For March 30th– April 3rd 2009

By: Matthew Bradbard

“It’s all about confidence”

Have things gotten better? I don't know, but investor’s confidence has returned. It’s not so much that things have improved dramatically, but rather that investors are willing to take some risks now that we have gotten more clarification from Bernanke, Geithner and Co. After weeks of waiting, we finally received more details on the programs that the government is trying to institute in order to remedy the problems at hand. The chatter has been on the recent rally in stocks but low and behold look at the recent uptick in a range of commodities. Looking at the CRB Index ytd, it has out performed stocks moving 8.5% lower when the S&P is off 10%. Bottom line, money managers and investors alike are looking at commodities as a way to hedge against the coming inflation in addition to diversifying their portfolios.

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 3.3 million barrels taking inventories to a 16 year high. Supplies of gasoline were down 1.1 million barrels while heating oil supplies up 1.0 million barrels. May crude oil closed up 25 cents last week keeping the streak alive at 6 consecutive weekly gains. Prices were range bound between $51 and $55 trading at their highest levels in 4 months. $55 should serve as resistance with support coming in at the 20 day moving average at $49. We would use setbacks to establish longs as it appears the week will start with a down move; carryover weakness from Friday and continued dollar strength. May heating oil was higher by 3.69 cents last week. $1.50 looks like solid resistance as we expect prices to move south, the 38.2% Fibonacci retracement would take prices to 1.3750 and the 50% level at 1.3300. May RBOB was higher by 2.78 cents last week but this move has run out of gas…pun intended. $1.55 should serve as resistance, support at the 20 day moving average at 1.40. Buy 20 cent call spreads for July and August on setbacks.

The US Department of Energy said underground supplies of natural gas were up 3 billion cubic feet last week to 1.654 trillion cubic feet, the first build of 09’. Supplies are now up 29% from a year ago. May natural gas dropped 52 cents back below $4 to the lowest levels in 6 1/2 years. Within the last 7 days prices moved $1 up only to do an about face and move $1 down, this represents a $20,000 move /contract. The line in the sand currently is $3.70 but if that level gives way things could get ugly for longs. Although there is no sign of a low, we suggest traders with staying power to hold mini-futures in May and June and to establish call spreads in June looking for a turn higher to be eminent. Last week we purchased $4.50/5.25 and $4.75/5.50 call spreads for clients ranging from $1750-2200.

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After the close Friday, the USDA estimated the week's beef production at 474.2 million pounds, down 0.5% from a year ago. June live cattle were lower all 5 session last week closing down by 1.925 cents. Support is seen between 80.40 and 80.80 with resistance at 82.50. May feeder cattle were lower by 1.20 cents last week. Resistance is seen at 96.00 with support at 93.80 followed by 92.90. We are advising clients to re-enter the cattle spread from previous weeks that we traded. Long August live cattle and short April feeder cattle; enter the spread between -1100/1075 and look for the spread to narrow exiting near -800.

After the close Friday, the USDA said that there were 65.389 million head of hogs on March 1st, down 2.7% from a year ago. The December to February pig crop was down 0.6% from a year ago, slightly more than expected. Pork production was estimated at 451.8 million pounds, down 1.9% from a year ago. June lean hogs lost 2.60 cents setting up a better long entry which we have suggested starting this week. We have multiple ideas in both futures and options but the bottom line is we are expecting higher prices.  Support is seen at 70.40 followed by the contract low near 69.50 with resistance at 72.50. We are expecting to see a trade up to 78.00 in the coming 30-45 days. See lean hog report from the previous week:  The other white meat.

