For June 16th– June 20th 2008

By: Matthew Bradbard

We are experiencing one of the worst housing downturns in history, a painful credit crunch, a weakening job market, waning consumer confidence, and rising food and energy prices stoking the fire, making the argument of inflation real. How can investors be so confident and keep a majority of their portfolios in equities and bonds? If you evaluate what your money has done for you in recent years vs. what type of opportunities you have ignored in commodities, it must make you sick. We suggest you move 5-20% of your portfolio into commodities and take advantage of the secular bull market virtually commodity wide.  We expect agriculture prices to remain in the spotlight and we anticipate seeing a historic move higher in livestock prices in the weeks to months ahead.  Start taking commodities more seriously! INVESTORS CAN AND DO LOSE $ TRADING COMMODITIES EVERY SINGLE DAY.

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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“What we are seeing is a very painful experiment to see what price will get demand to slow down.” Adam Sieminski, chief economist at Deutsche Bank.

There have been 24 weeks of trading so far in 2008; of that, there have only been 6 that have registered declines in crude oil and last week was one of them as August crude lost $3.22 finishing the week at $135.37.  The real story should be the volatility as the average daily trading range was $5.73 last week. At this juncture we would caution traders in taking a bullish or bearish position in the futures as prices could move very quickly either way, only to reverse on a dime. If traders have a bullish or bearish bias, what we would suggest doing is purchasing either bull call spreads or bear put spreads; this would enable traders to be there for a move but limit their exposure. Two possible suggestions would be the August options with 32 days, if bullish the 136/142 bull call spread for $2200 or the 136/130 bear put spread $2100 looking for liquidation between $4000-5000 if you get a move your way.

July heating oil seems to be running into resistance just above the $4 level and on a break below $3.80 lower prices are likely. Much like crude prices we were range bound last week trading in a 20 cent range. For now the 20 day moving average supports but if we were to see a close beneath $3.8220 look out below. Technicals support a price break back to the trend support line just above the $3.50 level.  What a milestone; the average price of retail gasoline in the US hit $4 a gallon this past week.  July RBOB ended lower on the week and prices were unable to get above last week's higher levels; we had an inside week and this preliminarily indicates we could move south from here. We are getting mixed signals from the charts and without clarification on if high prices will continue to affect demand we would recommend stepping to the sidelines for now.

July natural gas ended 6 ½ cents lower on the week and is starting to show signs of an interim top once again.  As we have discussed in numerous commentaries, we are looking to get clients long via 50 cent bull call spreads and being that July is going off the board in the next 2 weeks we are exploring entries in August.  First significant support comes in just above the $12.10 level in August, but we are ideally looking for futures to trade down near the 40 day moving average around the $11.80 before initiating buy recommendations. At that point one should be able to buy the $12.50/13 call spread for approximately $1500.

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What a change of events just a couple of days can bring; we gaped lower on August live cattle to open the week only to reverse and close 2 ½ cents higher on the week. We made a new contract high and as long as corn prices continue to move higher live cattle should follow. August feeder cattle similarly started the week lower but we did not see the same recovery.  We closed the week just about 2 cents lower but we would advise accumulating longs at these levels.  108.35 serves as the 38.2% Fibonacci retracement level and should serve as support. When feeder cattle get moving higher we expect them to advance swiftly, so do not pile in but lightly start positioning long as we expect much higher prices to come. RSI and stochastic are showing over sold levels and we should see a turn relatively soon. After the close Friday, the USDA estimated the week's beef production at 521.5 million pounds, down 4.1% from a year ago.  Monitor any development between the US and S. Korea resuming export business.

Pork production was estimated at 410.7 million pounds, up 6.5% from a year ago. August lean hogs traded lower on the week, but mid week the momentum appeared to shift and prices for now seem to be heading north.  We bounced off the 74 level which serves as the 61.8% Fibonacci retracement level considering the contract high and low.  Additionally the stochastic on the daily chart reversed from over sold levels and a move to at least 76.50 looks eminent.

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Stocks:    Expect volatility as this Friday is quadruple witching, when options, index options, futures, index futures contracts expire.  Consumer prices jumped 0.6% in May, the quickest pace in 6 months.  The DJIA followed a dismal week with a slight gain picking up 98 points or 0.8% to 12307. The S&P slipped 1 point to 1360 while the NASDAQ fell 20 or 0.8% to 2455.  Volume has been light and we have seen little follow through to the early buying that emerges in the morning. We would continue to be cautious as we do expect more trouble ahead. Compare the recent performance with stock indexes and commodities and ask yourself why you are so loyal to your stocks.

