Investors Must Exercise Patience

The word is China’s economic recovery will begin later this year and pick up into 2010. This may be true but what about conditions in the US, Europe, India and emerging markets? We are starting to see some light domestically but have things really gotten considerably better? The difficulty is I still think there is much more pain to come and I’m not ready to go all in just yet. That seems to be the case with many with the record amount of monies on the sidelines. Until real estate bottoms, the employment situation gets better and the banks really start lending, there is no reason to celebrate. I suggest investors use the most recent move in equities to lessen their exposure and not buy into the fact that commodities are going to continue higher at their current pace. Take advantage of the large swings and diversify your portfolio. Be patient as it may well take years to get back to normal market conditions.

The USDA increased its estimate of 09′ beef production to 26.44 billion pounds, down slightly from 08′ production levels. The 09′ average price estimate for choice steers was kept unchanged at 86.5 cents/lb. June live cattle closed up 1/3 cent, the highest close in 8 weeks filling a gap from 2/13. Resistance is seen at 85.50 followed by 86.30 with support at 84.25 followed by 83.75. We would be a buyer on a setback with stops below the 20 day moving average which is at 83.00. May feeder cattle were higher by 2.175 cents, the highest close since 2/10. Prices have now gained 6% in the last 2 weeks. Support is seen at 98.40 followed by 97.10 with resistance at 99.50. The last time prices were over $1 was 1/6, will that happen this week?
The USDA reduced its estimate of 09′ pork production to 22.775 billion pounds, down 2% from 08′ production levels. The 09′ average price estimate for barrows and gilts was increased from 46.5 to 47.0 cents/lb (63.5 cents lean). June hogs were up .625 at 74.27 closing back above the 20 day moving average. Resistance is at 74.60 then 76.00 with support at the 20 day moving average and then 72.70. We are positioned long with clients, purchasing call spreads, selling puts and long futures with a target of 77.50/78.00.
Stocks: Stock markets defy logic again trading higher but will that last as earnings start to trickle in? The S&P 500 picked up 12.50 points last week to trade at its highest level since 2/10 gaining 1.5%. This was in large part to upbeat news on some financials, namely Wells Fargo’s optimistic views and revisions to the uptick rule. Resistance comes in between 865 and 870 with support at 825 followed by 800. The Dow was higher by 38 points to gain .05% on the week, but navigating these waters could be tense being the Dow had a 400 + point range in a shortened trading week. Resistance comes in at 8060/8080 followed by 8250 with support at 7840/7880 followed by 7575. We expect 7400/8100 range and for prices not to wander too far from those parameters in the next few weeks. The NASDAQ was higher by 20.50 or 1.5% to its highest price this year. The NASDAQ has been positive now for the last 5 weeks gaining 25% in that time. Resistance comes in at 1375 with support at 1290.
Bonds: June 30-yr bonds were lower by 1’09 points last week closing lower now for the third consecutive week. Support is seen between 123’16 and 124’00 with resistance at 127’10 followed by 128’00. The trend remains down and as long as equities move higher bonds should continue to trade lower. June 10-yr notes were able to gain 6 ticks last week as yields tracked slightly lower. Support comes in at the 40 day moving average at 121’17 with resistance first at 122’26 followed by 123’10. There is too much indecision to determine a trend as prices move back and forth, we would stand aside. March 10′ Euro-dollars are consolidating near the contract highs and we view this as the calm before the storm. We recommend owning 25% of the ultimate short position you want to own. For every $8000 in the futures markets you are leveraging $1 M.
The USDA’s 08-09 U.S. ending stocks estimate for sugar was increased from 981,000 to 1.29 million tons. According to the Dow Jones Newswires, the ISO said they are likely to increase their estimate of the world’s 08-09 production deficit in early May, due to lower sugar production in India and China. May sugar ended the week 4 ticks higher. Last week we were able to buy back the July 14 cent calls that we had previously sold for a $450 profit/per. We are advising clients to get long futures as long as the triple bottom holds from last week at 12.75 in July, on top of buying October 15 and 17 cent calls. Resistance is at 12.85 followed by 13.25 in May, support at 12.15 followed by 11.80.
The USDA’s 08-09 U.S. ending stocks estimate for cotton was reduced from 7.3 to 6.7 million bales. May cotton was higher by just better than a penny but failed to get above 50 cents running into stiff resistance. Support comes in at 46.50 followed by 45.50. Expect 44 cents or lower in the next 7-10 days.
The USDA kept its estimate of the 08-09 Florida orange crop unchanged at 158 million boxes, down from 170 million boxes a year ago. The projected juice yield was also unchanged, at 1.64 gallons per box at 42 degrees Brix. May orange juice closed up 6.95 cents or 9%, the highest close this year, helped by dry weather in Florida. We have no client exposure and may have left their longs too early as prices have been positive for 6 sessions in a row. Next resistance is 85.00 followed by 87.50 with support at 80.00 followed by 78.00.
May cocoa dropped $230, the lowest close in two weeks, hurt by a stronger US dollar as traders felt that the previous weeks rally was over done. Talk about a day late and a dollar short as clients May options expired worthless the Friday before. Resistance is seen at 2570 followed by 2625 and support at 2500 followed by 2430. Although the easy money has been made on shorts we are still looking for a move to 2350.
May coffee ended higher by 30 ticks and has been positive 4 out of the last 5 weeks gaining 13%. Support comes in at 1.1825 followed by 1.17 with resistance between 1.20 and 1.22. We only need slightly higher prices to exit the July 120/140 call spread; paid 440 points and looking to exit between 670/700 points.
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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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