April 20th– April 24th 2009

By: Matthew Bradbard

“Are the Stress Tests causing you Stress?”

According to several news sources the US government will issue a report on April 24th that explains its stress test on 19 of the largest financial firms and then release the actual results of those tests on May 4th. What these tests should confirm is that we have issues in our banks and in order to get our economy back on track these banks will need to be recapitalized, start lending and some may need to fail. In order for conditions to get back to a state were we can see growth, those are the first things that need to be done. We cannot proceed forward with a broken system as the financial institutions are the lifeblood of the economy. Not only would this increase the health of the economy but it too would instill the much needed confidence and perhaps the risk appetite of the investor may well return.

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 5.6 million barrels last week, supplies of unleaded gasoline were down 900,000 barrels while heating oil supplies were down 700,000 barrels. June crude oil closed down $1.98 unable to stay above the 20 day moving average at $53.20. Resistance comes in between 53.30 and 54.00 with support first at 51.50 followed by 50.00. If prices are unable to take out 54 early in the week we expect a trade down to 48.50. June heating oil was lower by 6 ticks closing at the 20 day moving average. 1.47/1.48 should serve as resistance with support coming in at 1.4225 followed by 1.40. On a move lower in Crude expect the low 130’s. June RBOB was higher by 88 ticks last week. Support comes in at the 50 day moving average at 1.3870 with resistance at the high from 3/26 at 1.5626. On a trade above those levels look for buy stops to be triggered. We advised clients to buy July 1.54/1.74 calls spreads last week; paying just over 650 points with a target of 950/1000 points.

The US Department of Energy said underground supplies of natural gas were up 21 billion cubic feet last week to 1.695 trillion cubic feet. Supplies are now up 35% from a year ago and up 22.5% from the five-year average. June natural gas closed up 15 cents as the lows have held for the last 2 weeks. Since the first of the year prices have fallen by 37% so we feel a bounce is overdue. The stochastic on the daily chart has started to trend higher on an increase in volume which should lead a trade over $4.50 in coming sessions. We maintain positions for clients in June futures and options. 3.65/3.70 on June is our buy zone as we expect the low from 4/13 at 3.64 to hold. Resistance is seen at 4.20; the 50 day moving average which prices have not been above since mid-July. Look at the weekly charts before ruling out a buy at these levels.

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After the close Friday, the USDA said that there were 11.152 million head of cattle on feed as of April 1st, down 4.6% from a year ago. March placements were up 3.8% and marketings were down .8%. The USDA estimated the week's beef production at 476.6 million pounds, down 7.5% from a year ago. The USDA's Livestock Outlook said that beef exports are expected to be down 4% in 09’. After everything was said and done live cattle in June were higher by 10 ticks on the week. Last week’s high at 85.675 should serve as resistance, support comes in between 83.75 and 84.00 followed by the 50% Fibonacci retracement level at 82.75. August feeder cattle have been positive 5 of the last 6 weeks, gaining 1.10 last week. Coincidence or not this is the same level that prices fell from in late October early November. Within a month prices had lost 10%, will we get the same results again? Resistance comes in between 102.50/102.75 with support at 100.25.

Pork production was estimated at 433.3 million pounds, down 7.6% from a year ago. The USDA expects pork exports to be down 13% in 09’ which they say is still "strong relative to export history." June lean hogs ended the week .675 lower. Support comes in at the 9 day moving average at 73.15 with resistance between 74.15 and 74.25. We expect prices to break out of the ascending triangle this week, but we are not sure in what direction. On a breakout to the upside look for 75 shortly thereafter, on a breakout to the downside look for 71.50 shortly thereafter. We advised clients to lighten up on longs in the futures market and continue to hold bullish option strategies.

