MB Wealth Corp. Weekly Commentary
For September 3rd- September 7th 2007
By: Matthew Bradbard When trying to figure out what the Fed’s next move is try to remember what their role is. Their two primary duties are maintaining financial stability and controlling inflation while preventing recession. Now, the Fed has stated that they are willing to do what’s necessary but that is left to interpretation. For now, markets have calmed and investors can take a sigh of relief that the month of August is behind them. After assurances from the Fed and the White house that the severe anxiety will soon begin to mitigate in the mortgage sector and lack of liquidity will abate the economy is attempting to get back on solid footing. This will be a slow and arduous task and will test even the savviest of investors. The most recent turmoil has created opportunities in several commodity sectors and will continue to have an impact in the coming weeks to months. To find out exactly how we are positioning in commodity futures and options, Contact us today at 1-888-920-9997. ____________________________________________________________________ The big news last week in the energy markets was when the Department of Energy said that U.S. gasoline supplies were down 3.6 million barrels to 192.6 million barrels. That represents a 20 day supply, which is the lowest on record. Bottom line, the U.S. refining activity is not keeping up with demand and this most likely will lead to higher prices. Heating oil supplies are down 34% from a year ago as we head toward winter. With the clock ticking refiners are not able to switch over to heating oil because we still have over a month of hurricane season and the driving season is still upon us. That being said if you have the staying power and patience we would recommend buying heating oil a couple months out on pullbacks looking for a grind higher in prices in coming months. Although current supplies may not be ample for heating oil or gasoline that is not the case for natural gas. So far this season, there have been no damaging hurricanes in the Gulf of Mexico and temperatures have been normal so supplies remain abundant. October natural gas made a new contract low overnight trading near $5.30, a far cry from $7.30 where it traded just three weeks ago. Although not our favorite play, buying call options at this level is an attractive proposal as we view when the reversal happens it will be violent. Crude oil bounced off the 38.2% Fibonacci retracement taking the 07’ lows and highs and has reversed picking up five dollars in the last week. Our target from last week of $74 was reached and we expect to see sideways choppy action between $73-75 this week. With no policy changes expected on an upcoming OPEC meeting we will still continue to buy breaks. ____________________________________________________________________ Last Friday's big news of a pork sale to China turned out to be a one-day wonder as October hogs fell almost 4 cents closing the week at 66.82. In their weekly "Hog Outlook," Glenn Grimes and Ron Plain wrote that consumer pork demand was up 1.7% in the first seven months of 2007 from a year ago, but exports were down 3.5% in the first half of 2007, the first decline in 15 years. We are on the sidelines in hogs and bellies. It appears both live and feeder cattle hit interim highs last week 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 this pullback, approximately 112.75 on feeder and 96.00 on live cattle. ____________________________________________________________________ Stocks: Apparently the market likes what it heard from Bernanke and Bush! Indicies pushed above resistance and appear poised for a move higher until the next shoe drops. Although we are not convinced, we must trust the charts and the Dow should pop to 13635 before encountering significant resistance and the September S&P should attempt a move to 1510. Bonds: As we stated last week we will be a buyer of bonds on the breakout. The only change is to trail a stop because without follow through this week bonds will start to look heavy. Regardless of what end of the curve September is generally bullish for the debt market, so you may want to use dips as a buying opportunity. ____________________________________________________________________ Corn: Thursday's weekly export sale’s report showed 1.430 m.m.t. of corn was sold, up from 1.000 the week prior. Corn prices on the board held up nicely on the week, even though talk of better yields and seasonal harvest pressure lies ahead. The longer term psychology is bullish for corn into spring as corn looks for strong cash buying by ethanol producers and prices will need to trade high enough not to lose acres gained this year. Near term look for the market to continue to price in what appears to be a very good yield, considering the irregular growing season. December futures have support at 3.25 and resistance at 3.60 and we would expect to stay within that range although we anticipate the new crop advances further