For August 10th– August 14th 2009

By: Matthew Bradbard

A False Sense of Security

It always amazes me how short-term investors’ memories are. There is chatter of improving U.S. and world economies, which we feel is way too premature. Corporations are reporting optimistic numbers but could that be because expectations were so low? We’ve lost 2 million jobs in the last 6 months and because unemployment dropped 0.1%, which I still doubt is the case, it is supposed to be viewed as positive? Commodities are moving higher and this signals a recovery…I don’t think so. Treasuries and equities are trading in tandem as opposed to inversely, this will not last. The dollar is not being sought out as the fear trade and it actually rallied on positive economic news? As my basketball coach used to say, sometimes the best offense is a good defense.

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 DOE reported crude oil supplies were up 1.7 million barrels, supplies of gasoline were down 200,000 barrels while heating oil supplies were down 300,000 barrels. September crude oil closed up $1.63 trading to its highest level since 6/30. Expect $73/74 to act as resistance with support coming in at the 9 day moving average at $69.40. The chart looks overbought; a trade down to $66/67 is not out of the question. At this time we’re not advising getting short, but we would suggest being out of longs. September heating oil was higher by just over 8 cents last week but it too is showing signs of a top with prices ending last week 6 cents off their highs. Resistance is seen at 1.95/1.96 with support at 1.8850/1.89 followed by 1.83. September RBOB closed lower by 45 ticks as prices failed to make their way to higher ground after 3 positive weeks. Resistance is seen between 2.05 and 2.07 with support at 1.94 followed by the 20 day moving average at 1.87.
 
The DOE reported underground supplies of natural gas were up 66 billion cubic feet last week to 3.089 trillion cubic feet. Supplies are now up 23% from a year ago. September natural gas closed up 4 cents which would not have been possible without the 11% move higher on Monday. Resistance comes in between 3.85 and 3.90 with support at 3.55 followed by 3.40. We continue to buy clients November $1 call spreads. The settlement on the $5/6 call on Friday was $2700.

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October live cattle were lower by 1.125 last week. The 61.8% Fibonacci level at 88.20 should remain as support. Resistance is seen at 89.60 followed by 90.60. We executed a bullish option play for clients last week selling (3) October 84 cent puts and buying (1) October 90 cent call. This trade was done for even money which means the only cost was the transaction costs. Our target for now is $600 per spread.  September feeder cattle were lower by 1.075 last week. Support comes in between 100.00 and 100.40 with resistance at the 20 day moving average at 101.60. We have no outlook at this point.

October lean hog prices fell by 9 cents last week losing 17% extending a slide to the lowest price since 02’. At this point it is a challenge to find support on the charts. Resistance is seen at 52.00 followed by 54.50. We are buying December 54 cent calls for clients for approximately $800. If and when there is a recovery we expect a violent move higher.

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Stocks: The S&P 500 was higher last week by 23.75 points gaining 2.4%. We’ve positioned clients short via 925 and 950 September ES puts expecting a trade down to 960 in the coming weeks. Serious resistance; looking at the weekly chart prices at their highs last week were nearing the trend line dating back to the highs in September 07’. Additionally, 1015 is the 38.2% Fibonacci retracement level from the H/L over the last 3 years. The Dow was higher by 225 points gaining 2.5% last week. Last week’s high just above 9400 should act as resistance with support at 9150 followed by 9000. We have no exposure in the Dow with clients but once again we would advise stock investors to book some profits. Weeks down the road if this ridiculous move continues, would you rather be on the sidelines wishing you were in the market, or if reality sets in and stocks head south be in the market and wishing you were on the sidelines?

Bonds: The US Labor Department said the unemployment rate improved from 9.5% to 9.4% in July with a net loss of 247,000 jobs, a much smaller loss than expected. It was the first improvement in the unemployment rate since April of 08’. Why is it that corporations get in trouble for fudging the numbers but the US government can do that with little consequence? September 30-yr bonds were lower by 3’22 points last week trading lower 4 out of 5 sessions. Resistance is seen between 116’16 and 117’00 with support at 114’16. September 10-yr notes were lower by 2’13 points. Resistance comes in at 115’16 with support at 114’00. Euro-dollars were lower last week and if the recovery is underway the argument is that the Fed will raise rates sooner rather than later. If interest rates do go up then Euro-dollars go down, hence why we’re suggesting puts. Buying June 10’ “at the money” puts currently costs $1200, September 10’ “at the money” puts currently $1500. The FOMC meets on Tuesday and Wednesday this week. No change in rates for now but it could come sooner than most think.

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The BoE met and kept its interest rate unchanged at .50%. They also said that they would increase their level of quantitative easing from 125 to 175 billion pounds. The Pound was lower by 60 ticks as we feel an interim top was formed just above 1.70 last week. Resistance is seen at 1.6875 with support first at 1.6500 followed by 1.6275. Last week clients were in and out of September 165 puts at a 40% profit, though some took partial losses on the 160 puts. While we think the trend is down we did not feel it was worth the risk of time decay to hold the puts through the weekend.

The ECB met and kept its interest rate unchanged at 1.0%. The September euro closed down 97 ticks last week, much of that coming Friday as prices reversed from higher levels closing lower by 171 ticks ending the week just below the 20 day moving average. Resistance comes in between 1.4275 and 1.4300 with support eyed at 1.4060. Prices look like they are heading to 1.3850 in the next 2/3 weeks.