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Stocks: The S&P 500 was higher by 18 points last week trading at a 9 week high gaining now for 6 weeks in a row. Resistance comes in between 875 and 885, support is seen between 845 and 850. On a close above 875 we would most likely see an attempt at 900. The S&P has not traded above 900 since 1/8 and this would be a major psychological hurdle. The Dow was higher by 92 points, much like the S&P making it 6 positive weeks in a row. The last time we witnessed this type of advance was in April/May of 07’. Resistance comes in between 8225 and 8275 while support is first seen at 8000 followed by 7800. The NASDAQ advanced 20 points last week trading to its highest level since 11/5. From 11/5 to 11/20 prices lost 24% to trade down to the same levels that the most recent rally started from just 6 weeks ago. Resistance comes in between 1380 and 1390 with support between 1315 and 1325. We would continue to play the momentum on the rally but would caution investors, as we feel earnings can continue to trickle in another leg down, maybe in the immediate future.  

Bonds: June 30-yr bonds were lower by 1’15.5 points last week. Resistance comes in at the 40 day moving average at 127’00. Support is seen between 123’16 and 124’00. On a trade below those levels look for an attempt at 120’00. June 10-yr notes were higher by 3 ticks. A NOB spread; short 30-yr and long 10-yr may be an appropriate strategy as it has been working since January. On a break of the 40 day moving average of 121’23, look for a trade down to between 120’16/120’24. Resistance comes in at 122’20 followed by 123’00. March 10’ Euro-dollars were lower by 7.5 ticks last week, much of that coming Thursday and Friday after a mid-week reversal. Between 98.60 and 98.70 we would be comfortable selling more positions. For now 98.45 is support but a trade below look for the next stop to be 98.35. We would continue to accumulate shorts and sit on your hands as we expect this trade to develop over the coming months.

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The Euro started last week strong, but on light volume as Europe was closed only to give back those gains ending the week 163 ticks lower. Our target at the 50 day moving average was reached and as we suggested last week, look to book profits from recent short positions. The trend will remain down but the easy money on shorts has been made. Support is seen at 1.2975 followed by 1.2840 with resistance at 1.3125 followed by 1.3260.

The Aussie was lower by 19 ticks last week and although longer term we are extremely friendly to this currency, in the immediate future we expect a retracement. This should set up an excellent long entry for a position trade. Our buy zone is .6650/.6750 for our clients. The 50 day moving average comes in at .6700. First support comes in between .7050 and .7100 with resistance at .7275. One of clients has suggested 5 cent call spreads in September which is our on our radar.

As predicted the Swissie came under pressure last week giving up 79 ticks. Much like the Euro, the Swissie started the week strong only to fall back the next four sessions down 2 ½ cents in that time frame. Now that the .8600 level has been penetrated we should see .8525. On a trade back over .8600 look for resistance at .8675 followed by .8750.

The Loonie was higher by 71 ticks but is starting to exhibit signs of an interim top closing over 1 cent off its weekly high. Our target has and remains 84 cents, but was the trade up to .8368 close enough to reach our objective? Support comes in at .8100 followed by .8025 with resistance at .8370 followed by .8450. For futures traders you should be trailing stops on longs as to not give back too much. For our clients still holding May and June call options we are still looking for a challenge of 84 cents. The BOC will meet this week and is expected to keep rates at 0.50%.

The yen did as we anticipated, traded back over par last week gaining 122 ticks on the week. .9850/.9950 remains our buy zone but as we alluded to last week we prefer options to futures at this juncture. Resistance comes in between 1.0150 and 1.0250.

The Pound was higher by 154 ticks last week, which in our opinion set up a good short entry. It appears at this point prices have started to roll over and as long as resistance contains prices, we would continue to sell rallies. Resistance is seen between 1.4950 and 1.50 with support at 1.4550. If we do see increased selling, the 50 day moving average at 1.444 would be where we would look to book partial profits.

The Kiwi lost 198 ticks or 3.4% last week closing lower 4 out of 5 sessions. Resistance is seen at .5750 with support at .5525. The trend is certainly down as our target is .5400.

The US dollar was higher by 56 ticks last week and has now gained for 2 consecutive weeks. A move above the 86.00 resistance level should mean a trade to 86.65 the 50 day moving average or perhaps 87.50 the 61.8% Fibonacci level is in our future. On a reversal lower a close below 84.90 should mean 84.00. To take a stance we expect a trade up to 87.00 this week.