once a harvest low is in place. Beans: Thursday's weekly export sale’s report showed 404 t.m.t. of beans were sold last week. It shows a healthy appetite for beans even at lofty prices as harvest looms. After a three week 90 cent rally, is this market running out of gas? Currently we are torn and think beans could go either way short-term. Beans seek a price high enough to find at least 4/5 million acres more on fear stocks could run out in 08/09. To turn charts bearish we need a close under 8.77 then 8.59 which serve as the 61.8% and 50.0% retracements. If funds continue to look to buy acres as they did last year then $9.00 serves as key resistance Wheat: Thursday's weekly export sale’s report continued to confirm our impressive export pace with 1.232 m.m.t. sold, with six of the last seven weeks showing exports in excess of 1.000 m.m.t. This market is feeding off itself looking for bullish news around the globe from weather in Australia, sales to India, and fund buying domestically. Fund buying capitulated wheat to new contract highs taking wheat above $8.00 per bushel. This rally has hinted at signs of a top with profit taking on Friday but demand driven rallies historically will end only when prices get high enough to change demand or someone brings product to market with harvest. September will bring Canada and Australia back on line with Argentina soon to follow. Although it has been painstaking at times, our vigilance in the corn/wheat spread should be rewarded handsomely in coming months so if you can endure, hold that line. ____________________________________________________________________ We will continue to sell rallies in the dollar but will not get overly committed being that we have a Fed meeting in 2 weeks that will set the tone for the interest rate policy for the remainder of the year. We are not convinced that the current Fed will do anything on September 18, but do feel by year’s end rates as well as the value of the dollar will be lower. We are neutral on international currencies with the exception of the Australian dollar. We prefer the long side looking for 85.00 in coming weeks as a trade, and building a position looking for new contract highs by year’s end. ____________________________________________________________________ Even though we will want to get short in coming weeks because the growing cycle for now we remain long December cocoa with stops below recent lows. Coffee has remained contained within a 5 cent trading range and we will play the breakout looking for either 110 or 130 depending on the direction of the breakout. Sugar prices have tended to decline into late September in anticipation of new supplies and also deliveries against October futures. With five months before the next deliverable contract, consumers buy through the end of the year and if we get a break we will continue to buy 08’ calls looking for higher prices into next year. The US construction season traditionally ends with Labor Day and with that, demand for lumber declines and prices can collapse into October/November. December cotton prices got a boost on Thursday after the USDA said that exports in the new 2007-2008 crop year were up 59% from a year ago. Cotton, now trading above the 200 day moving average should be approached from the long side and the bid for acreage may have begun. If November OJ fails to trade back above 121.00 in coming sessions we would expect a further slide but we choose to remain a spectator here. ____________________________________________________________________ Copper prices have been sensitive to the international spread of credit problems related to subprime mortgages, and if copper is any indicator, things are improving. December copper hit a low of $304.00 on August 15th at the height of the panic. Since then prices have rebounded and gained 10%, ending at nearly $340.00. If the world's central banks were successful in squelching the latest liquidity panic by injecting major amounts of cash into the markets, one beneficiary could be gold. Gold favors low interest rates and, in light of the recent credit crunch, several countries have delayed their plans to raise rates. December gold is clawing back to the $700 mark and in our estimation should arrive there this month. September is the beginning of the shopping season which is the busiest time of the year for the jewelry industry accounting for roughly 40% of yearly sales for gold. Given the strong demand and supportive story with a weakening US dollar traders should use any dips as buying opportunities. During recent turmoil when gold lost 7% silver lost nearly 16%. Although silver does not grab as many headlines as gold, we feel just as bullish if not more on silver. Not only will silver move in sympathy with gold as a flight to quality or safe haven play, silver has more industrial uses and should benefit from a seasonal increase in demand. We would look for a move up to a minimum of $13 in coming weeks.
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