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Stocks: The US Treasury announced a plan last week designed to give private investors incentives to buy up to $1 trillion of troubled assets from banks in an effort to free up capital in the financial system. Apparently the market liked what it heard. Stocks have now rallied for 3 weeks in a row and indices have advanced between 20-25% off their lows. Whether it is short covering, mutual fund window dressing or new buying, the rally has happened. We were able to take advantage of the rally early and may enter again but currently we are advising clients to be on the sidelines. Last week the Dow ended the week nearly 500 points higher gaining just under 7.0%, The S&P racked up nearly 50 points or 6.0% with the NASDAQ jumping 88 points or 6.0%, this could be the NASDAQ’s best month since October 02’. We will see this week. Being that prices are overbought, we expect to see prices back off this week. On the S&P, resistance comes in at 830 with support at the 9 day moving average at 802, we expect a move to 768 when the move lower begins. The Dow should find resistance at 7850 and support at the 9 day moving average at 7595; we expect a move to 7350. Look for this Friday’s NFP employment number to be ugly. We may see unemployment approach 9.0% and a drop of near 700,000 jobs for the month. 

Bonds: June 30-yr bonds were off by 17.5 ticks last week after a tumultuous week earlier with the Fed induced rally of nearly 8 basis points. Resistance is seen at 130’00 with support between 126 and 126’10. We will be advising clients to sell if prices get between 132-133’00. June 10-yr notes were lower by 1’05.5. Support is eyed at 122’10 with resistance at 124’10 followed by 125’00. March 10’ Euro-dollars were higher by 6.5 ticks so although we continue to take on a bit of water on our clients existing shorts, we will stay the course and continue to build short positions. 98.74 remains the contract high and we are not far from that level with prices at 98.64 as of this posting. Looking at the daily chart the stochastic indicates this market is overbought. Currently, we advise traders to own between 15-30% of the ultimate short position they want to own to allow room for margin and fluctuation so as you don’t need to take a premature loss.

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The June Euro was lower by 331 ticks last week which we forecast in previous blogs and commentaries. Were you short? We expect the ECB to reduce rates 50 basis points to 1.0% this week. The path of least resistance remains down with prices looking like a move to 1.3150/1.3050 is doable this week and on a bearish reaction to Trichet and the ECB 1.2950 the 50 day moving average could be attained.

The Aussie lost 17 ticks last week which is a small conciliation being prices haven risen 800 points in the last 3 weeks. Resistance is seen at .7000 with support at .6750 followed by .6650. We would buy on a larger break that held .6535.

The Swissie gave up 134 ticks last week and looks poised for a bigger move south. Resistance is seen at .8840 with support seen at the consolidation level from previous weeks between .8500 and .8600.

The Loonie made a mild stride last week being one of the few currencies to advance picking up 5 ticks. The trend line and 50 day moving average comes in at .8000 so as long as prices stay above that level on a closing basis we remain friendly. .7970 is the 50% Fibonacci retracement level. We are currently positioned long with clients in May and June contracts. Resistance is seen at .8200. We would expect this week’s action to be determined by energies and metals.

The Yen lost 262 ticks last week, but did manage to stay above the previous 3 week lows. We currently have clients positioned long futures against a sale of 105 June calls. We have also suggested for clients to purchase 5 cent call spreads in June; 103/108 settled Friday at $1600. Support is seen between 1.0050/1.0100 with resistance at 1.0300 followed by 1.0450. The Tankan survey of corporate sentiment is expected to fall to historically low levels; out Wednesday.

The June Cable was lower by 184 ticks last week and we would advise traders to sell rallies as prices should continue lower. Resistance comes in at 1.4450 followed by 1.4600 with support first at 1.4300 then 1.4125.

The Kiwi dollar was higher by exactly 1 penny last week and has picked up 8 cents or 16% in the last 3 weeks. Buy a setback to .5400 and hold for a move to .6000.

After the worst weekly rout in 24 years the dollar was higher by 155 ticks last week. Resistance is seen at 86.00 followed by 86.75 and then 87.50.  We should see a move up to the 50 day moving average at 87.15 on this leg. As long as the US dollar is viewed as the world’s reserve currency, no jawboning from China will derail the flow of money unless of course they actually stop buying dollars or treasuries, but that is unlikely at least for now. Support is seen between 83.25 and 83.50.

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Summarizing the article this weekend in Barron’s and the general talk on the street is that US soybean acreage will increase this season at the expense of corn.

May corn was lower by 8 ¾ cents last weeks after 4 positive weeks. Support is seen at the 50 day moving average at $3.79 ½, resistance between 3.97 and 4.00. We are anticipating a break to 3.67/3.72, but our view may change depending on the planting intentions report that comes out on Tuesday. The preliminary projections are for 84.5 million acres for corn compared to 86.0 million in 08’.