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July corn fell 14 ¼ cents to the lowest close in four weeks with the planting weather in the Midwest looking good for at least the next few weeks. We expect a trade down to 3.70/3.75 this week. On a breach of that level 3.55/3.60 is obtainable where we may look to get clients long. Much of this will depend on outside markets and what type of progress farmers make in the field. Resistance comes in between 3.95 and 4.00.

July soybeans closed up 41 ¼ cents helped by weather problems in Argentina and strong recent demand from China. We started getting clients short Thursday and Friday expecting a $1 break over the next 1-3 weeks. We sold the $10 put against a purchase of 3 $9 puts in July. For a futures play we advised clients to get short July (old crop) and buy November (new crop). The trade is against us approximately 5 cents at -$1.05, we are looking for the spread to narrow and come in 25-35 cents. Resistance is seen at Thursday’s high of 10.50 ½ with support at 10.15 followed by 9.62; the 31.8% Fibonacci retracement level. The 50 day moving average comes in at 9.36 and on a total meltdown this level may come into play.

July CBOT wheat was lower by 2 cents as prices have been back and forth in recent weeks. We would buy a break of 5.46 and sell a break of 5.24. Much of the movement will be contingent on weather and crop ratings. Wheat continues to be a follower of corn and beans. July KCBOT was lower by 1 ¼ cents last week. Resistance comes in at the 50 day moving average at 5.85 ½ with support at 5.70 followed by 5.60.

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July cocoa finished down $155 losing $336 or 13% in the last 2 weeks. Resistance is seen at 2450 with support at 2350 followed by 2280. We would be a buyer between 2225 and 2250.

July coffee closed down 6.90 cents, the lowest close in four weeks, with ongoing concerns about world demand and a stronger US dollar. We traded within ticks of taking a profit on our July 120/140 call spreads before we saw prices move 9 cents lower to take our positions back to cost. The 20 day moving average at 1.18 should serve as resistance with support at 1.1275 followed by 1.1100.

India ended its 60% import duty on sugar in an effort to relieve their shortage. July sugar closed up 26 ticks as support at 13.24; the 61.8% Fibonacci level held. We would advise being a buyer between 13.25 and 13.40 on futures in July but as far as options we like the 15 and 17 cent October calls. 14/14.10 should serve as resistance on the upside.

Last week the USDA's Florida weather crop report said that "the drought intensity was between moderate to severe everywhere." July fcoj was higher by 2.70 cents closing higher 6 out of the last 8 weeks. Resistance comes in at 90 cents with support at 85.00 followed by 82.50. With prices overbought we would look for a setback to between 77/79 cents to be a buyer again.

July cotton was higher virtually 2 cents last week quietly moving 9 cents or 21% in the last month. We have seen prices move higher 5 out of the last 6 weeks. At this point we would be a buyer on setbacks to 46/47 cents. The demand for cotton is still weak and although supplies are tight we still would need a catalyst to see much higher pricing. However with prices now above 50 cents we may see an attempt at 52 cents.

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May silver lost 58 cents last week and is lower by $1 over the last 2 weeks. The 200 day moving average has served as tough resistance as prices failed to get over that level after 4 attempts. Prices ended the week below the 100 day moving average with a close below that level for the first time since 1/15. The 11.25/11.50 level needs to hold, if not we will see a trade below $11. We are currently on the defensive and lightening up on longs and advising clients to sell call options against their long futures. Resistance comes in at $12 followed by 12.50. We maintain our long-term bullishness on silver but for the short-term prices could go either way.

June gold was lower by $15 as prices failed to get above $900, closing the week above the support level of $863 but just below the 100 day moving average. We are advising clients to treat the area between 825 and 850 as the buy zone. Being the trend is down, more conservative traders can wait for a more definitive bottom. Resistance comes in at the 200 day moving average at 886 followed by 900. Generally speaking, April is a weak month for gold and this year has been no different. April is a weak month from a demand perspective and it seems investors sell gold in order to raise money for taxes as well. Throw into the mix this year the unpredictability in the equity market and it is a recipe for volatility.

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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.