For July 27th– July 31st 2009

By: Matthew Bradbard

Commodities: For all Scenarios

When I started working in commodities, almost a decade ago, they were considered a dirty word and certainly not a place for the average Joe to invest. Within the last few years, thanks to investors becoming more open minded, the overall performance of commodities and other asset classes, commodity futures and options are quickly becoming a respectable asset class. Case in point, over the weekend while reading the WSJ there were 3 different scenarios and portfolio allocation suggestions, regardless of the scenario all 3 had a place for commodities. One that fears inflation should have as much as 25% allocated to commodities, one fearing deflation only a 10% allocation, with the middle of the road being 15%. While we agree with the percentages we suggest investors get more informed on trading futures and options not just commodity ETF’s.

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 that crude oil supplies were down 1.8 million barrels, supplies of gasoline were up 800,000 barrels while heating oil supplies were also up 800,000 barrels. September crude oil ended higher by $3.68, the highest close since 7/2. The pivot point currently stands at the 50 day moving average of $67. $68.50/69.00 should act as resistance with support at $65.00. The easy money has been made on longs being that in the last 10 sessions prices have gained 11%. September heating oil was higher by 13.93 cents last week. Support comes in at 1.78 followed by 1.75 with resistance seen at 1.86/1.87. On a further rise in crude we could see 1.90, if long trail stops. September RBOB gained 14.30 cents last week though prices are starting to look toppish. We’re not advising getting short but we could see a setback, follow crude’s lead. Support is seen between 1.83 and 1.8450 with resistance at 1.9250.

The DOE reported that natural gas supplies were up 66 billion cubic feet last week to 2.952 trillion cubic feet. September natural gas closed up 4 cents last week with a trading range of almost 40 cents. A potential double top formed last week at $4.05 as prices failed to get through the 50 day moving average after 2 attempts. That level should serve as resistance at $4.03 with support at $3.65. We are still advising clients $1 call spreads, on multiple positions split the purchase between October and November.

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Cattle on feed: the USDA said that there were 101.8 million head of cattle in the US on July 1st, down 1.45% from a year ago. They also said that there were 9.752 million head of cattle on feed as of July 1st, down 5.3% from a year ago and less than expected. June placements were down 8.4% from a year ago and marketings were up .6%. October live cattle were down 2.30 closing on the trend line. On a violation of 89.40 expect a trade to 88.00. At that level we should get 200 points for the 86 puts we own for clients. Resistance is seen at 90.50 with support at 88.50/88.75. September feeder cattle were lower by 2.45. Prices started the week at the 09’ highs and by Friday we had backed off testing the 20 day moving average at 101.50 which should serve as support. Resistance is at 103.00/103.50. More downside is expected.

October lean hogs traded lower all 5 sessions last week losing almost 600 ticks lower. Resistance comes in at 56.00 with support at the contract low at 53.95. Trade update: look to cover client’s August shorts this week at a profit on a trade below 58 cents, hold the August 62 calls and sell on the next rally. This is the danger of legging out of trades as we could have taken the calls off at a profit 1 week ago. With only 18 days and a 25% delta, in a perfect world prices are lower early in the week followed by an about face and a 300-500 point rally over the next 7-10 days.

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Stocks:  Should we really be impressed with positive earning because the reality is that expectations were so low it was inevitable to get some good news. The truth is companies are beating earnings estimates because of slashing expenses and laying off workers, not by expanding revenue. The S&P traded higher by just over 40 points to a new 09’ high last week taking prices to extremely overbought levels. A 47% move off the March lows is impressive but not to be overshadowed by a 12% advance just in the last 2 weeks. As seen in our blogs last week we advised clients to exit all remaining ES longs in August and September. Support is seen at 954 followed by 930 with resistance at 1000.  The Dow was a gainer of 364 points experiencing its first close above 9000 in 8 months. Support comes in at 8900 followed by 8750. Recognize that we could see a 450-600 point correction with no chart damage if investors decide to book a profit so trail stops if long.

Bonds: September 30-yr bonds were lower by 1 tick last week. Support is seen between 114’16 and 115’00 with resistance at 117’10/117’16. Technically the path of least resistance remains down, but we have no new suggestions. If investors do in fact book profits in equities follow the flow of money and expect a move higher as money moves from equities to treasuries. September 10-yr notes were higher by 1.5 ticks last week. Support comes in at 115’20/115’25 with resistance at 117’00. We’re still advising put buying in long dated Euro-dollars out until June and September of 10’.

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The Euro was higher by exactly 1 penny last week closing at 1.4216. 1.4275/1.4325 serves as the sell zone as we expect prices to turn south temporarily. Support is first seen at the 20 day moving average at 1.4070 though we would not rule out a trade down to 1.39 in the coming weeks.

The Aussie was higher by 141 ticks last week nonetheless selling emerged near the highs last week. Resistance is seen at .8170/.8200 with support first at .8025 followed by .7900.

The Swissie was a gainer of 58 ticks last week as sideways action continued.  Resistance is seen at .9400 while the 20 day moving average at .9275 should support. We expect a move down to .9100 in the coming weeks, but for now have no positions on for clients.

The BoC met and kept its interest rate unchanged at .25% but at the same time raised their growth forecast for 10’. The Loonie was higher by 258 ticks last week having advanced 7% in the last 2 weeks. Stiff resistance is seen at .9270. On a 50% Fibonacci retracement prices should retreat to .8900 but first we must get through initial support seen at .9150.

