April 13th– April 17th 2009

By: Matthew Bradbard

“Investors must exercise patience”

The word is China's economic recovery will begin later this year and pick up into 2010. This may be true but what about conditions in the US, Europe, India and emerging markets? We are starting to see some light domestically but have things really gotten considerably better? The difficulty is I still think there is much more pain to come and I’m not ready to go all in just yet. That seems to be the case with many with the record amount of monies on the sidelines. Until real estate bottoms, the employment situation gets better and the banks really start lending, there is no reason to celebrate. I suggest investors use the most recent move in equities to lessen their exposure and not buy into the fact that commodities are going to continue higher at their current pace. Take advantage of the large swings and diversify your portfolio. Be patient as it may well take years to get back to normal market conditions.

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

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The US Department of Energy said crude oil supplies were up 1.7 million barrels, supplies of gasoline were up 600,000 barrels while heating oil supplies were down 1.1 million barrels. May crude oil ended down 16 cents on the week with its first losing week in the last 8 weeks. While the market was only lower by a fraction, the weekly trading range was over $6. Assuming the ytd H/L support comes in at the 38.2% Fibonacci retracement level at 49.00 then the 50% level at 47.20. Resistance is seen between 53 and 54. We expect to see sideways action, a trader’s market as opposed to a trending market. May RBOB was lower by just less than 2 ½ cents with support at the 50 day moving average at 1.4730. Resistance is seen at 1.54 followed by 1.56. On a dip between 1.28/1.34 buy July and August 20 cent call spreads. May heating oil lost 1.67 cents last week. Support comes in at the 20 day moving average at 1.3880 with resistance at 1.47 followed by 1.49.

The US Department of Energy said underground supplies of natural gas were up 20 billion cubic feet last week to 1.236 trillion cubic feet. Supplies are now up 35% from a year ago and up 23% from the five-year average. May natural gas was down 19 cents, over the last 3 weeks prices have shaved 13% in value. With prices at their lowest levels since September of 02’, the market and our clients are still searching for a bottom. From September of 02’, once prices bottomed within 5 months, prices had spiked up to just below $12. We will attempt to be there when the market turns, but buying in this environment is like catching a falling knife and to date we have lost money. Support is at last Thursday’s low at 3.53 with resistance at the 20 day moving average at 3.92. Clients hold mini futures and June call spreads. Some clients have chosen to buy back the top leg of their June spreads.

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The USDA increased its estimate of 09’ beef production to 26.44 billion pounds, down slightly from 08’ production levels. The 09’ average price estimate for choice steers was kept unchanged at 86.5 cents/lb. June live cattle closed up 1/3 cent, the highest close in 8 weeks filling a gap from 2/13. Resistance is seen at 85.50 followed by 86.30 with support at 84.25 followed by 83.75. We would be a buyer on a setback with stops below the 20 day moving average which is at 83.00. May feeder cattle were higher by 2.175 cents, the highest close since 2/10. Prices have now gained 6% in the last 2 weeks. Support is seen at 98.40 followed by 97.10 with resistance at 99.50. The last time prices were over $1 was 1/6, will that happen this week?

The USDA reduced its estimate of 09’ pork production to 22.775 billion pounds, down 2% from 08’ production levels. The 09’ average price estimate for barrows and gilts was increased from 46.5 to 47.0 cents/lb (63.5 cents lean). June hogs were up .625 at 74.27 closing back above the 20 day moving average. Resistance is at 74.60 then 76.00 with support at the 20 day moving average and then 72.70. We are positioned long with clients, purchasing call spreads, selling puts and long futures with a target of 77.50/78.00.

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Stocks: Stock markets defy logic again trading higher but will that last as earnings start to trickle in? The S&P 500 picked up 12.50 points last week to trade at its highest level since 2/10 gaining 1.5%. This was in large part to upbeat news on some financials, namely Wells Fargo’s optimistic views and revisions to the uptick rule. Resistance comes in between 865 and 870 with support at 825 followed by 800. The Dow was higher by 38 points to gain .05% on the week, but navigating these waters could be tense being the Dow had a 400 + point range in a shortened trading week. Resistance comes in at 8060/8080 followed by 8250 with support at 7840/7880 followed by 7575. We expect 7400/8100 range and for prices not to wander too far from those parameters in the next few weeks. The NASDAQ was higher by 20.50 or 1.5% to its highest price this year. The NASDAQ has been positive now for the last 5 weeks gaining 25% in that time. Resistance comes in at 1375 with support at 1290.  

