There is a significant difference between preservation and appreciation. In this environment traders/investors must be at the top of their game as unpredictability is widespread and the magnitude of movement in all asset classes is voracious. We want to expand upon one of our posts from last week titled, “nerves of steel“, you must have conviction and do your homework before putting on a position as your nerves will perhaps be tested instantly. Don’t let the market noise shake you out of your positions. Although the public assumes there is little opportunity in current conditions, we are seeing tremendous opportunities, more frequent now than ever. Be alert this week as a number of Central banks meet on rates, NFP will be issued on Friday and stock indexes, the dollar and oil are all at critical decision points establishing their next course.
The US Department of Energy said crude oil supplies were up 700,000 barrels, supplies of gasoline were down 3.4 million barrels and heating oil supplies were down 300,000 barrels. April crude oil jumped up $5.03 or 12% last week helped by improved gasoline demand, a 13% drop in imports over the last month and rumors that OPEC is sticking to its production cuts. With 2 consecutive closes over the 20 day moving average we feel prices could be destined for higher ground. The last time prices closed over the 20 day m.a was in the beginning of January when prices were near $52. We see current support between $41.50/42 with resistance at $46 followed by $48. Getting long crude last week and holding until 5/11 has been profitable 21 of the last 25 years for an average profit of $2700 per contract. Past performance is not indicative of future results. April heating oil picked up 7.79 cents last week and being that 1.14 has been able to hold for the last 2 weeks, we think heating oil has forged at least a temporary bottom. Resistance comes in at the 20 day moving average at 1.2825; on a move above that level expect the mid 130’s. April RBOB gained over 19 cents or 16% last week. We have been advising clients to buy 20 cent bull call spreads in June. Resistance since mid-December has been between 1.40/1.41, on a move above that level look for the mid 150’s. Ultimately, if crude can move to $60 in the upcoming weeks to months we expect 1.80/2.00 in RBOB. Buy dips to 1.25/1.30 via June bull call spreads.
The US Department of Energy said underground supplies of natural gas were down 101 billion cubic feet last week. Supplies are now up 14% from a year ago. April natural gas was up 13 cents and formed a bullish engulfing candle to end last week. We expect the gap that was formed 2 weeks ago to be filled at 4.38. On that, we would see prices advance back above the 20 day moving average at 4.40. We have been trying to scalp on a daily basis for clients in mini-natural gas and are trying to pick a bottom expecting when prices will turn to see a quick move to $5. Getting long natural gas last week and holding for approximately 2 months has been profitable 16 of the last 18 years for an average $3075 per contract. Past performance is not indicative of future results.
USDA Ag Forum expectations:
Farmers to plant: 8.5 million acres of cotton, down from 9.5 million acres a year ago
Predicted 09-10 ending stocks: Cotton at 5.7 million bales, down from 7.7 in 08-09
The USDA reported that cotton had impressive net sales of 587,000 bales. May cotton was lower by 114 ticks at a 12 week low. We will lightly buy if prices trade below 40 cents but we stress lightly because this would be a new contract low with no support seen. Resistance comes in at 45.00.
May sugar jumped up 62 ticks to the highest close in almost 5 months on news that PepsiCo announced that it will be offering a new line of products in April that do not contain high fructose corn syrup. On a trade above 14.00 this week momentum may carry prices back to 15.50/16.00 cents over the next few months. We will continue to scale into longs for clients in July and October. On option plays we favor the October 15 and 17 cent calls.
May cocoa was lower by $17 last week giving back over 17% from the highs 4 weeks ago. I seem to remember cocoa bulls making headlines in the newspaper around that time. A reminder, when the general media gets hold of a bullish or bearish market it generally reverses; a great contrarian indicator. Cocoa headed lower March and April in 28 of the last 36 years, so be warned. Past performance is not indicative of future results. Support is seen at 2300 and resistance between 2450/2500.
May fcoj started last week with a bullish engulfing candle setting the tone for the week trading higher 4 out of 5 sessions gaining 3.30 cents. This was the first positive week in the last 5 so things are far from optimistic. Support is seen at 65.00 with resistance first at the 50% Fibonacci retracement at 73.50 followed by the 61.8% Fibonacci retracement at 75.50.
May coffee was higher by 45 ticks last week which was only a small victory after losing 9% the previous 2 weeks. We are advising clients to buy 20 cent bull call spreads in July currently favoring the 120/140; Friday’s settlement was just under $1500. Last Friday we also directed clients to buy May 120 calls for approximately $700 with a target of $1100-1250 this week. Support in May comes in at 110 followed by 108 with resistance between 114/115 with an ultimate target of 120 in coming weeks.
April gold was lower by $51.80 with a trading range of $72.60, quite a change of events from last week, when prices gained 6.5% and lost 5.2%. I will not say I told you so, but this is the correction we had been calling for and the primary reason why we have been lightening up on our longs in gold. This again is an example of when the herd finds a market, it’s generally too late or near a top. Our buy zone to re-establish longs for clients comes in between 860-900 on April. We are tracking $100 call spreads in June as well as August. Our key numbers on April are 929, 906 and 881.On 2 consecutive closes above 970 we may work long even without a steeper correction so stay tuned.
The triple top just above $14.60 on May silver served as strong resistance and until that level is penetrated an interim top has formed. Last week prices moved lower by $1.31 or 9% and much like gold this was forecasted in recent weeks. Prices closed below the 20 day moving average for the first time since 1/15 when prices were near $10.50. Our buy zone to re-establish longs is 11.50/12.00. We will be tracking $3 call spreads in July as well as $3-5 call spreads in December. We will also position clients long in May futures once we feel the next leg higher has begun. Be cautious jumping in long too early as silver is still in decline mode seasonally with prices typically declining into April. Past performance is not indicative of future results.
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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.
I recently was introduced to a company called Arx Global Holdings, LLC. They are a rinky dink back-end administration firm in Chicago for Commodities fund managers. They were incredibly dis-organized, but they made great promises about all the services they could provide. It is run by a bunch of twenty-nothings with no experience. In the process of discussions they entered back-door negotiations with my business relationships. Does anyone know these guys? Do they even have any customers?