For June 15th– June 19th 2009

By: Matthew Bradbard

General Investment Themes from Barron’s Roundtable

Barron’s roundtable did not disappoint as some of the most influential financial minds were interviewed on what has happened and what is to come, oddly enough we agree with most of what was said. The general themes were: gold should be in your portfolio, a correction in equities is coming, the paltry returns in Treasuries do not justify an allocation, at some point the Fed will be forced to raise interest rates, and finally, the actions by the government should cause inflation if not hyperinflation. Sounds to me like a recipe for a continuing bull market in commodities.

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 said crude oil supplies were down 4.4 million barrels, supplies of gasoline were down 1.6 million barrels and heating oil supplies were down 800,000 barrels. August crude oil closed up $3.95 to trade to the highest level in seven months. Prices have traded higher now 7 out of the last 8 weeks, talk about a trend. Last week’s high at 73.90 should serve as resistance, followed by 75.00 with support at the 9 day moving average of 70.40. This level has acted as support since prices closed above the 9 day moving average on 5/18. August heating oil traded higher by 7.90 cents last week. Resistance is seen between 1.90/1.92 with support at the 9 day moving average at 1.8325 followed by 1.76. August RBOB gained just under 9 cents to close above $2 for the first time since mid-October. After reaching that landmark we would expect some profit taking. Support comes in at 1.88/1.90.

The DOE said underground supplies of natural gas were up 106 billion cubic feet last week. August natural gas closed up 1 penny on the week. A triple bottom at 3.85 should act as solid support with resistance coming in first at 4.40 followed by 4.70. Prices were higher by 25 cents last Thursday on very good volume; almost 3 times the average volume of late. We advised clients to cover at least a portion of the recent fence position at a $1600 profit being we could get some spillover weakness from Crude. Our recommended trade currently is to buy the September $4.50/5.50 call spread near $2,200.

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August live cattle were higher by 65 ticks last week as movement of late has been like watching paint dry. This scenario has played out well for one of the livestock CTA’s that we work with as they typically write “out of the money” options. Support is seen at 80.50 with resistance at the 20 day moving average at 82.35. Trade idea: buy August live cattle/ sell October live cattle at -550.The widest this spread has been is -650, our target is to pick up 200-300 points. August feeder cattle were higher by 1.225 ticks closing 320 ticks off their lows. Support is seen at 96.90 followed by 96.00 with resistance at the 20 day moving average at 99.00.

Demand for pork continues to suffer, hurt by the world's reaction to the H1N1 virus. Last week the World Health Organization declared a flu pandemic due to the spread of the H1N1 virus. In spite of assurances from numerous health organizations that eating properly cooked pork is safe, the hog industry continues to suffer. August lean hogs closed down .325 ticks having closed lower now for the last 4 weeks. Last week’s low at 57.785 should support while we see resistance at 61.50.

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Stocks: Not only are we seeing less upside but the volumes have shrunk considerably, both signs of an interim top. The S&P added just 6 points last week registering its 12th positive week in the last 14 to close slightly below 950. The Dow ended the week up 36 points to 8799 finally making its way in the black for the year. The NASDAQ rose for the 13th time in 14 weeks adding only 9 points to 1859. We don’t suggest celebrating the 40% rebound for too long as a correction should be just around the bend. As investors recognize the quick recovery and increased growth that has been priced in will not be realized, expect profit taking. Moreover a sell-off is forthcoming being the fundamentals don’t match Wall Street’s perception. Friday we were buyers of July 875 ES puts for clients for $575.

Bonds:  There has been talk from Brazil, Russia and China about selling US Treasuries and buying bonds from the IMF. The anguish is with the US dollar as the world reserve currency amid growing debt becoming a deeper concern. September 30-yr bonds were higher by 29 ticks last week, but before getting excited recognize last week was only the second positive week in the last 3 months. Support comes in at last week’s low at 111’21.5 while resistance is seen at 116’16 followed by 118’16. From here we expect a bounce, how we are positioning clients is long 30-yr bonds and short 10-yr notes. (NOB spread) September 10-yr notes were higher by 27.5 ticks last week. Support is at 113’10/113’20 with resistance at 115’16. We would advise selling into this rally in the Euro-dollar. Prices were higher by 20 ticks last week and while we could get another 25-50 ticks we would not expect much more. We are shorting March 10’ futures and depending on the premium we will be buying 97.50-99.00 puts.

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The September Euro was higher by 66 ticks last week as the recent up cycle may be running out of gas. Resistance is seen between 1.4175/1.4200 with support coming in at 1.39 followed by 1.3750. On increased US dollar strength expect a move to the 50 day moving average; 1.3550.

The Aussie was higher by 198 ticks with last week being the 11th positive week in the last 15. However we may see setback in the immediate future, last week was the first week in the last 7 where prices failed to make a new high. Resistance is seen between .8200/.8250 with support at .7925 followed by .7825.

The Swissie gained 68 ticks, but to determine where this currency moves from here is beyond us. We feel prices will continue to take guidance from the Euro. The pivot point for September comes in at .9225. Resistance is seen at .9375 while support comes in between .9125/.9150.

The Loonie was marginally higher gaining 11 ticks last week. After a 20% appreciation in the last 3 ½ months it may be time for a rest. We expect a setback and it should be delivered via lower energy and metals prices. Resistance comes in at .9100 while support is at .8800.