Bonds: June 30-yr bonds were lower by 1’09 points last week closing lower now for the third consecutive week. Support is seen between 123’16 and 124’00 with resistance at 127’10 followed by 128’00. The trend remains down and as long as equities move higher bonds should continue to trade lower. June 10-yr notes were able to gain 6 ticks last week as yields tracked slightly lower. Support comes in at the 40 day moving average at 121’17 with resistance first at 122’26 followed by 123’10. There is too much indecision to determine a trend as prices move back and forth, we would stand aside. March 10’ Euro-dollars are consolidating near the contract highs and we view this as the calm before the storm. We recommend owning 25% of the ultimate short position you want to own. For every $8000 in the futures markets you are leveraging $1 M.

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Statistics Canada reported that the unemployment rate increased from 7.7% to 8.0% in March, the highest in seven years. The June Canadian dollar was up 14 ticks, the highest close in two weeks. Support comes in at the 50 day moving average at .7997. Resistance comes in at .8200, a trade above that level expect .8400 shortly after. We like owning June calls and long futures with a stop below .8000.

The June Euro was lower by 371 ticks last week erasing the previous week’s gains. Support is first seen at 1.3120 followed by 1.2980. Resistance is seen at 1.3260 followed by 1.3360. We would continue to sell rallies. On a move to the 50 day moving average just below 1.30 look to exit the recently bought puts at a profit.

Australia's Bureau of Statistics said that the unemployment rate increased from 5.2% to 5.7% in March, the highest level in 17 years. The June Australian dollar closed up 11 ticks trading at the highest level in three months. The RBA reduced its interest rate from 3.25% to 3.0%, the lowest rate in 49 years. Support comes in at .6990 with resistance between .7200 and .7225. There is a gap in the chart from October at .7575 that should get filled, but we expect a pullback first. Use .6750/.6850 as a buy zone.

The Swissie was lower by 216 ticks last week, the first close below the 50 day moving average in 3 weeks. The short term trend is lower with prices closing 3% off last week’s highs. On a move below .8600 look for next support to be .8525. Resistance comes in at .8670 followed by .8740.

The BoE met and kept it’s interest rate unchanged at .50%. The Pound was lower by 213 ticks last week and like the Euro we would continue to sell rallies. Resistance comes in at 1.4750 followed by 1.4900 with support at the 50 day moving average at 1.4350.

The BOJ met and kept it’s interest rate unchanged at .10%. The yen was lower by 12 ticks but should push back over par this week. Support is seen between .9860 and .9890 with resistance between 1.0050 and 1.0100. The stochastic is oversold on the daily chart we suggest being long with June calls spreads as we are not brave enough for futures yet. Be conscious of the gap from October which if filled would take prices to .9730.

The Kiwi was lower by 96 ticks last week registering its first loser in the last 6 weeks. Be a seller between .5900 and .6000 as the last 3 rally attempts have failed. The last 2 occasion’s prices quickly corrected 10-15%. Although past performance is not indicative of future results, we expect a pullback to .5400. Support comes in at .5675 followed by .5515.

The US dollar index was higher by 1.76 points or 2% last week to trade back to resistance at 86.00. Above that level resistance comes in between 86.75 and 87.00. Support is seen at 85.00 followed by 84.25. Although we expect a move to 87.00 we are uncertain being the market’s indecisiveness in recent weeks. Over the last 6 weeks we have had sideways action with 3 positive weeks and 3 negative weeks.

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The USDA's 08-09 US ending stocks estimate for corn was reduced from 1.74 to 1.70 billion bushels. Most of the drop can be attributed to an increase in feed usage. May corn was lower by 14 ¼ cents closing back below $4. For the last 3 weeks prices have been range bound in a 30 cent trading range and it appears we are heading to the bottom of that range this week. Between 4.05 and 4.08 has proven to be resistance as prices have been unable to close above those levels since mid-January. Support is seen at the 50 day moving average at 3.80. On a trade down to 3.65/3.70 we would look to be a buyer.

The USDA's 08-09 US ending stocks estimate for soybeans was reduced from 185 to 165 million bushels. The USDA reduced its estimate of Argentina's soybean crop from 43 to 39 million tons, due to hot and dry weather. Soybean production from Brazil and Argentina is now expected to be down 10% this spring from a year ago. Demand remains strong as South American weather and political problems keep importers aggressively buying US beans. May soybeans ended up 11 ¾ cents last week to trade at their highest price since 1/26. This was also the first weekly close above $10 since 2/6. If we see prices close above 10.40 we should see 11.00 soon after. We feel the likely course short-term is a correction south expecting a 50-80 cent move lower. Support is first seen at 9.60 followed by 9.30.

