For June 1st– June 5th 2009

By: Matthew Bradbard

An Evolving Market: Why education is vital in trading

We have continued to do our weekly newsletters and daily blogs as scheduled but have not done as many topic specific articles of late. We are reaching out to get some suggestions from would be commodity investors or active traders on some topics of interest or subjects you would like clarified. This week we will be publishing an article on why understanding the “Greeks” is important to commodity options trading. E-mail me or call for further suggestions.

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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OPEC met and kept production levels unchanged. OPEC officials voiced they expect crude oil to return to $70 and maybe even $80 per barrel. Though most opinions are viewed as irrelevant, this “oil cartel” controls 40% of the world’s oil so their opinion matters. July crude oil jumped $4.81 to the highest price in over six months gaining 28% for the month of May. Prices may attempt a run to $70, which just weeks ago seemed implausible. Support comes in between $62.50/63.00. The key for oil remains the inverse relationship to the US dollar. July heating oil was higher by 11.14 cents last week and has been positive for the last 9 sessions. Resistance is seen between 1.7350/1.74 with support at 1.57/1.58. July RBOB gained 8.43 cents last week gaining 30% for the month of May. Drivers are feeling this appreciation at the pumps and with the driving season under way relief is not on the near term horizon. Resistance is seen at 1.95 with support at 1.84.

July natural gas gained 23 cents last week and may potentially be beginning its next leg higher, at this juncture it’s too early to say definitively. Support is first seen at 3.70 followed by last week’s low at 3.50. Resistance is seen at 4.05, 4.20 and then at the 100 day moving average at 4.43. We advised clients to buy August $4.50/5.50 bull call spreads for $2000 and added to our August/September fence; sell 1 August$3.25 put and buy 8 September $8 calls. On this trade we collected $200, as for an exit on a move to $4.40 we should be near $3000.
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August live cattle were lower by 1.90. Resistance is seen at the 20 day moving average at 83.15 with support between 80.00/80.50. The trend remains down and if anything we would be selling rallies. August feeder cattle were lower by 0.40 last week. Resistance comes in between 102.25/102.50 with support at the 20 day moving average at 100.60. We expect a trade down to the trend line at 99.00.

July lean hogs fell 2.225 to a new contract low on lingering effects from H1N1.
Numerous health organizations have pointed out that eating pork is safe, but it will still take time for pork demand to return. Last week’s low at 64.425 will serve as support with resistance at 67.00 followed by 68.00. With only 2 weeks left on June options we will be looking for a bounce to cut losses this week. ____________________________________________________________________

Stocks:  The Dow rose 223 points or 2.7% to 8500, the S&P picked up 3.6% or 32 points to 919 while the NASDAQ gained 82 points or 5% to 1774. With May now at our backs we’ve put in three positive months in a row, marking the best 3 month performance by percentage since 98’. This is an improvement from the doomsayer’s just months ago. We’ve been consistent in our assessment and still expect a 10-15% correction is around the corner. For much of May the S&P was range bound between 875 and 930 and the Dow between 8100 and 8550, will this continue? Although we expect a downward break, the move out of these ranges should signal the next direction.

Bonds: September 30-yr bonds were lower by 11.5 ticks last week; trading lower 9 out of the last 10 weeks. Prices were able to rally just over 3 basis points off the weekly lows so we should get an additional bounce. Support is seen between 116’10/116’20 with resistance at 118’20. In the coming weeks we expect a move up to 120’00/121’00. September 10-yr notes were lower by 18.5 ticks last week. Support is seen at 116’00 while resistance comes in between 117’20/118’00. As for the Euro-dollar, stay short March 10’ as long as 99.095 remains as the contract high. As for options we advised clients to buy December 09’ 99.00, 98.75, and 98.50 puts. Contact us for pricing.  NFP # out Friday; loss of 525,000 jobs and unemployment rate just over 9% is factored in. ____________________________________________________________________

The commodity currencies racked up big gains last week. The Aussie finished 164 ticks higher and in the last 13 weeks has made it to higher ground 10 of those weeks. For the month of May the Aussie finished 27% higher. We could see a 5-8 cent correction with no chart damage. Resistance is at .8100 while support is at .7850 followed by .7700. The Loonie gained 223 ticks, higher the last 9 days. It continues to follow energies and metals which have burst higher of late. Resistance is between .9225/.9275. .9000 should serve as support but don’t rule out a trade to .8700.
The Kiwi picked up 216 ticks and has been positive 5 out of the last 6 weeks. Support is seen at .6250 while resistance is at .6500. These 3 currencies may have moved too far too fast and a correction should follow.

The Euro was higher by 108 ticks last week as all attempts at lower trades were met with buying. Support comes in between 1.39/1.3925 while resistance comes in at 1.4175 followed by 1.4350.

The Swissie continues to follow the Euro’s lead, up 141 ticks last week trading to levels not seen since January. Resistance comes in at .9450 and support at .9250.

The British pound was higher by 215 ticks last week trading to a 7 month high and after 2 failed attempts to get short we would stand aside. Resistance is seen at 1.6425 and support at 1.5725.

