the week lower by just over 100 points to close at 8438. The S&P slid ever so slightly closing at 919. The NASDAQ was the only winner climbing 11 points to 1838. Volumes remain light on all exchanges and as we have voiced we feel a correction is underway. From here the pivot point appears to be the 50 day moving average; for the Dow at 8335 and the S&P at 898. From the highs three weeks ago the Dow has come off 5% and the S&P 4%, so if we’re due for a 10-15% correction more should follow. Remain nimble but we are selling rallies for clients.
Bonds: The Federal Reserve concluded its two day meeting keeping the rates unchanged at 0 /0.25%, as expected. They stated economic conditions are likely to warrant exceptionally low levels for an extended period. As of last Friday, fed funds were forecasting a 57% chance of a rate increase by year’s end as compared to 96% a week earlier. September 30-yr bonds were higher by 3’18 points, their largest weekly gain in 14 weeks. Our objective of 120’00 is now within our sites. Resistance is seen at 120’14 with support at 117’16. September 10-yr notes were 1 tick shy of advancing 2 points. Prices have made their way to the 50% Fibonacci retracement level in the last 2 ½ weeks after a sizeable sell-off that started in mid May. Resistance comes in just above 117’00 with support at 115’20. March 10’ Euro-dollars were higher by 22.5 ticks last week, which would be against our current shorts for clients. Continue to scale into short futures or buy puts as the interest rate expectations may have shifted temporality allowing a better entry for would be short sellers. On the agenda this week, how will California deal with their obligations?
Not garnering a lot of media attention but again talk surfaced from China, they would like to see a new international currency and more involvement from the IMF. Currently this is just conjecture but if this was to be considered the dollar would get smoked.
The Euro was higher by 133 ticks last week closing above 1.40, four out of the last six weeks. Resistance is seen at 1.4125/1.4150 with support at 1.3900 followed by 1.3750. One of our top performing CTA’s is long, we have no exposure with our clients outside of that CTA. ECB President Trichet said there has been enough of a stimulus and he doesn’t want to see governments increase their debt any further.
The Aussie traded higher by 34 ticks closing just above the 20 day moving average. Support comes in between .7850/.7875 with resistance at .8060 followed by .8160.
The Swissie was lower by only 12 ticks last week recovering substantially after intervention by their Central bank. After the 276 tick loss last Tuesday we were buyers of July 93 cent calls and we were able to liquidate Friday for a 30% net profit for clients, see blogs from last week. Support is seen at .9100; the 38.2% Fibonacci retracement level with resistance at .9300 followed by .9400.
The Loonie lost 139 ticks last week closing lower three out of the last 4 weeks. Support comes in at last week’s low at .8596 with resistance at .8770 followed by the 20 day moving average at .8884. We may explore September 89 cent calls and/or 85/90 call spreads for clients. Our decision will be based on what we see in energies and metals early in the week.
The Cable was higher by 29 ticks last week. 1.66/1.6650 should continue to act as resistance with support at the 20 day moving average at 1.6370 followed by 1.6175.
The yen gained 116 ticks last week making last week the third consecutive positive week. Support comes in at the 20 day moving average at 1.0360 while resistance is seen at last week’s high at 1.0551 followed by 1.0650.
The Kiwi was higher by 47 ticks producing positive returns four out of five sessions last week. Support is at the 20 day moving average at .6334 while resistance comes in at .6470 followed by .6550.
The US dollar index was lower by 52 ticks last week. 80.00 has served as a magnet of late with prices not straying too far in either direction. Support comes in at 79.60 with resistance is at 81.00. Prices could go either way, we have a bearish bias but a good friend who trades almost exclusively currencies feels that the mother of all short squeezes is coming, so be cautious.
Analyst expect corn acres to drop to 84.2 million, a drop of 1%. Soybean acreage is expected to rise 3% to 78.3 million and wheat is expected to fall 0.5% to 58.3 million. Compared to last year with corn at 86.0 million, 75.7 million for soybeans and 63.1 million for wheat.