Bonds:  The sentiment in the debt market swings back and forth between fears of higher inflation and anxiety about slower growth. The expectations in the past few sessions have shifted, and it appears that central banks will need to start hiking interest rates to fight inflation. As a result, the short end of the yield curve saw a one week rise in yields, the like of which has not been seen since 1987.  The futures market for federal funds is placing strong odds that the US central bank will start raising its target rates as early as the August 5th meeting.  There is now an 83% probability of a 25 basis point hike at that meeting when only a week earlier the market put a 10% chance of such a move. September bonds and notes should bounce from oversold levels if last week's lows hold at 111’23.0 and 111’00.5 respectively.

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As expected the Bank of Japan met and kept their interest rate unchanged at 0.50%. The September yen was down 312 points on the week trading to levels not seen since the beginning of 2008.  At this juncture we do not have any firm trade recommendation although we are looking into where would be a good entry to get long September futures. However we are not in a rush being that the 200 day moving average was broken last week.

We recommended a light long last week with stops just below last weeks low which should have resulted in a small loss if you took this trade.  We were looking for metal and energies prices to support the ‘Loonie’ but with a strong upward move in the dollar all currencies fell victim last week. The Bank of Canada surprised last week by not cutting rates and left them at 3.0% largely on inflation concerns. We may move a little lower on the September contract but if we find support around .9650 we will look for a long entry for clients.

The ‘Cable’ started last week higher, looking like it was going to break above the consolidation level from two weeks ago, but that was short lived as a US dollar rally quickly reversed that move.  We traded 242 points lower on the week after two failed attempts to climb back over the 20 day moving average at 1.9512 on September.  We would continue to sell rallies recognizing that the easy money has been made. We stress using stops if short because we are not convinced the dollar rally is real and jawboning from central banks on future interest rate raises could support.

As we voiced last week on a failed attempt to get above the consolidation level from recent weeks sellers would emerge and that was exactly what happened as prices could not hold the 1.5700 levels in September.  The Euro traded nearly 5 cents lower on the week and we now sit just above support that emerges at 1.5260.  Ultimately we are looking for a move to 1.4850 but the pace of selling may abate just a bit as we have covered a lot of ground of late.  Look to be short futures on a breach of 1.5200; moreover, we have started to price out September puts for clients.

Much like the other European currencies, the Swiss franc lost ground, last week's trading 280 points lower ending the week at .9531 in September.  We have been contained between .9450 and .9800 since the beginning of May and it appears we are making our way to the bottom of that range. There is no trade recommendation here.

For some weeks we had been patiently waiting for a break in the Aussie to get long, and last week we changed our entry from .9300 to .9500.  Because we were impatient we may have advised an entry a bit prematurely, but, needless to say, it looks like this correction was a buy as long as last week's low holds, which is .9324 in June and .9215 in September; we would stay long.   We expect parity to be reached down the road in the Aussie as we have voiced numerous times in past commentaries.

The dollar index had its biggest weekly gain in almost 3 years against the Euro and Yen as prices moved nearly 200 points or 3% higher. We closed above levels where previous resistance existed back in the beginning of May with the market now looking to fill a gap from late February at 75.36 on September. As we have said, follow the dollar not so much to trade but to aid in entry and exit on other markets. If the dollar index continues to trade higher on inflation concerns we could see some commodities back off from lofty levels. Both the Fed and Treasury are trying to talk the dollar up; will talk be enough or will they have to actually do something?

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Corn:  Weekly export sales showed 524 t.m.t. of corn was sold last week.  Prices ended the week at historic high prices with December 08’ gaining 77 cents or  11% as rains left fields flooded with initial chatter of corn acres being damaged and some even potentially lost.  Tuesday’s USDA monthly crop report estimated that next year’s ending stocks will be 673 million bushels vs. 1.433 billion bushels this year.  Additionally, the report lowered yields from 153.9 to 148.9 bushels per acre due to late planting and slow emergence.  What they have not addressed is how many of their estimated 86 m.a. will go unplanted and how many acres were planted that are flooded out and unable to be re-planted.  The end of the month USDA report due out on June 30th will answer these questions. We want to be long but the dilemma is how long we want to be at record highs when there has been little to no profit taking.  We are expecting a near term correction on position squaring sometime before the month end report. This will largely depend on weather reports and how the funds position themselves. Near term we have a target of $8 for December corn but on continued weather into the summer we could get a rationing price increase similar to what we saw in wheat just months ago taking prices to $9 or $10. December corn will find support at 7.65 followed by 7.40 with resistance at Sunday night's high at 791’4.

Beans: Weekly export sales showed 272 t.m.t. of beans were sold last week.  Tuesday’s USDA crop report put ending stocks for next year at 175 m.b. down 15 m.b. from the May report due to late plantings and slow emergence leading to lower yield expectations.  Will farmers take unplanted corn fields and switch to beans offsetting flooded bean field losses or will acreage be lost due to weather? This week we trade off outside market influences and weather changes and how it is perceived that farmers will react.  A recent report shows China increased its soybean imports in May by 45% from the previous month. November futures find support to buy at 15.10.  Any problems with weather, especially dryness, between mid July and mid August and record highs in beans should be expected. So soon we forget that of the 11 m.a. more to be planted this year to insure we do not run out of beans, most of those acres were in Nebraska and Iowa the western grain belt that has the worst of the record rains.  Though corn is getting all the media hype, currently we could be setting the stage for a serious advance in beans in the not-too-distant future.  The same time December corn moved $1.77, November beans moved $2.40.  We are long November futures trailing stops and own $1 and $2 bull call spreads for clients, all in November.

