For April 6th– April 10th 2009

By: Matthew Bradbard

“Half empty or Half full?”

As G-20 leaders met last week to deal with the global crises there seems to be a growing sense that the worst of the financial crisis may have past. We couldn’t disagree more and think there are still rough times ahead. The FASB approved a change in accounting standards that gives banks more flexibility in how they value distressed assets. Some say the new rule will increase bank profits by as much as 20% and will apply to most companies in Q1, but it may just be another cute way to cook the books. It is naïve to think that because these toxic assets aren’t on the books that they just vanish into thin air. Until we flush the system and world leaders recognize that this problem, which took years to develop may take years to work out, we will continue to live in fantasy land. I’m not a pessimist or an optimist, I’m a realist. That being said there will be plenty of opportunities to profit and we will seek to identify them for our clients.

To find out exactly how we are positioning our clients in commodity futures and options, Contact us today at 1-888-920-9997.

____________________________________________________________________

The US Department of Energy said crude oil supplies were up 2.8 million barrels last week, supplies of gasoline were up 2.2 million barrels while heating oil supplies were up 300,000 barrels. May crude oil closed up 26 cents on the week, but that alone doesn’t say a great deal being prices had a $6.64 trading range. Crude oil has now moved higher for 7 consecutive weeks and I still find myself trying to convince investors that an interim bottom was made. Support is seen at the 20 day moving average at 50.20 with resistance at the high from 3/26 at 54.66. May heating oil was lower last week by just over 1 penny. Support comes in at the 20 day moving average at 1.3475 with resistance between 1.5125 and 1.5175. Heating oil should continue to follow the direction of crude, we have no trading suggestions currently. Some clients have expressed interest in getting long RBOB and short heating oil but we have yet to commit funds. May RBOB was higher by 65 ticks last week, after an early week slump prices surged 15 cents/gallon. Support comes in between 1.3550 and 1.3600 with resistance at 1.5500. Continue to use dips such as we saw last week to become a buyer of 20 cent call spreads for July and August. 

The US Department of Energy said underground supplies of natural gas were unchanged last week at 1.654 trillion cubic feet. Supplies are now up 32% from a year ago. May natural gas closed up 4 cents but prices still remain under $4.00. For the week prices consolidated in a 30 cent range and if I didn’t know better formed a base for a move higher. If the lows hold at 3.60 we should see a trade back up, resistance at the 20 day moving average this week at 3.98. On a move through that level we anticipate a move to 4.50 and potentially 5.00 in coming weeks.

___________________________________________________________________

After the close Friday, the USDA estimated the week's beef production at 478.6 million pounds, down 0.4% from a year ago.  June live cattle closed up 3.225, the highest close in six weeks, helped by a perceived improvement in the economic outlook and talk of exports picking up. Prices closed above the 100 day moving average for the first time since August of last year. Support comes in at 83.00 followed by 82.00 with resistance at 84.60 followed by 85.40. May feeder cattle were higher by 2.70. Support is seen at the 50 day moving average at 94.80 with resistance at the previous week’s high at 97.15. We have very little exposure in an August live cattle/April feeder cattle spread that we will be looking to book a modest profit in this week.

Pork production was estimated at 442.1 million pounds, down 4.6% from a year ago. June hogs jumped up 3.05 or 4.3% last week closing above the 50 day moving average for the first time since 1/9. We are advising clients to be long futures or to sell puts or buy calls in the month of June. Support is seen at 71.80 with resistance at 74.00 followed by 75.70. Our target for clients on their longs is 77.50/78.00.

____________________________________________________________________

Stocks: The Dow gained 241 points or just better than 3% last week to close back over 8000. The S&P rallied 27 points or 3.3% to 843 with the NASDAQ gaining 77 points to close 5% higher on the week just below 1625. The most recent 4 weeks have been the best 4 week period ever for the NASDAQ and the S&P’s best run since October 07’. We view this most recent move as a bear market rally. What purpose this rally should serve is for investors who have not exited or least lightened up to close positions out. Instead it will get investors to re-deploy monies that were on the sidelines thinking this is the beginning of the next bull market. We anticipate they will be proven wrong in the coming weeks. Although this rally may have a little more left in it, we expect a 100 point loss and an 800-1000 point loss is imminent in the S&P and Dow respectively.  So quickly investors forget, perhaps stocks had a good month but look at the most recent quarter. 

