MB Wealth Corp. Weekly Commentary
For September 10th - September 14th 2007
By: Matthew Bradbard Are we living in a world of denial? The housing market is terrible and will get worse, the consumer who has kept the economy afloat is spending less and pulling back on the reins. I’m not sure what type of spin the pundits will put on Friday’s job number, but the way I read it things are not good. I try not to be a pessimist but rather a realist; with the worst jobs number in 4 years, millions of foreclosures around the corner, and a shaky stock market we are in for a bumpy ride. I cannot stress enough how important it is to get your portfolio in order and position yourself defensively in securities, bonds, cash, and commodities as you see fit. It’s in times like these that being cool, calm, and collected by making money management your primary objective an investor, money manager, or broker earn their salt. MB Wealth has learned some valuable lessons ourselves being caught in some unfavorable positions of late; the key is to learn from your mistakes and do not repeat them. To find out exactly how we are positioning in commodity futures and options, Contact us today at 1-888-920-9997. ____________________________________________________________________ Crude moved a bit more than we anticipated, but I guess that’s what happens when a market trades higher 6 days in a row. This market should take a breath and correct, this would be healthy, and set up for the next leg that should take crude above $80. Buy dips and stop fighting the tape, this market is moving higher. Many of my clients have said to me they missed the move; they said this at $50, they said this at $60, they said this at $70, and well you get the picture. OPEC is scheduled to meet in Vienna on Tuesday September 11th and we do not anticipate any policy changes. Retail heating oil prices are projected to average $2.85 per gallon during the approaching heating season (October through March), compared to $2.48 last heating season. Rising crude oil prices and projections of lower distillate inventories going into the heating season, combined with the assumption of a colder winter than last year, are the reasons for the projected increase. As we said last week if you can exercise patience holding heating oil for the next few months, it could be advantageous. Use any set back to get long lightly and parlay this position because if you get in too heavy from the onset the volatile moves that you will experience may take you out of the trade. We favor the short side of gasoline if we had to pick a direction. Our feeling is that the highs have been made and we are currently content on the sidelines. Natural gas rallies continue to be sold as we soon could see a $4 handle. We will still buy cheap call spreads into the winter expecting demand to turn and with the threat of hurricanes this market could turn on a dime, then the options will be too expensive. ____________________________________________________________________ It appears both live and feeder cattle hit interim highs over recent weeks and we would expect a retracement unless there was a serious break in grain/feed prices. We are looking to re-establish longs from lower levels on October cattle on a pullback and will keep you apprised when we are entering. Trading Pork bellies is like being part of a small club, the open interest in February 08 is 703 contracts. If the low is held, you could get long with a stop below the contract low of 86.25, but picking a bottom especially in a thinly traded contract, is not always wise. Lean hogs are starting to show signs of a reversal but most likely only a bounce to 69/70 cents before the trend lower continues and we would prefer to sell rallies than buy dips for now. ____________________________________________________________________ Stocks: The stock market made an attempt to rally early last week but was stopped in its tracks and reversed violently by weeks end on weak economic numbers. This week on a break of 1450 in the S&P we would expect 1425; on a break of 13100 in the Dow we would expect 12825. We are convinced that the indices will revisit the most recent lows and either make lower lows or find significant buying…stay tuned. In either scenario we sense it is a foregone conclusion that the lows will be tested relatively soon. For what it is worth I would caution you about averaging down and bargain hunting just yet! Bonds: We hope someone listened over the last few weeks when we have been telling you to get long debt. Regardless of what end of the yield curve you were handsomely rewarded last week by being long and we do not think this party will end in the immediate future. The market is pricing a rate cut so as long as the fed answers the call debt should in the short term continue to appreciate. Where the problem lies is, we are not convinced just yet that the Fed will move on September 18th. We do feel rates will be lower by years end but with three scheduled meeting will they move next week is the question? Stay long trailing stops and if you have not moved from September to December yet, you should. ____________________________________________________________________ Corn: Exports were good again coming in at 855 t.m.t. Some private crop forecasters are projecting a slight increase in corn production from the August report, pegged at 13.054 b.b. with a 152.8 bushel per acre yield. This report could potentially catch some with their pants down coming in bullish or bearish as we had one of the most uneven and extreme weather seasons on record. If the higher projections are correct, old crop corn should find its way closer to $3.00 and a harvest low. But any harvest pressure if it occurs, should be used as a buying opportunity for 2008 contracts, as corn remains long term bullish. Even with the huge increase in planted acres this year and our ending stocks gaining, we have little room for any production concerns. Corn established the acres it needed in 2007 but can it hang on to them in 2008 as beans and wheat try to steal acres back. Beans: After putting on a dollar in less than three weeks it appears the rally is running out of gas. The USDA crop report looks to be very volatile to beans, as there is not a lot of room for error. The