For May 4th– May 8th 2009

By: Matthew Bradbard

“Being objective as a Commodity investor”

For the last year and half we have gotten bad news about the economy and we are now starting to see more favorable news trickle in, the key is to be objective and to look at everything. It seems that all the markets are interconnected as the metals trade with the currencies, energies with equities and all agriculture seems to move together. Observe relationships and follow the flow of money. For instance, we’re not in a bull market in stocks but investors who have ignored equities because of a bad experience have missed a huge move, oil inventories are at an 18 year high but oil has moved $9 higher in the last 2 weeks. There is virtually no demand for cotton, yet prices have advanced 40% in the last month. Natural gas prices look cheap, however that was also the case 2 months ago, since then prices have dropped an additional $2. I guess what I’m getting at is don’t ignore the good or bad news and be more critical when making decisions in your portfolio.

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 4.1 million barrels, supplies of gasoline were down 4.7 million barrels while heating oil supplies were up 1.5 million barrels. June crude oil closed up $1.75 to post its second positive week in a row closing over $9off the previous week’s low. Energy prices appear to be pricing in a recovery and pick up in demand for later this year, though there is no support for that conclusion. That being said, prices may have gotten ahead of themselves and a correction is probable. Support is seen between 51.50/52 with resistance at 53.50 followed by 54.50. This week’s direction may be determined more by outside influence such as NFP and the stress tests as energies seem to be taking leadership from equities. June heating oil was higher by 1.26 cents which is not too impressive all things considered. Support comes in at 1.36 and resistance between 1.40/1.42.  June RBOB was higher by 7.72 cents making its way to a 6 week high. Support is seen between 1.45/1.4650 with resistance at 1.5450. We have advised clients to put in GTC profit orders on any 20 cent July and August call spreads. We have a chance of seeing a move thru 1.57 this week which would trigger buy stops.

The US Department of Energy said underground supplies of natural gas were up 82 billion cubic feet to 1.823 trillion cubic feet. Supplies are now up 34% from a year ago and up 23% from the five-year average. June natural gas ended up 16 cents or 4.7% on the week. Signs of stabilization in the manufacturing sector may well point towards a recovery in the industrial usage that has been lacking. Resistance comes in at the 20 day moving average at $3.63 which prices have not closed above since 3/25. The fact that we printed a new contract low and prices held is a positive sign, for now support should hold at 3.35. A trade idea; we will start to explore selling August $3 puts and buying 6 September $8 calls for even money. We would expect to keep the premium on the put and on an explosive move higher over the next few months trade out of the calls which presently would be deep out of the money.

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After the close Friday, the USDA estimated the week's beef production at 516.7 million pounds, down 3.2% from a year ago. June live cattle ended 15 ticks higher, in spite of concerns that beef exports will be slower on the Swine flu concerns. Support is seen between 81.50/81.75 with resistance at the 9 day moving average at 82.10. August feeder cattle were off by 115 ticks closing at a 4 week low as it appears prices are heading lower. Resistance is seen at the 9 day moving average at 99.85 with support at 97.80 although we cannot rule out a trade below 97.00

Pork production was estimated at 418.4 million pounds, down 2.7% from a year ago. Countries abroad announced that they will not import pork from the US due to Swine flu despite statements from world health officials that consuming pork is safe. Hogs are getting a bad wrap being there is no evidence that hog populations are suffering and outbreaks are traditionally named according to their origin. Last week the named was changed to the H1N1 virus from Swine flu but has the damage already been done? June lean hogs finished down just over 6 cents last week making new contract lows. We have advised aggressive traders to buy; buying June 72 calls for 90 points looking to exit at 200 points on a rebound. Also we have client’s long futures from 64.50/67.50 expecting the gap formed last week to be filled in coming weeks on a trade back to 71+.

