For May11th– May 15th 2009

By: Matthew Bradbard

Perception vs. Reality

The latest advance in stocks and commodities with the fall in treasuries and the US dollar, could in fact be a precursor of what is to come but the pace of the advances and declines is flawed. These spectacular moves in such a short time are irrational and almost always not true. Stocks are moving higher as investors believe we will start to see a recovery in coming quarters and on hope that the worst is behind us. I’m not convinced on either front just yet. Commodities are rallying for the same reasoning and the fact that inflation may be around the corner. It is undeniable that this is a valid concern but perhaps premature. The move in treasuries is justifiable and for the US government to think they can get global investors to bail them out of this mess by issuing long term obligations and paying 3% is ludicrous. The US dollar is dead and will be considerably lower years from now. Day to day the volatility is unpredictable, however even Warren Buffet recently said 5-10 years from now the US dollar could be considerably lower. Markets tend to move irrationally and to extremes when fear and greed is present and this is never been more apparent across all asset classes. The investor that diversifies their portfolio and can differentiate between perception and reality will come ahead in the long run.

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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June crude oil closed up $6.01 last week, the highest close in 4 months. What was resistance will now become support between 55.75 and 56.25 with resistance at 60.00. Oil has traded higher 11 of the last 14 days on good volume so it is safe to say this rally is real and most likely sustainable, albeit with periodic setbacks. June heating oil was higher by 14.33 cents. Resistance comes in at 1.5375, support is seen between 1.47 and 1.48. It is not unreasonable to expect a 50% retracement of the recent move taking prices to 1.3525. June RBOB blasted higher by 19.72 cents last week trading to its highest level since 11/4. Resistance comes in between 1.75 and 1.80 with support at 1.63 followed by 1.55. We have advised clients to exit their July and August 20 cent bull call spreads at a profit. We should get a setback being the last 2 weeks we saw a 25% advance.

June natural gas closed up 77 cents at its highest level in 5 weeks. Much of the move is attributed to an expected decline in US production and industrial usage coming back on line. Since bottoming on 4/30 prices have moved $1 higher or 33%. We advised clients to book partial profits on their longs and to tighten up stops. Perhaps one of my best trades ever (Sell August $3.25 puts & buy 6 September $8 calls) was bought for $150 and closed at $3,650. $3.25 should serve as the low; we see support at 3.90 with resistance at 4.50 in June.
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June live cattle were higher by .85 last week. Support comes in at 82.00 while resistance comes in at 84.00 followed by 84.65. August feeder cattle gained 2.15 and like live cattle were aided by positive movement in lean hogs. Support is seen at 100.00 followed by 98.80 with resistance between 101.25 and 101.65. Both live and feeder cattle are oversold and we should see some value buyers scaling into longs as cash prices are starting to stabilize.

June hogs closed up 3.35, helped that the spread of the H1N1 virus appears to be slowing and that experts continue to confirm that eating pork is safe. The swine flu panic should be behind us and those who took advantage of the lower pricing should be rewarded. Support is seen at 67.50 with resistance at 68.90 followed by 70.35; the 20 day moving average. We’re anticipating that the gap will be filled in coming sessions and a trade above 71 is in the near future. We would look to book profits on the recently purchased 72 cent calls and be trailing stops on futures on a trade thru 70 this week.____________________________________________________________________

Stocks:  The US Labor Department said the unemployment rate increased from 8.5% to 8.9%, the highest since 83’. NFP showed a loss of 539,000 jobs which was better than projected but in my eyes still terrible. Stock markets are in the black for the year but as opposed to buying we would advise investors to be selling and raising cash. The Dow added 360+ points last week gaining 4.4% to 8575. The S&P leaped 50+ points virtually 6% to 929. The NASDAQ enjoyed its ninth straight positive week adding 20 points, just over 1% closing at 1739. I question the recent rally and think that in due time perhaps sooner rather than later we will experience an about face and go down almost as quickly as we went up. I hope I’m wrong but I don’t believe circumstances have improved as much as the market is reflecting. Support & resistance on the Dow and S&P are as follows; 8570 and 8230, 930 and 900. On a break lower our first objective on a swing trade would be 7750 and 830 respectively.

Bonds:   June 30-yr bonds were lower by just under 2 points last week, the lowest close in 5 months with yields rising to their highest level since late November. At these levels prices are oversold and we would expect a bounce, tighten up stops on shorts or lighten up on puts. Support comes in at 119’10 with resistance at 122’00. June 10-yr notes were lower by 14 ticks last week. Support is seen between 119’10 and 119’16 with resistance between 121’00 and 121’10. March 10’ Euro-dollars printed a new high, we suggest clients sell into this strength maintaining that in the long run risk: reward this trade should be in all commodity portfolios. Lightly sell at these levels and look to parlay the position.
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The RBA met and kept its interest rate unchanged at 3.0%, as expected. The Aussie gained 371 ticks last week trading to its highest close in 7 months Resistance comes in at .7750 with support at .7300. We have advised clients to be out of 75% of their longs expecting a setback and then will re-position.

The ECB reduced its interest rate from 1.25% to 1.00%. ECB President Trichet said that they will also practice quantitative easing, buying corporate bonds, and lending banks unlimited funds for the next 12 months. On the week the Euro was higher by 343 ticks trading to its highest level since 3/25. Support is seen between 1.34 and 1.3450 with resistance at 1.3675/1.3725.

The Swissie gained 224 ticks last week aided by a 2.2% surge on Friday. Resistance comes in at .9100 with support between .8900 and .8950. Stand aside.

