MB Wealth Corp. Weekly Commentary
For August 6th - August 10th 2007
By: Matthew Bradbard A funny thing has happened with investor’s approach in risky, volatile, speculative investments. Oddly enough over the past few weeks the secular bull market in commodities has remained intact. The benchmark for global commodity performance, the Reuters/Jefferies-CRB Index, closed at 319.00 Friday. Down less than 2.0% from its recent highs two weeks ago, which coincided with the peaks in the equity markets. It is actually up almost 1.0% since the equity sell off began gaining momentum last week. Commodities are benefiting from the fact that the financial market uproar has not, to date, been an economic story. The economic fundamentals underpinning demand for raw materials and fuels remain relatively solid, especially outside the United States, while supplies of many commodities remain tight. That continues to lend support to commodity prices even as financial markets attempt to adjust for a non-economic threat, namely growing credit risks and sub prime woes. As mentioned in prior newsletters, commodity price appreciation is a global growth story and we do not see it abating anytime soon. To find out exactly how we are positioning in commodity futures and options, Contact us today at 1-888-920-9997. ____________________________________________________________________ Crude oil hit an all-time high Wednesday at $78.77 on September. This year alone, oil is up nearly 30% - much of that rise has come in the past few weeks. Still, it looks like oil prices could be headed even higher. Surging demand coupled with concerns about tight supplies is sending crude prices up, and there's no relief in sight. There is market momentum and the magic number now is a breach of $80. If we get thru that, most people believe oil will head to $90 or even higher. The charts presently support a profit taking led correction that we will use to get long. In the interim, we continue to buy the back and sell the front looking for a backwardated market to soon be trading contango. Gasoline prices backed off a little this week after the DOE said that U.S. refinery use increased from 91.7% to 93.6% of capacity last week. September gasoline fell almost 6 cents on the week, the lowest close in three months. September natural gas was down nearly 30 cents to $6.09, near its contract low with plentiful U.S. supplies. Trying to pick a bottom is tough nevertheless we feel getting long ahead of impending hurricanes and warmer than expected temperatures is wise but only with bull call spreads as futures we view too risky under current market conditions. ____________________________________________________________________ October Live cattle was virtually unchanged on the week after hitting a contract high of 100.15 on Wednesday. Our target of 100 was hit but prices did not stay there for long. Hog prices continued to surge to new highs with little mention of the move in the news. The longer this move stays out of the news the longer the move should last. In other words once the media grabs a hold of it, it is generally too late. Fueling the gains in lean hogs was fund buying, short-covering, speculation of additional sales possible to China, and reports of firmer cash prices being paid by some packers for next week. ____________________________________________________________________ Stocks: It was inevitable this day would come. By our calculations we are about half way done in a correction that should take the Dow to 12,700 and the S&P to 1360. We remain cautious, taking on new positions long or short in the indices with recent volatility but will once again advise stock traders to hedge your stock portfolio with shorts in futures or put options on the indices. Bonds: Fed-funds futures contracts, which are priced on investors’ interest rate expectations, indicate investors expect the Fed to lower rates by a quarter point to 5.0% by years end. The Fed’s next meeting is Tuesday and although we do expect a change in the verbiage we do not expect a change in rates. Remember this Fed has been clear that their primary concern is inflation not the fortunes/misfortunes of Wall Street. Although the entire debt market is technically overbought with a further leg down in equities expect new highs on both ends of the yield curve. Be careful picking your spots as volatility is the name of the game and presently we like the view from the sidelines. ____________________________________________________________________ Get positioned ahead of the next USDA crop report on Friday August 10th. Corn: Conflicting reports on corn yield last week vary from 148 bpa up to 153 bpa. The forecast for next week is anyone’s guess as we have heard both, hot and dry and warm and wet. Technically corn is consolidating in a 20 cent range trying to make a bottom. Whether it be fund buying or a weather related up tick on a close above the 20 day moving average of $3.43 level we would add to our longs. There should be buy stops above the $3.45 and a trade above would get some momentum behind corn and we could see a $3.65 trade on December. On Monday afternoon we expect to see another cut in corn crop’s condition which has been an ongoing theme in recent weeks. Beans: Yield estimate for soybeans was deemed a non-event coming in line with expectations. This has been a tough market to trade as no strong argument fundamentally or technically can be made for a move higher or lower in prices. It does not help that on a daily basis weather ideas differ from forecaster to