The yen was lower by 50 ticks last week but things could have been much worse if had not been for the 189 tick advance on Friday. Support is seen at the 50 day moving average at 1.0250 while resistance comes in between 1.06/1.0625. We advised clients to buy July 105/108 call spreads last week for $1000 with a target of $2000+.

The US dollar was lower by 74 ticks last week to trade to its lowest price since 9/8 making a new 8 month low. We see no significant support until 77.50 but prices are over extended to the downside so don’t rule out a dead cat bounce. Resistance comes in at 80.00 followed by 81.00.
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The USDA reported 82% of the corn crop was planted, up from 62% the previous week. July corn was higher by 10 cents making last week the 6th consecutive positive week. Resistance is seen at the 200 day moving average at 4.40, prices have not traded above that mark since September of last year when prices were above $6/bushel. Support is seen at 4.25 followed by 4.15. If July trades below $4 we will be buyers of December corn. There is talk of a bigger correction but no one will want to be short ahead of the USDA monthly crop report on June 10th so use setbacks to scale into longs. Odds are a larger correction should happen between the June 10th and June 30th reports. 

The USDA reported 48% of the soybean crop was planted, up from 25% the previous week. July soybeans gained 28’6 cents last week but failed to close above $12. Resistance is now seen at that level with support at 11.65 followed by 11.50. We are still expecting a $1/1.50 correction but our first timeline may have been a bit off. As we head into a new month dips in prices most likely will be bought as traders will not want to be short into the June 10th report.  Much like corn after that report we may see a better correction. Market chatter will surface shortly that the June 30th acres report will show less corn and wheat and more beans.
 
The USDA reported 79% of the spring wheat crop was planted, up from 50% the previous week. July CBOT was higher by 28 cents last week and has been positive now for 7 weeks running. Last week’s high at 6.46’4 should act as resistance with support at the 200 day moving average at 6.18’4.  July KCBOT wheat was higher by 28’4cents last week. Similar parameters exist; last week’s high at 6.95’6 should serve as resistance with the 200 day moving average at 6.50 as support. The current rally in wheat is a supply side rally off lower production and a forecast for less acreage, not a jump in demand. Moreover we are hearing gossip about disease problems with the crop.
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July coffee closed up 3 cents, the highest close in seven months. Resistance is seen at 140.00 with support between 133/134. On a break back to the mid 120’s we will look at longs once again. On the month of May coffee was higher by 19% which puts coffee definitely on our radar. Prices have been above $3 before so there could be much more of an upside.

The USDA reported 61% of the cotton crop was planted, up from 42% the previous week. July cotton was lower by 14 ticks; resistance is seen at the 20 day moving average at 57.50 with support at 54.00. In the last 2 ½ weeks prices have come down 5 cents but we are looking for an additional 4-6 more to feel comfortable about getting long.

July cocoa closed up $174, the highest close in six weeks gaining for the last 8 sessions just under 15%. As we have been saying, respect the inverse relationship with the US dollar. Resistance is seen at 2650, support at 2525. The ICO confirmed that 08’-09’ world consumption is expected to exceed production by 84,000 tons.
July orange juice was higher by 2.85 cents as the recent drought conditions quickly shifted to flood concerns in Florida. Resistance is seen between 95.50/97.50 with support at the 20 day moving average at 91.60. On a break to the mid 80’s we have an interest in getting long but until then none.

July sugar was virtually unchanged losing 2 ticks on the week. For the last 3 weeks prices have failed to make new highs and as long as we stay below 16 cents this week we should see a sizeable set back. Ideally we see a break back to 14 cents; 14.40 serves as the 50% Fibonacci retracement level. Resistance is at 16.00, support at the trend line dating back to April comes in at 15.25. We are buyers of March 10’ calls for clients on a break. ____________________________________________________________________

August gold closed up $21.30, the highest close since late February. Now that prices are thru 975 we may see prices trade back to the mythical 1000 mark. The contract high for August in 09’ is $1008.90 and in 08’ is $1020.70.Will we see a new high this week? We remain long option spreads for clients, on new positions last week we bought clients the October 1000/1200 spread for just under $4,000. Gold has been higher for the last 4 weeks and while the weekly and monthly charts still look like there is more upside, the daily chart is not as friendly as prices are becoming increasingly overbought. Support is seen between 960/965 followed by the 9 day moving average at 950.

July silver closed up 89 cents, the highest close in nine months. On the month of May prices gained 27%, its largest monthly dollar gain since January 83’. Prices have now made their way back over the 50% Fibonacci retracement level assuming a high just below $22 and a low just below $9. Support is seen at 15.25 with resistance first at 16.25 followed by the 61.8% Fibonacci level at 16.75. We advised clients to exit their remaining December $15/20 call spreads between $6,600/7,000. We had been in that trade for 5 months at an average cost of $2,000; not too bad. With the proceeds we advised clients to buy September $16/19 call spreads for approximately $3,300. The logic was to raise cash, book a profit and have more monies to play a correction. On a further advance we still have exposure and will look for a profit of $1,000/1,500. On a correction we have the option to buy back the $19 or to buy more silver with the remaining cash.

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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.