The RBA met and kept interest rates unchanged at 3.0%. The Aussie was higher by 17 ticks last week even with prices lower 4 out of 5 sessions. If the US dollar moves higher and we do get a commodity correction this currency should be one of the hardest hit. That being said we advised clients to buy September 80 cent puts for just over $400 on Friday. Resistance comes in at .8425/.8450 with support at .8250 followed by the 20 day moving average at .8165. We expect a trade down to .8100 in the next 2 weeks.

The Swissie was lower by 134 ticks last week. Resistance comes in at the 20 day moving average with support at .9150. We expect a trade down to .9000 in the next 2 weeks.

The Loonie was lower by 49 ticks last week. A new high failed to attract buyers and prices closed 172 ticks off their highs. Resistance is seen at .9300 with support at the 20 day moving average at .9135 followed by .9000.

The yen traded lower by just over 3 cents last week to its lowest close since 6/16. This was the largest weekly decline since the first week of June. Resistance comes in at 1.0380 with support at 1.0150 followed by 1.0050. The inverse relationship to equities should continue. The BOJ is expected to stand pat on rates.

The Kiwi was higher by 110 ticks or 1.7% last week to trade to the highest level in 10 months. This was the fourth consecutive positive week. Last week’s high at .6805 should serve as resistance with support seen at .6625 followed by .6550.

The US dollar was higher by 95 ticks last week closing just above the 20 day moving average and at the 38.2% Fibonacci level. Support should hold at 78.40/78.50 with resistance at 79.60 followed by 80.10. We expect a bounce but have been fooled before.

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USDA report out Wednesday 8/12

September corn was lower by 20 cents last week taking prices back to the levels from 2 weeks ago. We used this pullback to re-establish longs for clients but this may have been premature. The idea was to have light exposure into the USDA and then look to react depending on the numbers. We advised clients to buy December $4 calls between 12/15 cents. Support in September is seen at $3.05/3.10 with resistance at $3.35 followed by 3.55.

August soybeans were higher by 44 cents last week. Resistance is seen between $11.90/12.00 with support at $11.55/11.60. On a bullish USDA report we should see prices back over $12/bushel and on a bearish report expect a retreat back to $10.80. We still have no exposure with our clients in soybeans but for those who wish to trade we would advise the new crop (November) or trade soy meal at this point. As we stated last week one of our better performing CTA’s has a long soy meal position.

September CBOT wheat was lower by 42 ¼ cents last week trading to a new contract low taking prices below $5/bushel. We currently own December calls for clients and depending on the USDA we may look to add to this loser or a place to exit and cut their losses. Support comes in at $4.55/4.60 with resistance at $5.10. September KCBOT wheat was a loser of 34 ¾ cents last week. Support is seen at $5.00 with resistance at $5.45/5.50. The same trade opportunity exists in the KCBOT/CBOT spread this week as did last week. Look for an entry between 16-19 cents with a stop close only at 10 cents and a target of 35 cents. Last week one could have entered this spread at 16 cents and by Friday’s close we were back at 25 cents.

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September cocoa was lower by $73 last week. We are holding October 2500 puts at a loss currently for clients. Resistance is seen at 2860 then 2900 with support at 2695, which is the 50% Fibonacci retracement level and the 50 day moving average.

October sugar jumped up 2.10 cents gaining 11.2% to another new contract high with ongoing talk of a shortage in India. It was the highest spot price for sugar since 81’. There is also talk of possible dry weather in Brazil. Prices have now moved higher 18 out of the last 21 days; a move we feel is unsustainable. We’re on the sidelines with clients waiting for a correction that seemingly may never come. Why this is truly frustrating is I’ve been preaching about sugar being one of the most undervalued commodities now for 4 years and I’m missing a historic move. At this point the charts do not matter.

October cotton was higher by 2.73 cents. Support is seen at the 50 day moving average at 58.25, resistance is seen at 61.00 followed by 62.50. We have no exposure into the USDA report but we are pricing out ways to get clients long with futures and options.

September orange juice gained 10.65 cents or 11.7% last week. Support is seen at 94.00 while resistance comes in at the recent high at 104.85. We are looking to buy dips most likely in the November contract.

September coffee was higher last week by 9.75 cents or 7.6% to trade to its highest level since 6/5. Now we recognize we definitely left too early. The performance of the softs in the last 3 weeks has been reminiscent of the pre-bubble days in commodities. We are trying not to get caught up in the euphoria and still institute disciplined money management and we advise you to do the same. Resistance is seen at 140.50, support between 133.50 and 134.00.

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September silver was higher by 77 cents last week trading to its highest level since 6/12. We continue to gain exposure to December silver for clients via $3 call spreads. We could see a minor setback so closely monitor stocks and the dollar for outside influence. Last week’s high just above $15 should serve as resistance with support first at $14.20 followed by $13.75.

December gold was higher by $5 last week, nevertheless prices traded lower 3 out 5 sessions as this market is starting to look tired. Resistance comes in at $970/975 with support at the 50 day moving average at $947 followed by the 100 day moving average at $933. We currently own no gold for our clients and would not rule out a washout from here. Conversely we may see a trade up to $1000/ounce but it will be without our clients.

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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.