Stocks:  With April behind us stocks experienced their best 2 month gain since 1975. The Dow ended the week higher by 136 points or 1.7% just over 8200. The S&P 500 climbed 11 points or 1.3% to 878 with the NASDAQ putting in its eight straight weekly gain adding 25 points or 1.5% to close at 1719. Heading into May it appears the economic deterioration seems to be slowing as tax refunds and mortgage refinancing have temporarily helped consumers. We feel this will be short lived and continue to expect a correction lower after the recent 30% advance. Investor confidence, if we’re right will quickly back off as they realize this was not the start of the next bull market. With results out on the stress tests, NFP on Friday expected to show a loss of 600,000 jobs and a slightly higher unemployment number we sense a move lower is probable. With exhaustion in the market; the Dow should find its way to 7725 on a setback and the S&P to 825. A move higher cannot be ruled out, but we will not be involved with clients.

Bonds:  Last week the Federal Reserve met and kept the federal funds rate unchanged. As they see it, "the economy has continued to contract, though the pace of contraction appears to be somewhat slower." June 30-yr bonds were lower by 2’07 points to their lowest levels since mid-November 08’. This marks the sixth uninterrupted negative week. Resistance is seen at 124’00 with support at last week’s low at 121’21. On a trade below those levels look for an attempt at 120’00. June 10-yr notes were lower by 30.5 ticks, on the weekly chart this was the first close below the 20 day moving average since the week of Halloween. Support comes in at 120’15 followed by 119’20 with resistance at 121’20. The trend remains down but the pace of selling seems to be slowing. Continue to accumulate shorts in the March 10’ Euro-dollars as prices are about 10 ticks from the contract highs. This is the type of trade that one will need to sit on their hands and wait to develop over the next few quarters.

The June Euro was higher by 25 ticks last week fighting back from losses early in the week. Support is seen at 1.32 followed by the 50 day moving average at 1.31. Resistance comes in at 1.34, on a close above that level look for an attempt at 1.37. The ECB meets on Thursday and should reduce rates from 1.25% to 1.0%.

The Aussie was higher by 90 ticks last week. Support comes in between .7175 and .7200 with resistance seen at last week’s high at .7363. On the RBA meeting this week we expect rates to stay at 3.0%. On a pullback we will be a buyer of 75/80 call spreads in September for clients below $1000, stay tuned.

The Swissie was higher by 26 ticks last week and continues to follow the lead of the Euro. Support is seen at the 50 day moving average at .8696 with resistance between .8850 and .8900. Stand aside for now.

The June Canadian dollar closed up 187 ticks, the highest close in over three months. This marks the 8th consecutive positive week. We had been calling for a trade above 84 cents for weeks now and finally the market delivered. We advised clients to take profit in June and roll their May and June contracts into September. We bought 85/90 call spreads for clients at $1500. Support is between .8330 and .8375 with resistance at .8510.

The yen gave up 260 ticks last week closing back below the 50 day moving average seemingly making its way back under par. The 50 day m.a. now becomes resistance at 1.0147 with support eyed at .9950. The risk aversion trade is back, with equities moving higher, the yen continues to move lower.

The June Cable was higher by 262 ticks last week. Support comes in between 1.4750 and 1.4800 with resistance at 1.5075. We will be looking to be a seller anticipating a trade back to 1.4300. The BoE is expected to hold rates steady at 0.50% Thursday.

The RBNZ reduced interest rate from 3.0% to a record low 2.5% and said that they expect to keep the rate low into 10’.  The Kiwi was higher by 28 ticks last week. Moving forward we expect sideways consolidation between .5600 and .5800. No trades currently.

The June dollar index was lower by 16 ticks last week, closing lower now for 2 weeks running. Support comes in first at 84.00 followed by 83.25 with resistance at 86.00. We would expect prices to continue south for the time being, the next leg being determined by the stress tests and NFP.

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The USDA said that 22% of the corn was planted. July corn closed up 30 ¼ cents or 7.9% last week. This was the highest price in three weeks with ongoing concerns about slow planting progress. At the highs prices were just below significant resistance between 4.17/4.20. On a close above that level, which we feel is unlikely ahead of the 5/12 USDA report, we would quickly see the mid 4.30’s. Support is seen at the 38.2% Fibonacci retracement level at 3.92 ½. At present the market is pricing in a cut in corn ending stocks. The April demand for corn was much better than the March and with planting delays and Argentina lowering their production, the USDA will likely raise their export expectations. The market expects at least a cut of another 40 m.b. We would like to get long from lower levels and currently have no exposure with clients.

