For July 20th– July 24th 2009

By: Matthew Bradbard

The Light at the End of the Tunnel

I communicate with investors daily trying to identify what their general position is for the economy. Though it differs from one to the next, an overwhelming majority are not too optimistic about the health of the economy. The overall sentiment is that few see the light at the end of the tunnel. By that I mean most investors sense we’ve yet to turn the corner. What I try to make them realize is that while the overall economy is yet to be back on track, there are many individual stocks, bonds, real estate transactions and commodities that offer phenomenal opportunities. Take that for what it is worth, I only trade commodities so if looking at other asset classes consult a professional. What I’m trying to relay is I see the light at the end of the tunnel for some specific commodity plays.

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 down 2.8 million barrels, supplies of gasoline were up 1.5 million barrels while heating oil supplies were up 500,000 barrels. September crude oil closed up $3.78 as the 100 day moving average held on all tests last week. Support is seen now between 62.50 and 63.00 with resistance at the 50 day moving average at 66.50. We bought clients October $68/73 call spreads on Friday for $1770 expecting a $5-8 appreciation in the coming weeks. September RBOB was higher by 11.10 cents last week closing an impressive 16 ½ cents off the lows. Support is seen at 1.71 with resistance at the 50 day moving average at 1.8125. We expect a move up to 1.87 in the coming weeks. September heating oil gained 10.73 cents last week gaining 4 out of 5 sessions. Support comes in at 1.6250/1.6350 with resistance at the 50 day moving average at 1.73.

The DOE reported that underground supplies of natural gas were up 90 billion cubic feet last week to 2.886 trillion cubic feet. September natural gas jumped 38 cents gaining for the first time in 4 weeks. This was largely aided by a 12% gain on Thursday. Support is first seen at 3.60 followed by 3.40 with resistance at 4.00 followed by 4.10. We still like the idea of October $1 call spreads but some clients have suggested an additional month. Furthermore, on setbacks we will be buyers of futures still thinking we could see 80 cents to $1 higher from here in the next 6-10 weeks. Buying natural gas on or around July 24 and holding until October 21 has been successful 17 out of the last 18 years for a success rate of 94%. Past performance is not indicative of futures results.

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October live cattle were higher by 3.125 last week trading to their highest level since January. We continue to hold put spreads for clients and are currently carrying a loss. We expect an abrupt turnaround in the next few weeks and would suggest option players to get positioned short. Resistance is seen at the January high at 92.70 with support at 90.75. August feeder cattle were higher by 1.55. Resistance is seen at 105.00 and support at 103.00. Prices may in fact go higher, but it will be without my clients. If and when grains start to move higher, feeder cattle should weaken and we think that is soon. We’re not advising to get short but we don’t want to be long.

August lean hogs traded higher by 975 last week and although it is too early to definitively say we may have formed an interim top is what it’s starting to look like it. Resistance comes in at 65.60/66.00 with support at 63.25. Short term it appears prices could come down but medium and longer term we like being long.

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Stocks: Equities snapped a four week losing streak in fashion with the Dow and S&P gaining all 5 sessions last week. The Dow was higher by 611 points or 7.6% getting back a majority of the losses from the previous 4 weeks. The S&P was also a gainer picking up over 60 points to close 7.1% higher. From here it looks like we will see a test of the June highs. If we get through that threshold more buyers will likely enter. If we fail to get through those levels we will most likely see some profit taking. We tend to think we’ll get through those levels and have clients currently long August and September ES calls. On a test of 950 exit the August calls and on a breakout towards1000 exit your September calls. The 50 day moving averages should act as support with the June highs acting as resistance. Support on the S&P at 908 and the Dow at 8400 with resistance at 950 and 8825 respectively.

Bonds: Minutes from the Federal Reserve's latest meeting were released last week "the economy remained very weak, though declines in activity seemed to be lessening." They also stated that "consumer spending appeared to be holding reasonably steady" and "consumer price inflation was fairly quiescent in recent months..." This to me is just more sugar coating about an economy that has yet to see the worst, but I hope that is just the pessimist in me. September 30-yr bonds were lower by 4’15.5 points trading to a 3 ½ week low. This was the largest weekly decline in 6 weeks; low and behold MB Wealth foreshadowed this in our commentary last week. Resistance comes in at 117’05/117’10 with support at 115’00. September 10-yr notes were lower closing down 2’11.5 points. Resistance comes in at 117’00/117’05 with support at 115’16. The path of least resistance remains down. Continue to short Euro-dollars. After tracking various months for the last few weeks we are starting to suggest clients to move out to June or September 10’ contracts on fresh entries.

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The Euro was higher by 195 ticks last week closing near resistance which comes in at 1.4200 with support seen at 1.400. As long as prices stay above 1.3970; the trend line for the last 2 weeks we should see higher ground.

The Aussie gained 244 ticks last week to close back above the 20 day moving average which should serve as support at .7915. This was a reversal of almost 3 ½ cents. Resistance is between .8075 and .8100. We would not rule out a surge higher to .8150 on continued commodity strength though we currently have no exposure with clients.