The Cable was up by 90 ticks last week as prices trudged along. Resistance is seen at 1.6550/1.6575 with support at the 20 day moving average at 1.6370. We are not suggesting any futures plays but those looking to gain exposure with options could buy the September 160 puts. This option has 39 days and as of last Friday the settlement was $738. We have a target of $1200 on a 4-5 cent correction risking ½ the premium paid.

The yen lost 47 ticks last week and with the current market sentiment an inverse relationship to equities should continue. Resistance is seen at the 20 day moving average at 1.0600 with support at 1.0450. The chart points to lower pricing but the key will be what happens in equities.

The Kiwi was higher by 122 ticks last week trading to a new 09’ high but prices appear to be topping and though we do not wish to get short we expect a setback. Resistance comes in at .6610 and support at .6490.

The US dollar was lower by 62 ticks last week making this the third consecutive losing week. Resistance comes in about 100 points higher at the 20 day moving average at 79.90 with support between 78.60 and 78.70. That level should hold for now as we expect to see a sharp move up to 81/81.60 very soon.

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Growing conditions continue to be nearly ideal for much of the Midwest. September corn was only lower by 5 ¾ cents last week after trading to the lowest level since October of 06’. We expect last week’s low to serve as an interim low at 304’0. Support comes in at 310’0 with resistance at 330’0. Clients currently own December $3.80 and 4.00 calls. What could act as the turning point is that last week the USDA's National Agricultural Statistics Service said that it was going to ask growers to update their planted corn acres in seven states that had trouble with late planting due to wet weather. The new figures will be included in the USDA's August 12th report. December corn jumped on this news with the expectation that 1-3 million acres may have not gone to corn.

August soybeans traded up by 7 ¾ cents last week and though we cannot rule out another 30-50 cent break back to the recent lows the chart is starting to look a bit more friendly. Support in August is seen between 10/1010’0 with resistance at 1035’0/1040’0. Those still wishing to get long should look towards November and if forced to be in soybeans we like the $11 calls for $1100 or the $10/11 call spreads for just under $1000. We still prefer a position long corn as opposed to soybeans at this juncture.

September CBOT wheat was lower by 25 ¼ cents last week. Resistance comes in at 530’0/535’0 and support at 512’0 though we could see a test of $5. September KCBOT was lower by 17 ¼ cents last week. Resistance is seen at 565’0 followed by 575’0 with support at 542’0. We have no client exposure currently in wheat but we are following the December KCBOT/CBOT spread. We like buying this spread at 16-19 cent KCBOT premium to CBOT. We would suggest risking a stop close only at 10 cents and have a target of 35 cents.

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September cocoa gained $134 last week trading above 2900 which had not happened in 11 months. If the US dollar moves higher as we expect we should see a sizeable pullback so we‘ve bought clients October 2500 puts. We paid $350-370 and are currently holding a loser. Last week’ high around 2920 should act as resistance with support at 2840 followed by 2750. In the next 3 weeks we expect a trade down to 2660.

October sugar closed up 98 ticks to a new contract high, supported by expectations for a production deficit in 09’-10’.So much for the expected pullback? Be patient and although we missed the last leg up with all clients we are still anticipating a back off. 18.50 should act as resistance with initial support at 18.00. On a trade back to 17 cents, near the 50 day moving average, we will look to re-establish longs for clients.

October cotton fell 4.51 cents last week finally closing lower after 4 positive weeks. The US cotton crop is getting substantial relief from the hot and dry conditions that started early in the summer. We have clients positioned in October 55 cent puts; we paid $600 and have limits in for $1000 currently which should be filled on a move to 55/56 cents. Resistance is seen at 59.00 with support at 56.00 followed by 54.00.

After gaining 40% in three weeks, September orange juice closed down 7.55 cents last week, blamed on profit taking. Resistance comes in between 98.00 and $1.00 with support eyed at 93.65; the 38.2% Fibonacci retracement. On a move to 88/90.00 we may get clients long once again.

September coffee was higher by 4.95 cents last week. Resistance comes in at last week’s high which serves as the 38.2% Fibonacci retracement level near 125.00. Once prices get through that level next stop should be 127/128 where we will exit out December 15 cent call spreads for clients. We paid between $1000-1250 and have a target of $1875 or 5 cents per option spread. Support is seen at the 200 day moving average at 122.35.

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August gold closed up $14.60, the highest close in five weeks. Resistance comes in at 955/959 but on a trade above that level we see no significant resistance until 980. Support is seen at 944 followed by the 50% Fibonacci retracement level at 929. We have advised clients to lighten up on their October contracts and will be advising fresh entries to trade December contracts. We are currently directing the purchase of $100 and $150 call spreads in December. Buying gold on or around July 27th and holding until September 1st has been profitable 26 out of the last 33 years with a success rate of 79%. The last 9 years in a row have provided an amazing win streak, with a cumulative profit of $9,670 per 100 troy ounce futures contract. Past performance is not indicative of futures results. Moreover options do not move 1 for 1 with the underlying futures market.

September silver closed up 47 cents, the highest close in two weeks. Prices have traded higher 8 out of the last 10 sessions. Resistance is seen at last week’s high just above 13.90 followed by 14.20. Support comes in at the 100 day moving average at 13.58 followed by the 20 day moving average at 13.38. We are buying clients December $3 call spreads. If the US dollar was to rally as predicted we could see a setback to 12.50/13.00 where we would be a buyer with both hands for clients. If forced to pick either long exposure in gold or silver we prefer silver.

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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.