It is estimated that about 10% of Iowa’s soybean fields will have to be replanted. When soybeans are planted this late in central Iowa they usually generate about 60% of their normal yield.

Wheat:  Weekly export sales report showed 335 t.m.t. of wheat was sold last week. Wheat has bounced off oversold levels from 2 weeks ago which has been aided by strength in beans and corn.  Both CBOT and KCBOT for July have gained roughly $1.60 but without spillover strength we do not feel this would have been the case. Furthermore, it is tough to be short wheat when you have a historic advance in other grains. Crop condition ratings are good at the moment, but recent rains have whispers of flooded fields.  We are still looking to sell rallies but on a daily basis looking to scalp 10-15 cents.  Before getting too heavy or feeling comfortable to hold overnight we would wait to see an advance up to the 38.2% Fibonacci line that comes in at 9.39 for CBOT and at 9.83 on KCBOT.

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Reuters reported that cocoa arrivals in the Ivory Coast as of June 8th were up 7% from a year ago. September cocoa ended up $129 at a new contract high of 2973 after making an attempt at 3000 trading as high as 2997. We expect 3000 to be penetrated in coming sessions as the dollar does not appear to be supported by the recent G-8 meeting. We would trail a stop if long, as prices are overbought. If already not long we would not feel comfortable getting in unless prices were closer to 2800.

Dow Jones Newswires continues to report that there is no damaging cold in the forecast for Brazil's coffee regions. July coffee was down 1.45 cents at 1.3440 for the week. After the close, the USDA estimated world coffee production at a record-high 140.6 million (60 kg) bags in 2008-2009, up from 122.4 million bags a year ago. They expect the world's largest producer, Brazil, to harvest 51.1 million bags, their second-largest crop ever. 2009 world ending stocks are expected to increase 4.8 million bags to 17.2 million bags, or 13% of annual use. We are looking to get short on rallies as long as the 100 day moving average at 141.98 contains.

Cotton rallied in sympathy with other grains as this crop competes for acreage.  December cotton in the last 2 weeks has picked up virtually 8 cents and now sits above the 200 day moving average.  Bullish option plays late in the week may have contributed to the advance.  As we have repeatedly said in recent weeks we are positioning long December cotton looking for higher prices in both futures and 10 cent call spreads for our customers. We expect to see the recent move set the tone for coming weeks.

Sugar rose to 3 week highs as shorts covered as crude oil and corn prices trading higher may have influenced perceived demand for the Brazilian cane ethanol.  We are starting to get the move we have been calling for a month or so and feel this is the beginning of a much bigger move into 2009. We have advised clients to accumulate call options into '09 and to parlay future contracts looking to add to their positions as the sugar market tracks higher.  Buy dips and try to stay with this trade for the next 1 -2 years….that is right, 1-2 years!

July FCOJ failed to get through the 50 day moving average last week and we were grateful that we took the recent bullish option play off for customers as prices appear to be moving lower for now.  We are beginning to rollover and it appears we will re-visit the recent lows just under 105 in July.  At that time we will re-price bullish options and try to repeat the trade we just exited for clients in September.

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August gold continues to trade sideways to lower losing $33 last week closing at $873.10. Looking at the daily charts we see an outside candle or bearish engulfing candle on the weekly chart so we could trade lower. We should find solid support at $850 if we get to that level. Moves higher and lower will happen but it appears gold will largely look for influence from the currency and energy markets. There is no rush to get long but we will probe looking to get long in August with tight stops. Before establishing longs with options we would wait for a confirmation of a reversal.  Without a significant sentiment shift we should stay contained within the Bollinger bands between $857 and $940. On a move to $850 we would most likely start buying 50 call spreads for October and December.

Silver for July has solid support around the $16 to $16.30 level, but, much like gold, it will look for leadership from currencies and metals.  So although you may not want to trade oil or the dollar, pay attention to help guide you with entry and exit in silver.  You could have a potential “W” formation on the daily charts if we get a serious move in the next few days which would take July to $18.40.  MACD and stochastic are both oversold so we could get a bounce and we will probe with light futures exposure, but before getting committed with December $1 call spreads we would recommend seeing more evidence of a reversal.

If a portion of your portfolio is not already in gold or silver we highly suggest you diversify into these metals as we expect to see much higher prices in coming months due to inflationary concerns.

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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.