July corn was lower by 11 ¾ cents last week as we have gotten the break we’ve been calling for. We will be positioned long into Tuesday’s USDA report on behalf of clients. Trade ideas: long December with stops below $3.95 or long September while simultaneously selling multiple out of the money calls against the futures. In the July contract support is seen at 3.80, resistance at 3.90 followed by 4.00. The fact that the $4 level held on the December 09’contract after multiple selling attempts should bode well for the bulls in coming weeks. The immediate key will be the reaction to the report and then focus will move to the weather.
July soybeans were higher by 17 cents last week, trading higher four out of the five sessions. After a $1.40 correction it may be time for a bounce, much like corn it will depend on Tuesday’s USDA report and the weather. November beans came within ¼ cent of our $9.70 target we had been calling for several weeks, so aggressive traders can start scaling into new crop futures. Make sure you have stop loss orders in place!
July CBOT wheat was lower by 20 ¾ cents last week. July KCBOT wheat was lower by 24 ¾. Both these contracts have lost over 20% from the first of June taking prices to extremely oversold levels. Aggressive traders could get long September with stops below last week’s lows, CBOT at 5.55’6, KCBOT at 5.97. Wheat generally sees harvest lows in June, creating a good seasonal long trade. Entering long positions in early June and holding into November has worked 32 out of the last 40 years. We didn’t bring this trade up earlier because the chart was horrible and now it’s not. Past performance is not indicative of future results.
October sugar ended up 127 ticks or 8% higher on the week, trading to a new contract high; the highest levels since July 06’. Very few commodity traders or investors for that matter follow sugar, but meanwhile prices in the last 3 months have quietly gained 35%. Resistance is seen at last week’s high at 17.75 with support at 16.90 where the breakout occurred. We liquidated all client longs last week taking money off the table and will be adding fresh longs in March 10’ on a setback.
September cocoa was higher by $43 last week but it was a wild week with a trading range of $168 H/L. Read our blogs from last week to see a futures trade that netted clients $600/per overnight. Until a decision on direction is made in the US dollar expect volatility. Resistance comes in at 2570 followed by 2630 with support at 2470. Cocoa may be a good back spread candidate as we may look to sell October and buy December for clients.
October cotton was higher by 59 ticks last week and after three failed attempts to get through the 100 day moving average on the downside prices may well rally. A smaller crop is a foregone conclusion, but regardless confirmation from the USDA Tuesday may be a market mover. Support comes in at the 100 day moving average at 53.15 with resistance at the 50 day moving average at 57.45. The daily chart is starting to look better but the weekly chart is still ugly. We have no exposure with clients currently.
September orange juice was lower by 3.90 cents back to levels not seen since mid-March. Prices are awfully oversold as they have moved lower 19 out of the last 21 sessions. Although it has been a one way trade we are still advising clients to buy November $1 calls. We initially paid $540 per, as of Fridays close their value was $322.50 each, buy more.
September coffee gave up 50 ticks last week closing lower for the last four weeks taking price 18% off their recent highs. Support comes in at last week’s low at 117.55 with resistance at 121.50 followed by the 100 day moving average at 123.10. The December 130/150 call spreads are on our radar but we’ve yet to commit any client funds, Friday settlement was approximately $1450/per.
August gold closed up $5.90 last week supported by the expectations that the world’s low interest rate climate will continue, at least through the end of this year. On the weekly chart a bullish engulfing candle was formed. Support comes in at the 50 & 100 day moving averages that both sit just above $930. If $930 was breached we would expect $915 to hold. Resistance is first seen at $950 followed by $967. To gain exposure for clients currently we’re advising $100 call spreads in October.
September silver was lower by 6 cents last week which is not a big deal but it did mark the fourth consecutive negative week. By week’s end silver did start to show some life though closing 52 cents off the weekly lows. We continue to position clients in $3 December call spreads paying between $2-3,000 per spread. Support is seen at the 100 day moving average at $13.63 while resistance comes in at $14.35/14.45 followed by $15.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions.
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