The Swissie gained 89 ticks last week as it continues to play a follower’s role to the Euro. Support is seen at .9170/.9200 with resistance at .9390. Prices could go either way so stand aside.

The Loonie was higher by 354 ticks, a gain of over 4%. As we projected last week, as soon as prices closed above the 20 day moving average look for more upside. The easy money has been made on longs while we may get higher pricing depending on the action in metals and energies. We prefer at this juncture to cut out the middle man and just be long energies and metals especially being we have a BoC meeting this week. Although we expect no policy changes we could have some increased volatility. Support at .8850/.8880 and resistance at .9000.

The Cable was gained 194 ticks last week after 2 losing weeks. Prices have been range bound now in a 7 cent range for the better part of 8 weeks and at this point we have no opinion. Resistance is at 1.6575, support is at 1.6175.

The yen lost 206 ticks and looks as if there is more downside to come. The 20 day moving average at 1.0566 and trend line at 1.0540 should hold but we do expect a test. Resistance comes in at 1.0700 followed by 1.0800.

The Kiwi was higher by 184 ticks. Support is at the 20 day moving average at .6350 with resistance at .6500. We do expect a higher trade but are not confident enough to put money in play.

The US dollar lost 90 ticks last week closing at its lowest point in 6 weeks. A close below 80.00 is psychologically demoralizing but a close below 79.00 would be more technically damaging, most likely signaling further downside. Support is at 79.00 with resistance at the 20 day moving average at 80.35.

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September corn was lower by a nickel last week, closing lower 5 out of the last 6 weeks. Prices appear to be oversold on the daily chart and nearing that in the weekly as well so don’t get too short! The story remains the same as last week, near ideal conditions are factored in and if we get any thing less than ideal, prices should move higher. Last week’s low at 316’2 should support with resistance at 330 followed by 340. Trade ideas: Long December futures with a stop below 322 or get long December via futures or options while simultaneously buying September puts for protection.

August soybeans were lower by 35 ½ cents and have lost 14% in the last 5 weeks. Support is seen at 975 with resistance at 1025 followed by 1050. Those who want to be long look to November, though we’ve yet to commit any client funds. Outside of just trading soybeans remember there may be opportunities in soybean meal and soybean oil. We may have some suggestions in the blogs this week.

September CBOT was higher by 21 ¾ cents last week closing just below the 20 day moving average. Support is seen at 525 with resistance at 550 followed by 560. For option buyers we’re looking at the September $5.70 calls for $600, for option sellers we’re looking at the September $5.20 puts for $600. September KCBOT wheat gained 19 cents, closing higher for the first time in 7 weeks. Support is seen at 550 with resistance at 575 followed by 590.

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The National Confectioners Association said that the North American cocoa grind totaled 105,123 tons in the second quarter, down 6.75% from a year ago, but better than expected. The question remains whether chocolate is recession proof? September cocoa closed up $129, the highest close in 4 weeks. Resistance comes in at 2800, support at 2650. Had you moved on our recommendation from last week based on Fridays’ settlement you should be carrying a $500 profit per spread.

October cotton closed higher by 1.70 cents marking the fourth consecutive positive week. We expect 62.50 to act as formidable resistance. Support is first seen at 60 cents followed by the 50 day moving average at 58.40. We bought clients 55 cent puts last week to play a pullback. We paid $600 and have a target of $1000+.

September orange juice closed up 10.45 cents, the highest close in over eight months. We made good money for clients in an orange juice option trade in recent weeks and yes we may have left prematurely. I’m guilty of leaving a lot of money on the table but greed in trading is not necessarily good. On a 10 cent setback we may look to get positioned long again for clients. Resistance comes in at 1.05 with support at 98.00 followed by 93.00.

October sugar closed up 5 ticks as we continue to wait for a lower entry for clients. Resistance is seen at 17.80 with support at 16.90. On a trade to 16.73, the 50 day moving average we will start to price out March 10’ calls for clients.

September coffee gained 4.60 cents last week to register its first positive week after 6 losers. We are advising clients to buy December 15 cent call spreads expecting a 10 cent plus move in the coming weeks. Support is seen at 114.50/115.50 and resistance at 120.00.

We do not trade lumber or milk often but both are starting to look like a buy…any suggestions?

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August gold was higher by $25.20 last week closing about $10 above the 100 day moving average at 927. Resistance is seen at 944 followed by 959. We would advise buyers of October to look at outright calls; we were buyers of October 1050 calls for clients last week. For traders who want a bit more time we would look to December for the purchase of $100/$150 call spreads. We favor being long and are ultimately expecting a test of $1000/ounce by year’s end.

September silver was higher by 74 cents last week closing nearly $1 off the lows. $13 should act as support and as long as prices stay above that level on a closing basis we are happy being long futures with clients. Resistance is seen at 13.75 followed by 14.20. We continue to buy fresh entries $3 December call spreads. Look for our special gold and silver report out this week.

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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.