Bonds: The US Labor Department said the unemployment rate increased from 8.1% to 8.5% in March with a loss of 663,000 jobs which surprisingly was very close to expectations. June 30-yr bonds were lower by 1’18 points last week as the momentum is once again shifting lower. Resistance is seen at 129’30 with support at 126’20 followed by 125’00. June 10-yr notes were lower by 1’16 points last week. Resistance is at 123’10 and support at the 100 day moving average at 121’22. Prices have not traded below the 100 day moving average since November and that very well could happen this week. If that was to happen we would expect prices to find their way below 120’00 in the coming weeks. March 10’ Euro-dollars were lower by 13 ticks last week and it appears a double top at 98.74 has formed. The chart seems to be rolling over and while we can lead a horse to water we cannot make it drink… SHORT EURO-DOLLARS. On a move below the 40 day moving average that comes in just below 98.30 we would add to your short position and then again on a penetration of 98.10. Whether it is by selling calls, purchasing puts or shorting futures get bearish exposure.

____________________________________________________________________

The ECB reduced interest rates last week from 1.50% to a record low 1.25% but not the 1.0% that the market had priced in so the market rallied with June gaining 258 ticks. Support comes in at 1.3270 with resistance at 1.3725. We could see some follow thru higher this week, but we would still be looking to sell rallies anticipating a move back below 1.30. We would however caution to wait for a sell signal as opposed to just jumping in.

The BOJ’s Tankan survey of business sentiment fell from -24 to a new record low of -58 in the Q1of 09’ the sixth consecutive quarter of decline. The June yen was lower by 233 ticks last week to its lowest levels since 10/21. Prices have given back 700 points in the last 2 weeks with a close back below par. Support is seen at .9925 with resistance at par followed by 1.0200. We advise the sidelines. The BOJ is expected to leave rates at 0.10% this week.

The Aussie was higher by 267 ticks last week but after a 9 cent advance in the last 4 weeks this market may be ready to take a breath. Support is seen at .6925 with resistance between .7200 and .7225. Look for the RBA to cut rates 50 basis points to 2.75%.

The Swissie gained 130 ticks last week to close near the highs for the week. Support comes in at the 20 day moving average at .8670 with resistance between .8960 and .8975. Stand aside as prices could go either way.

The Loonie was able to pick up 66 ticks last week reversing mid week with the turn higher in oil. We are advising clients to remain long in their May and June contracts still looking for .8400. Support is seen at .7950/.8000 with resistance at .8200 followed by .8300.

The June Pound was higher by 575 ticks last week on some mildly positive news out of the UK economy. Resistance comes in at 1.4950 followed by 1.5300 with support at 1.4525/1.4550. Look for some jawboning but no change in rates at the BoE meeting this week, keeping rates at 0.50%.

The June Kiwi was higher by 198 ticks or 3.5% last week. Resistance is seen at .5910 with support at .5675/.5700. We would continue to buy dips but for the moment we want to see how much position squaring we see being prices have advanced just under 20%.

The US dollar index gave up 142 ticks last week failing to get thru upside resistance at the 20 day moving average. This puts the dollar back on its heels and depending on early action this week and the overall risk sentiment we could start the next leg down. Even if you choose not to trade the dollar, monitor its movement for assistance elsewhere. Resistance comes in at .8600 with support at .8350.

____________________________________________________________________

USDA report 4/9

May corn picked up 16 ¾ cents last week which in itself is good, but it was the worst performer being wheat and soybeans advanced significantly more. Pricing for agriculture is all relative being that farmers are trying to decide what crops should be allocated to their acres. We enter April almost identical to last year with projected acres to be planted almost unchanged from last year. Support comes in at 3.92 followed by 3.78 with resistance between 4.07 and 4.11. On a move above those levels look for a potential challenge of 4.25. Weather remains the driving force but close behind is fund activity. La Niña continues to bring rain and snow to the grain belt. The trade remembers last year’s record rains and floods delaying early field work and planting delays pushing corn prices 50 cents higher last year around this time. Also corn is almost $2/bushel cheaper than a year ago and funds are holding about half as many longs with plenty of dry powder. Buy dips in new crop corn for a position trade or look for a bigger setback to be a buyer of May or July for a trade.

May soybeans were higher by 78 cents or 8.5% last week to trade at their highest level since 2/11. A bullish engulfing candle formed on the weekly chart and for now the path of least resistance is up. Support is seen between 9.55 and 9.60 with resistance first at the physiological 10.00 level followed by 10.25. A further advance should run into stiffer resistance at 10.40 but on a penetration of that level we could see 11.50. Argentina's government continues to support a 35% export tax on soybeans, but farmers ended their strike anyway last week. Like corn, soybeans see planted acreage virtually unchanged from last year while demand for beans is on the rise with more countries adding protein to their diets. Prices are 2.50/bushel cheaper than a year ago, with funds holding about half their long position they had last year which leaves the funds in the driver seat. We do not expect the levering up we saw last year, but there is still plenty of room. Last April’s weather led a $2.50 rally on the month. Are you having de-ja vu yet? We are advising bullish strategies in soybeans and soybean oil. Contact us for exact strategy.