forecaster. The short term ideas suggest buying breaks as weather premium should be built in. Within the Soybean complex if you must be involved we like getting long December Meal looking for a move to 240 and ultimately to 260 if beans can get moving north. Additionally, we like this trade because we can put tight stops in below recent consolidation. Wheat: Weekly export sales have been impressive the last two weeks but prices have of late stayed contained. We are starting to think if highs are not already in place we are getting real close to a top and a trend reversal. The technical picture does not suggest a top yet, but we are looking for signs of weakness. Food for thought………The wheat/corn spread over the last two weeks widened to over $3/bushell, its widest level in at least 30 years, triggering some traders to unwind the spread. Even a bolder move would be to reverse on the spread which we started to do last week. The average on this spread over the last 30 years is 1.50 premium to the wheat. ____________________________________________________________________ With out a significant change in Fed rhetoric on Tuesday, we will continue to sell rallies in the dollar and buys dips in most foreign currencies. Canada's real GDP was up 2.5% in May from a year ago. The September Canadian dollar gained 1 cent on the week to 95.07 which is impressive after posting a low of 93.56 just two days prior. After a recent break the Loonie is back on track moving towards parity. The European Central Bank kept its interest rate unchanged this past week, at 4.0%, but many are expecting a quarter-percent increase later this year. The Euro showed renewed strength late last week and we expect to see an attempt at 140 in coming weeks; buy dips. The unwinding of the carry trade may have started. The yen is finally showing some strength against the dollar. The short term trend remains positive although we are getting a bit overbought after a 3.0% appreciation the last two weeks. Although we think the longer term trend has changed we feel the yen has gotten ahead of itself and should retrace a little this week. Much of this will depend on if the equities market can find some footing and even trade sideways this week. The trade has and will remain stocks down yen up. The Swiss franc has also attracted funds as a flight to quality putting in an impressive showing, gaining 1.50 cents on the week reaching levels not seen since December 06’. We expect further strength and expect the 84.30 level that did serve as resistance to now serve as support. ____________________________________________________________________ September cocoa dropped $21 to $1893, the lowest close in over a month. After piercing support levels of $1950 last week, prices looked poised for a further move down to $1850 where we would consider getting long. In the face of the large move up in crude, sugar is acting stubbornly as there seemingly has been a correlation in price movements in the past. We would attribute the recent disconnect to the fact that we still have large supplies in sugar, however as we work our way through the large supplies seeing a gradual increase in prices does seem likely, as long as oil remains above the $70.00. We continue to accumulate March 08’ calls on expectations of 12 cents a lb. by years end. December coffee gained 4.85 cents this week, ending at $1.2155, the highest close in nearly two months closing solidly above the 100 day moving average. We most likely will not get the break we were looking for on our September contracts, on a pull back look to buy December bull call spreads. FCOJ futures posted an impressive day Friday moving lower in the morning filling a downside gap only to close 1.20 cents higher on the day. We are nearing our 149 target for September and will continue to trail our stops up. Cotton process traded higher on the week but we remain on the sidelines still looking to get long, but at lower levels on December or maybe even March 08. We do not trust this recent advance that has occurred on extremely light volume. On a grain correction we feel Cotton could be hit hard however keep this on your radar because we sense 80 cent cotton seems likely in 08’. ____________________________________________________________________ Gold was quiet for most of the week until Friday, the December contract ended the week up over $13.00 at $684.40 after weak economic news and ongoing concerns about the sub prime market pushed investors into gold. Resistance lies at $687 and it may take a dollar break of 80.00 or continued weakness in the equities market to propel gold to and thru $700. We feel this is a foregone conclusion that it is a matter of when, not if. Understand past performance is not indicative of future results but in the current market environment we feel it would be smart to a have a portion of your portfolio allocated in metals. The fourth quarter is around the corner and has typically been a time of strength for gold. We are currently positioned long in October and December options. On a close above the 50 day moving average in Silver of $13.14 on September, we would expect $13.50 in a hurry. Both daily and weekly charts look friendly and we maintain our target of $14.50 by years end. Have you ever heard the saying “Doctor Copper” know best! Copper prices continue to be concerned about softness in the U.S. economy. As mentioned last week on a breach and close below $3.45 on September expect downside follow through.
____________________________________________________________________ |