The USDA said that 3% of the soybean crop was planted. July soybeans were higher by 63 cents or 6% with their first close above the 200 day moving average since September 08’. April demand for beans was stronger than many had expected and Argentina cuts its harvest twice in April. This, coupled with planting delays, equates to the USDA possibly cutting ending stocks on beans for the fourth consecutive month. The psychology is bullish into the report but we could see setbacks on a change to drier weather or expansion of the Swine Flu threatening exports which to date has not occurred. Support is seen between 10.50/10.60 which had previously served as resistance. There appears to be no resistance until 11.50. We would stand aside on new entries but continue to hold the $10/$9 puts strategy that was outlined in recent weeks.

The USDA said that 15% of the spring wheat was planted. July CBOT was higher by 27 cents or 5% last week, the highest close in three weeks. We advised clients to book partial profits on the July $5 puts they sold the previous week; initially they collected $1050 and they bought these back for $600. We would try to repeat this trade on a setback or just be an outright buyer of futures. Support is seen between 5.40/5.49 with resistance at 5.70 followed by 5.85. KCBOT wheat gained 24 ¾ cents last week trading back to levels seen at the beginning of April. Support comes in at 5.95/5.98 with resistance at 6.25.

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The USDA said that 16% of the cotton was planted. July cotton jumped 5.20 cents, the highest close in six months, aided by spillover strength in other agriculture markets and better economic news. We advised clients to sell July 55 cent calls and to buy twice as many December 65 calls. The idea is we’re expecting a setback after the recent 40% appreciation and to collect the entire premium on the July contract. This would allow clients to own calls out to December with limited exposure. We collected $1100 for the July call and spent $2900($1450*2) for the December calls for a total cost of $1800. Support is seen at 54.25 followed by 53.00 with resistance at 60.00.

India's sugar production is running below expectations and they will likely be an importer of sugar this year. July sugar was higher by 115 ticks last week gaining 8.25% to the highest close in eight months. Resistance is seen at 15.50 with support back at 14.25/14.35. With prices looking over bought we advised clients to lighten up and book profits on their longs. On a setback, we will be buying March 10’ options and October 09’ futures.

July coffee ended the week on a strong note up 3.9%, gaining 1.90 cents on the week largely on expectations of a smaller Brazilian crop. A close over 120 would signal a breakout to the upside. We will be looking for a scenario like that to book profit on the remaining 120 July calls for clients. Support is eyed at 115.50.

July cocoa fell $107 last week, the lowest close in seven weeks. Cocoa was one of the few commodities that finished lower but with prices now oversold the easy money has been made on shorts and all our objectives have been hit. We will now be looking for long entries. Support is seen between 2280 and 2300 with resistance at 2400.

July fcoj was lower by 65 ticks last week getting closer to our objective at 79 cents. The pivot point comes in at the 20 day moving average at 84.25. Support is at 79.75/80 with resistance at 86.50. We favor getting long but from lower levels as we’ve said in past commentaries.

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July silver was lower by 45 cents last week trading as high as $13.25 on Monday and as low as $12.02 on Friday ending the week at $12.50. We maintain that on a close above $13 look for the trend to be higher while a close below $12 would signal lower pricing. We are advising clients to hold onto existing positions but have not advised any recent entries as prices could go either way. We sense there is a big move brewing but cannot get a good feel on what direction. What makes me a little uneasy about bullish positions is that the 200 day moving average has been above the 100 day moving average since November and at 12.48 and 12.31 respectively if the 200 day m.a. was to move below the 100 day m.a. that would signal weakness. Longer term we are extremely friendly but before taking any serious size we would suggest waiting for a signal.

June gold lost $26.80 last week closing just below the 100 day moving average. Support is seen at $880 followed by $863 with resistance at $891 followed by $915. Throughout the month of April gold traded within a $55 trading range, with a new month will a new trading range be determined? The fact that gold prices didn’t move higher on recent dollar weakness and the Swine flu we would suspect the bears are in the driver seat. On a considerable break to say $825 we would be a buyer with both hands. The only positions we feel at ease with presently is $100-150 call spreads out to August.

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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.