The USDA's 08-09 US ending stocks estimate for wheat was reduced from 712 to 696 million bushels. The USDA said in its first crop progress report of 09’ that 43% of the winter wheat crop was rated good to excellent, down from 45% a year ago. May CBOT wheat gave up 44 cents or 8% last week. Resistance is eyed at 5.26 followed by 5.33 with support first at 5.15 followed by 5.08. There is a remote chance in the next 2 weeks of a challenge of $5 but much of that will depend on weather and crop conditions. May KCBOT lost 35 ½ cents last week with the trend clearly shifting down. Support comes in between 5.55 and 5.60 with resistance at 5.79 then 5.89.

July oats were 4 cents lower on the week and readers of last week’s commentary may have gotten long as prices traded to 1.95 and held. We will look to be a buyer from lower levels in coming weeks. To those who are long, we would cover the position or at minimum trail up stops as agriculture looks lower short-term.

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The USDA's 08-09 U.S. ending stocks estimate for sugar was increased from 981,000 to 1.29 million tons. According to the Dow Jones Newswires, the ISO said they are likely to increase their estimate of the world's 08-09 production deficit in early May, due to lower sugar production in India and China. May sugar ended the week 4 ticks higher. Last week we were able to buy back the July 14 cent calls that we had previously sold for a $450 profit/per. We are advising clients to get long futures as long as the triple bottom holds from last week at 12.75 in July, on top of buying October 15 and 17 cent calls. Resistance is at 12.85 followed by 13.25 in May, support at 12.15 followed by 11.80.

The USDA's 08-09 U.S. ending stocks estimate for cotton was reduced from 7.3 to 6.7 million bales. May cotton was higher by just better than a penny but failed to get above 50 cents running into stiff resistance. Support comes in at 46.50 followed by 45.50. Expect 44 cents or lower in the next 7-10 days.

The USDA kept its estimate of the 08-09 Florida orange crop unchanged at 158 million boxes, down from 170 million boxes a year ago. The projected juice yield was also unchanged, at 1.64 gallons per box at 42 degrees Brix. May orange juice closed up 6.95 cents or 9%, the highest close this year, helped by dry weather in Florida. We have no client exposure and may have left their longs too early as prices have been positive for 6 sessions in a row. Next resistance is 85.00 followed by 87.50 with support at 80.00 followed by 78.00.

May cocoa dropped $230, the lowest close in two weeks, hurt by a stronger US dollar as traders felt that the previous weeks rally was over done. Talk about a day late and a dollar short as clients May options expired worthless the Friday before. Resistance is seen at 2570 followed by 2625 and support at 2500 followed by 2430. Although the easy money has been made on shorts we are still looking for a move to 2350.

May coffee ended higher by 30 ticks and has been positive 4 out of the last 5 weeks gaining 13%. Support comes in at 1.1825 followed by 1.17 with resistance between 1.20 and 1.22. We only need slightly higher prices to exit the July 120/140 call spread; paid 440 points and looking to exit between 670/700 points.

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June gold traded $14.50 lower last week but the 100 and 200 day moving averages held on a closing basis. If these levels continue to hold this week we would feel more comfortable adding to longs; 100 day moving average at 879.10 and 200 day moving average at 870.00. On a breach of those levels expect 850 almost immediately, plus on an aggressive washout we still cannot rule out 825. Resistance is seen at 900 followed by 930. At current levels we suggest owning 1/4 -1/3 of your longs for a position trade in futures and we are advising clients to buy $100 August call spreads. Thursday’s settlement: 900/1000 $2780 with a 20% delta, the 950/1050 at $1960 with a 16% delta.

Last week May silver lost 47 cents, much of that coming on Monday. From February’s high to last week’s close the most recent correction represents a 16% decrease in price which we view as a buying opportunity. Support comes in between 12 and 12.10 followed by the 100 day moving average at 11.85. On a further sell off to 11/11.25 we would be an aggressive buyer with both futures and options. New futures entries should be trading July not May. Like gold we advise owning 1/4 - 1/3 of your longs for a position trade in futures and we are advising clients to buy 13/15.50 call spreads in September; Thursday settlement was $3050 with a 20% delta. Resistance is seen at 12.50 followed by the 200 day moving average at 12.85. On consecutive closes above $13 the next leg higher has likely begun.

May copper is back over $2 for the first time since the beginning of November having advanced 63% off the lows in December. This is a positive sign but I feel it may be a little premature to say this move signals that the worse is behind us and the economy is back on track. Regardless, we have gotten numerous inquiries about trading copper futures and options which we do very infrequently. I am not a stock broker but if you sense cooper is moving higher I would advise looking at Southern Copper, Rio Tinto, Phelps Dodge, or Freeport-McMoran or talking to your stock broker because futures and options in copper are dubious.

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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.