May CBOT wheat advanced 54 ½ cents last week trading to levels not seen since mid February. Support is seen between 5.30 and 5.35 with resistance coming in at 5.75 followed by 5.95. May KCBOT also picked up 54 ½ cent on the week. Support is seen at the 50 day moving average at 5.83 with resistance at 6.15 followed by 6.35/6.40.

Over the years you pick up certain trading anomalies and this is one. When agriculture prices as a whole move higher or lower the first to move is generally oats. If you buy into this and think that the agriculture sector is starting to turn bullish you may want to get long oats. We will be looking to buy July oats on a setback this week for clients on a position trade. As long as 1.95 holds on a closing basis we will remain long and will advise a target in coming commentaries.

____________________________________________________________________

May cocoa closed up $233; the highest close in seven weeks, helped a weaker US dollar and a brighter outlook for the world economy. Apparently, whether the economy is good or bad the demand for chocolate remains static. For the month of March cocoa prices advanced 25% and what we learned is the trend is your friend as client’s put options expired worthless last week. Support is seen between 2675 and 2700 with resistance just above last week’s high at 2800 followed by 2850.

May sugar gained 4 ticks but prices were all over the place as the market tried to figure out what size sugarcane crop India will have this year. After a failed attempt to get back over the 50 day moving average prices found their way to lower ground. We will be looking to buy back previously sold July calls on a further set back. Moreover we will be advising long futures in July and buying October 15 and 17 cent calls. Support is seen at 12.40 with resistance at 13.20 followed by 13.60.

May cotton was higher by 4.26 cents or 9.8% last week. It is premature to call a definitive bottom but based on the increased interest and movement stay tuned. Cotton has moved higher by 19% in the last 4 weeks. We should test the .50 cent level this week which has not happened since mid-February. On the day of the planting intentions report, 3/31, the volume was near 23,000 and being that the average daily volume in the week prior was 7,000 keep cotton on your radar. Support is seen at the 50 day moving average at 45.60 with resistance at .48 followed by .50.

May fcoj was lower by 1.15 cents last week. Support comes in at the 50 day moving average at 73.25 with resistance between 77.50 and 78.00 the high from 2 weeks ago. We currently have no client exposure but would entertain longs on a setback near 70 cents.

May coffee gained 2.90 cents last week but was unable to push through 120. On a trade to the 122/123 level we should be able to take a profit of approximately 40% on the July 120/140 call spreads. Support is seen at 115 followed by 113 with resistance between 119.50 and 120.25. If prices do close above 126 in May look for them to quickly find their way into the 130’s.

____________________________________________________________________

June gold dropped $28.70 closing below $900 on a weekly basis which had not happened for 10 weeks. It appears the safe haven role is diminishing, but conceivably it’s too quick that investors forget about the potential inflationary impacts likely to come from the massive amounts of stimulus spending. Based on progress in outside markets I believe money is coming out of precious metals and is being funneled back into equity markets. My opinion is that both of these moves are a mistake being I expect metals to turn higher very soon and equities lower. Support first comes in at 888 followed by 850 and then 813. We currently see 825-850 as a buy zone to re-establish longs. We will be looking to be a buyer of $100/150 call spreads in August for between $2000-3000. Only on a move back above 940 would we feel a further setback is negated.

May silver was down most of the week finishing lower by 53 cents closing below the 50 day moving average. On a trade below 12.45 look for 11.75 and potentially 11.10. We see the current correction at the absolute most on an overextension to between 10.30/10.50. We will be looking to be a buyer of $2/3 call spreads for the month of September. For our more aggressive clients we are currently long futures against a sale of out of the money calls. Furthermore we bought July calls 3:1 against a sale of a December calls while simultaneously buying May puts. We advise trading out of the May puts most likely this week being we do not want to see any real time decay. Silver remains our favorite longer term bullish play and we would highly suggest speculators to use this setback as a long entry opportunity. Assuming we get a trade below $12 recognize that would mean we just got nearly a 20% correction.

Back to Top

______________________________________________________________________
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. Calculations of profit and loss have not factored in commissions and fees.