The Cable picked up nearly 5 cents last week but much like the prior week, prices were unable to penetrate the 1.6650 level. Support is seen at 1.6250 followed by 1.6075.

The Yen picked up 32 ticks last week. Support is seen at 1.0150 while resistance is seen at the 50 day moving average of 1.0265. We advised clients to buy July 1.0250/1.0550 call spreads for $1375 with a target of $2000. We should hit our objective on a trade up to 1.0375/1.0400 in the futures. The BOJ is expected to leave rates unchanged.

The Kiwi dollar was the standout last week gaining 139 ticks, just over 2%. Resistance comes in at .6450/.6500 with support seen at .6250. Movement this week should be determined by overall commodity sentiment.
The September US dollar gave up 71 ticks last week but stayed above the previous week’s lows. Support is seen at 79.25/79.50 with resistance at 81.00 followed by 81.75.

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The focus for corn and soybeans will move from what is being planted to crop conditions.
 
The USDA said that 97% of the corn crop was planted and 69% of it was rated good to excellent. The USDA's 09-10 US ending stocks estimate for corn was reduced from 1.145 to 1.090 b.b. The USDA reduced its 09-10 production estimate for corn from 12.09 to 11.935 b.b, due to planting delays in the Midwest. July corn was lower by 17 ½ cents closing lower for the first time in 8 weeks. In July 4.03 ½ marks a 38.2% Fibonacci retracement, 3.89 a 50% Fibonacci retracement. Look to be a buyer of December 09’ corn between $4/4.20.

The USDA said that 78% of the soybean crop was planted, down from the five-year average of 87%. The USDA's 09-10 US ending stocks estimate for soybeans was reduced from 230 to 210 m.b. The ending stocks estimate for old crop soybeans fell from 130 to 110 m.b. July soybeans were higher by 18 ½ cents, closing higher now 11 out of the last 13 weeks having appreciated 45%. There are signs of a top; last Thursday prices closed 25 cents off their highs and then on Friday we were down 21 ½ additional cents. We would not rule out a trade down to $11 and as we have voiced, if we get that type of correction we would want to be a buyer of November prior to the June 30th report.

The USDA said that 96% of the spring wheat crop was planted and 72% of it was rated good to excellent. The USDA said that 44% of the winter wheat crop was rated good to excellent and 5% has been harvested. The USDA's 09-10 US ending stocks estimate for wheat was increased from 637 to 647 million bushels. July wheat closed down 38 ½ cents last week and almost 90 cents in the last 2 weeks. Resistance is seen at the 200 day moving average at 6.03 with support at 5.70/5.75. July KCBOT was down 38 cents last week as the chart looks similar to the CBOT chart. Resistance comes in at 6.55/6.60 with support at 6.20.

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Though the housing market remains on unstable ground the lumber market is not reflective. Investors pushed September lumber up its $10 limit on Friday and 20% higher in the last 3 weeks. Support is seen at 205 with resistance at 225.

The USDA estimated 09-10 world coffee production at 127.4 million (60 kg) bags with implied use of 132.2 million bags. That puts 09-10 ending coffee stocks at 35.3 million bags, or 27% of annual use which is historically on the low end. July coffee was lower by just over 4 cents nearly reaching our objective. We’ll be looking to potentially buy September from 3-5 cent lower levels.

The USDA increased its estimate of the 08-09 Florida orange crop from 158 to 160 million boxes. July orange juice was down 7.20 cents having closed lower for the last 11 days shedding 15%. Resistance is seen at 85.00 with support at 79.50. Under 80 cents we may start positioning clients long.

July sugar closed lower by 30 ticks as we expect prices to make their way to 14.40 or thereabouts. At that level we would be an aggressive buyer and be looking to cover any short exposure. On fresh entries we are advising March 10’ contracts as we expect that once prices get thru 16 cents to see 18 shortly after.

The USDA's 09-10 US ending stocks estimate for cotton was kept at 5.60 million bales. The USDA said that 89% of the cotton crop was planted, close to the five-year average of 90%. July cotton was higher by 73 ticks last week, as of now we have no exposure with clients. Resistance comes in at 57.50 with support seen at 54.25. We maintain our desire to be a buyer closer to 50 cents.

September cocoa gained $88 which would have been more if it had not been for a setback Friday. Why this was significant is that Friday was the first negative day after 18 consecutive positive sessions. Resistance comes in at 2850 with support at the 9 day moving average at 2760. On further dollar appreciation look for a move to 2600.

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August gold traded lower by $15.60 last week with prices now roughly $60 from the mythical $1000 level. Resistance comes in at $965 with support at $929 then $914. If we trade down to the 50 day moving average and it looks like prices will hold at $923 then again we will start buying $100,150 & 200 call spreads in October gold. If you already own a call spread, we may suggest buying back the top leg on a further correction.

July silver lost 38 cents last week closing just below the 20 day moving average. Resistance comes in at $15.50 with support between $14.40/14.60. An ideal entry to re-establish longs on futures would be between $13.50/13.75. Once this correction is over we’ll be advising scaling into long futures in September. We have started to buy clients $3 call spreads in December and will be looking to add to that position on signs the present sell off is complete.

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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.