Soft markets gave back some of yesterday’s gains as most all commodities followed the lead down in crude and equities. There remains some optimism stemming from commodity values being viewed as undervalued assets in a new investment environment. Whether funds receive additional monies and decide to place it at work in commodities is the biggest question for 2009. It seems likely that we may expect this question to receive an answer soon.
Sugar, after having been up the past few sessions made an important high on Tuesday (1249). Today it closed below 1200 at 1197. Support is seen at 1178-84 and at 1144. Resistance at 1210-1215, and 1224, 1250 remains a key. I still think 10.50 to 12.50 cents is the range.
Coffee: With all the talk of index fund portfolio shifting and reallocation, I wonder if Monday’s weakness could have been a result of fresh shorts. Certainly that might offer to explain Tuesday’s violent move up. Had fresh shorts been trapped when a fund aggressively bought on Tuesday the rally would have been akin to pouring gasoline on a fire when those shorts covered. All that buying combined with a lack of willing sellers drove the market up quickly and fiercely. Its no wonder prices needed to rise to a level at which longs could be convinced to take profits.
That being said, tomorrow’s a day which may begin to provide some real answers. Is this market poised to head higher? Sure looks like it, but what if it fails?
A move below 113.30 should bring 112, below that 110.10. A move above 117.35-50 and 120-121 comes into play. Friday’s expiration may cloud things, however there doesn’t seem to be significant open interest in any strikes to alter the inevitable. This market wants to go up, but it may need to do some important work down below first. Watch for violent swings as order flow and paper can dictate significant advances or declines. Fund money is in charge.
Cotton: Cert stocks dropping and spreads are flat. And while the trade may avail themselves to selling versus taking cotton out of the loan, significant demand seems unavailable. That raises the possibility that prices need and will retreat, solely in an effort to attract demand. However, spec money and what it does, or doesn’t do will be the key for early 2009. If specs, funds especially, seek out a cheap asset cotton may be a worthwhile choice. It worked last year. It might again.
Therefore, as neutral to weaker prices might be expected fundamentally, there is legitimate reason to be interested in what stance funds take. The upside may be vulnerable even in a market environment with no demand. Remember supply side looks to be friendly long term.
USDA crop report out on Monday. I like considering ratio bac spreads for this market. Buying upside calls cheap and then selling call spreads is what I’m looking at right now.
If you’d like to discuss it further, call me.
Jurgens H. Bauer
trading floor: (212)-748-3898
cell phone: (973) 652-4694