May soybeans were lower by 35 ¼ cents last week. Our clients own May $9 puts and will be looking to exit this week. Resistance is seen at 9.50 with support between 9.09 and 9.12 followed by 8.95. After this dip we will be looking for a long futures play and call options in July soy bean oil. The preliminary projections are for 79.2 million acres for beans compared to 75.7 million in 08’.

May CBOT wheat lost 44 ¾ cents last week, losing ground 4 out of 5 days last week largely on much needed precipitation in the Mid-west in wheat growing states. Support comes in at 5.00 with resistance at 5.20 followed by 5.30. KCBOT wheat was lower by 53 cents. Support comes in at 5.40 with resistance at 5.65. Presently we see no worthy opportunities in KCBOT/CBOT spreads.

Although the USDA report will have an immediate impact on the markets this week a lot can change between now and the actual planted acreage date come June 30 so do not think the numbers issued this week are set in stone. Whether it be changes in the weather, the price of inputs or the condition of the economy a number of considerations will need to be made to ultimately to determine acreage and crop size.

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May cocoa was lower by $33. Resistance comes in at 2600 with support at 2500 followed by 2440. We own May 2500 puts for clients and with only 5 days we expect an immediate break lower. They paid $480/option and will be looking to exit between $650/700 this week. On a move to 2370 we should hit our objective.

May sugar lost 88 ticks last week; this should carry over to lower pricing this week. We will be looking to buy back the 14 cent July calls, which we previously sold for clients for 85 points, between 35-45 points this week. Additionally we will be buying October 15 and 17 cent calls for clients. It will be interesting to see if the market respects the 100 day moving average at 12.57, prices have been above that level since 1/22.

May cotton lost exactly 1 penny last week closing just below the 9 day moving average. Resistance is at .4500 with support between .4100 and .4150. It is reported that we will be planting the fewest acres of cotton since 1983 this year which should be confirmed by the planting intentions report, but this is already factored into the market. If the market allows a long entry in the 30’s we would be a buyer with both hands.

May fcoj was higher by 4.25 cents, having advanced 12 cents or 18% in the last month. Last week we had 4 consecutive closes above the 50 day moving average, prices had not closed above that level since July of 08’. We used the most recent move to take off longs and will re-evaluate what exposure we want after this week. Support is seen at 74.75 with resistance at 78.00 followed by 81.50.

May coffee lost 70 ticks last week but prices have advanced 11% in the last 3 weeks. We need just a little more to exit our July 20 cent call spreads for clients. On a move to $121/123 we should reach our objective; they paid 440 points/$1650 and will be looking to exit at 600 points/ $2250. Support comes in at 113.50 with resistance at 119.25 followed by 120.50.

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May silver was lower by 48 cents last week. We expect to see prices break out of the triangle formation within the next few sessions; the problem is we don’t know which way prices will move. We have a bullish bias but it could go either way, so we have not committed a lot of fresh capital until we can get a better handle about whether it is from lower or higher pricing. The move should be at least $1-1.50 which from here would take prices to $14.50 or $12.00. Support is seen at the 50 day moving average at $12.90 and resistance is seen at $13.90. On a close above that level we would expect the momentum to carry prices to previous resistance at $14.60. We have $3 call spreads in July and September on our radar. For traders that believe the break out will be to the upside we would suggest scaling into May mini-futures. We will be advising clients to buy any intra-day breaks that exceed 5% or about 70 cents from current levels.

June gold lost $29.50 last week having an inside week which indicates further selling may be coming. This was largely due to profit taking as stock markets advanced worldwide and investors are liquidating their “safe haven holdings.” We advised clients to take a small profit on their gold longs based on our expectation that a down side wash out is possible. Furthermore, if equities and the US dollar continue to move north the flight to quality/ safe haven money that found its way into precious metals may continue to flee. Resistance comes in at 957 followed by 940 with support between 917 and 920 followed by 890. On a wash out we would expect selling to take prices down to 850.

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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.