August report had a crop of 2.626 b.b. and 41.5 b.p.a. yield. A yield of 40.0 b.p.a. would take the stock to usage ratio to a record low. We are really at a crossroads in beans and the report should govern where beans go from here. A close under support is very bearish and could lead to a 50% retrenchment of our recent rally from $8.04 to $9.16 to $8.60. On the other hand, a close over $9.16 sets us up for a test of contract highs of $9.50. Wheat: I remember what a fellow trader told me years ago; the cure for high prices is higher prices. Friday's weekly export sales report showed 718 t.m.t. of wheat was sold last week down 42% from the week prior but only the second in the last eight weeks to be under 1.0 m.m.t. It suggests that last week's contract highs have importers backing off and with prices remaining high we may start to hear talk of price rationing. We maintain that we are very close to top, but feel incapable of picking the top. Rest assured we will be there to capitalize because when wheat breaks it will fall like a house of cards. The main two reasons why we feel the top is relatively near: With Canada, Australia, and Argentina getting back in the export game in coming weeks we will not be the only port of origin, additionally, we expect a significant jump in planted acreage domestically with prices at this level,i.e. more supply. ____________________________________________________________________ The Dollar is sitting on the edge of a cliff closing below 80.00 on Friday, near a 23 year low. Serious chart damage will occur on a break that we view as “when” not “if.” Continue to sell rallies and trail stops on the dollar. We feel the significant weakness in the dollar will play a factor on ultimately what the Federal Reserve will do at their meeting on September 18th. Being on the sidelines in currencies cost us a few bucks last week as almost all currencies exploded higher on dollar weakness. While the ECB and Bank of Canada both left rates unchanged, they indicated that future rate increases may be needed. That being said the Euro should be well supported around 136.50 and looks poised for a challenge of the contract highs, the Loonie looks range bound and we’re not interested. We will keep a buy breaks mentality in the Aussie still looking for an eventual move to 85.00, but remain cautious short term as the strength in the Yen and carry trade activity is having a negative impact on the Australian currency. We are neutral on the Cable and feel there is too much “what if” in the Yen to currently take a position. With the global equity market on eggshells, despite recent problems, the Swiss franc has started to be a source of safe harbor buying, gaining an impressive 2.5% last week. Seasonal strength may also be lending support as September into October has generally seen Swiss franc appreciation for the last 15 years. On a move above 85.00 look for a continuation to 86.00 potentially 86.50. ____________________________________________________________________ We continue to be buyers of Cocoa as long as the recent consolidation holds. On a break in the US dollar or more news on black pod disease we would expect a move back to 1900 which serves as the 61.8% Fibonacci retracement using October 06’ low and June 07’ high. Trading Sugar of late has been like watching paint dry, sugar remains caught in a 30 tick trading range for the better part of three weeks. We continue to play sugar by buying 08 calls but in a choppy to sideways market our premium is decaying so do not get too heavy. Still, we feel the risk is worthwhile being that funds continue to hold a hefty net long position and historically the fourth quarter has been friendly to sugar. In terms of Coffee the only thing that has been moving this market is weather. Coffee remains range bound and we think you can find better places to put your money to work. FCOJ rebounded late last week after making a contract low of 110.80. With private estimates of a larger than expected crop, this market may stay under pressure until October’s USDA crop report, but the chart is starting to look bullish and whispers of any pick up in hurricane activity could get this dog moving so keep it on your radar. Cotton remains above the 200 day moving average but has retraced of late finding support around 60.00 in the December 07 contract. We are in “wait and see” mode here but will be a buyer on dips thinking that cotton will be a major contender for the MVP in the race for acreage for 08 looking for 08 Cotton contracts to see new contract highs. ____________________________________________________________________ Of late precious metals have not been trading on fundamentals but rather on the economy. While a flight to quality move into metals is supportive, if investors run for the exit doors in stocks, some may sell metals to cover margins. So all things considered we are bullish but will be ready to leave metals if a weakening stock market spills over into a metal’s liquidation. As stated in previous weeks when gold breaks out of the wedge it should move decisively in the direction of the breakout. To catch those of you up who are unaware of what I am talking about gold was approaching the apex of a wedge that had been two years in the making and broke out last week on a trade and closed above $694.0. December 07 gold as of this writing is trading at $710.0 and on a settlement above $723.0, look out she is a running (in our opinion) to $760 quickly. Buy dips, be patient and hold. We are trading a multitude of strategies in gold via futures and options so contact us for clarification. Silver has also moved higher in recent weeks, December 07 on the verge of punching through the 50 day moving average of $12.79. After reaching $13.00, Silver should encounter some resistance. If we see a pullback from there it is advised to jump on board as we feel the Silver Bullet is moving to at least $14.00 and with increased uncertainty and flight to quality buying maybe $14.50. We would prefer the short side to Copper but do not like the risk to reward so will remain spectators as opposed to speculators. With the housing and auto sectors waning copper most likely will find its way back to below $3.00/lb.
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