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.
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.
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.
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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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.
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