The Loonie picked up 259 ticks and has now gained for the last 9 consecutive weeks. .8705 is starting to look like a potential triple top dating back to November. Support is seen at .8500. As of Friday’s close the September 85/90 call spreads we had advised in recent weeks closed at $2200. Look for an exit between $2,700-3,100.

The BoE met and kept its interest rate unchanged at .50%. The June British pound gained 299 ticks to its highest level since 1/9. We’re still looking to be a seller from higher levels. Resistance is seen at 1.5325 with support at 1.5000.

The Yen picked up 92 ticks and prices should continue to pick up value unless we see a further advance in equities. Resistance comes in at the 50 day moving average at 1.0180 followed by 1.0240. Support is seen between 1.0070 and 1.0100.

The Kiwi was higher by 311 ticks trading to levels not seen since last October. We feel we are close to an interim top and would step to the sidelines here. Support at .5900 and resistance at .6100.

There was optimism being the government's stress test was not as dreadful as feared. The June US dollar which has served as a flight to quality got walloped, down 210 ticks to its lowest close of the year. With investors willing to take more risk, capital came out of the dollar and poured into equities and commodities alike. Support is seen between 81.50 and 82.00 with resistance at 83.50.____________________________________________________________________

As of last week the USDA said that 33% of the corn was planted, down from the five-year average of 50%. July corn was higher by 13 ¼ cents last week to its highest level since 1/26. Support comes in at 4.15 followed by 4.00 with resistance at 4.25 followed by 4.38. Based on the market, action traders are content being long rather than short into the USDA report as pre-report guesses have a lower ending stocks number due to strong demand and lower South American production. Longs have been in the driver seat but we expect a 30-40 cent correction starting this week and will have clients on the sidelines until this happens or we get a different read.

As of last week the USDA said that 6% of the soybean crop was planted, down from the five-year average of 11%. July soybeans were higher by 23 cents last week. Prices traded within a 40 cent range, we feel this sideways consolidation exhibited exhaustion. First support is seen at 10.90 but we anticipate a break to 10.60 and possibly 10.20. Resistance is seen at 11.20. We sold June $11 calls and have clients positioned in put spreads into the USDA report. We ought to see a correction lower being soybean acreage should come in greater than the previous report and even with a moderate drop in ending stocks the market has already priced in a significant increase in demand for US beans. On drier weather here and in South America perhaps the demand has been overestimated.

As of last week the USDA said that 23% of the spring wheat was planted, down from the five-year average of 59%. July CBOT wheat was higher by 27 cents to its highest level since 2/10. Resistance is seen at 6.05 with support at 5.84 followed by 5.65. July KCBOT wheat gained 24 cents and has traded higher 8 out of the last 9 sessions to the highest price since 1/30.We assume most of the recent upside was due to short covering, the market believes damage will surface and this has made shorts nervous. On Tuesday’s report the endings stocks numbers should see little change and have no impact on prices.
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July sugar was higher by 28 ticks last week taking prices to a 10 month high. 12 of the last 14 days sugar has traded higher, although preliminary we think an interim top was formed last Thursday. Thursday’s high now becomes resistance at 15.60 with support down at 15.00. A 38.2% Fibonacci retracement takes prices back to 14.50, a 50% retracement to 14.17. We will be looking to be a buyer of March 10’ calls on a setback.

July cocoa gained $195 as the inverse relationship to the dollar was displayed. This was the first close back above the 20 day moving average in 4 weeks. Support comes in between 2425 and 2440 with resistance at 2550 followed by 2600.
July orange juice jumped up 5.85 cents with parts of Florida suffering from drought conditions. After 4 failed attempts to get thru 92 cents last week we should see prices back off. Support is seen first at 88.50 followed by 85.50. Stand aside.
July coffee jumped up 6.40 cents, the highest close in twelve weeks, on talk that world demand may be holding steady in spite of weak economic conditions. We were able to exit the July 120 calls for clients at a profit. For now we would stand aside as our short term objectives have been met. Resistance comes in between 1.2750 with support at 1.25 followed by 1.22.

July cotton was higher by 2.85 cents last week gaining for the last 8 days. Cotton has been on a tear but at this juncture we think prices have gotten ahead of themselves being they have gained 65% in just 2 months. Recently we sold July 55 calls and bought twice as many December 65 calls for clients. The trade idea was on a correction in July look to capture the premium and then hold the December calls. We are currently making money on this trade but for the wrong reasons so we will attempt to cover the position this week at a 25% profit. The lesson here is if a market is not performing how you expected it would when you put on the trade then exit.
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June gold was higher all 5 sessions last week gaining $27.40. We expect higher pricing but would’ve expected more upside last week with the collapse in the dollar. That being said on a trade below the trend line at $886 we would be quick to lighten up. The ability for gold to hold its own in the face of a stock rally may be on concerns of inflation to come. For new entries we favor $100 and $150 call spreads out to October. Resistance comes in between 925 and 930 while support is seen at the 100 day moving average at 901.70.

July silver was higher by $1.45 last week and has gained the last 6 days; up $1.60 or 13%. We are expecting further upside but the recent pace is unsustainable. Now that prices are thru 13.90 the next resistance level is 14.60. Support comes in at 13.55 followed by 13.20. When we started advising long exposure in silver to our clients last October the gold to silver ratio was near 80:1 today it stands at 65:1. If gold was to make its way to $1000/ounce, which we consider a certainty and the ratio comes into 50:1 which we do think is reasonable that puts silver at $20. Fasten your seatbelts; a 50:1 ratio should happen but at what level is the dangerous part.

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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.