Bulls, Bears, Pigs and Sheep

You don’t need to go to the zoo to see animals, rather look at the common investor and how they maneuver within their portfolio. I’m not talking about giraffes and elephants but rather bulls, bears, pigs and sheep. Bulls make money in a bull market, bears make money in a bear market, pigs are greedy and will lose money in the long run, while sheep are led to the slaughter as they fail to do their own research and just follow the masses. It is crucial to one’s investment success to be able to maneuver and recognize changes in trends, to be disciplined, to eliminate fear and greed and to think outside the box. The current market dynamic is challenging and will remain this way for quarters and perhaps years. We suggest investors seek the help of professionals and if they truly are animal lovers watch the discovery channel, go to the zoo or get a pet, but do not invest like an animal.

Energies
DOE reported crude oil supplies were down for the first time since February, but before energy bulls get excited, the rationale is less supply rather than more demand. July crude oil closed down 2.74 closing lower on the week after 3 positive weeks. We expect prices to move lower from over bought levels. Resistance is seen between $58.50 and $59 with support first at $56.30 followed by the 20 day moving average at $54.95. July heating oil lost 11.74 cents last week closing just above the 20 day moving average. Resistance comes in at 1.52 with support at 1.36, on a breach of that level prices should retrace to levels from 3 weeks ago near 1.31. July RBOB gave up 3.30 cents but did remain within a 10 cent trading range. Resistance is seen at 1.71 with support at 1.63 followed by 1.56. If crude is down $4-6 look for a trade to $1.40/1.45.
DOE reported underground supplies of natural gas were up 95 billion cubic feet last week to 2.013 trillion cubic feet. Supplies are now up 33% from a year ago. July natural gas ended down 22 cents after reaching a 6 week high. After the impressive $1.30 advance we would expect some back and fill action. We will be exploring mini futures and selling puts and buying calls for clients. Resistance is seen at $4.50 with support at $4.05 followed by $3.85. On July an ideal entry would be between 3.70 and 3.85.
Livestock
The USDA estimated the week’s beef production at 516.0 million pounds, down 5.7% from a year ago. The USDA expects beef production to be down slightly in 09′ and down 2% in 10′. Their average price estimate for choice steers is 86.5 cents per pound in 09′ and 90.5 cents per pound in 10′. June live cattle were lower by .325 last week. Support at .8100 with resistance at .8400. We would be a buyer/seller on a move out of that range. August feeder cattle were up 100 last week. Resistance at 102.25, support at 100.50.
Pork production was estimated at 424.4 million pounds, up 2.5% from a year ago. The USDA estimated that pork production will be down 3% in 09′ and down 0.5% in 10′. Their average price estimate for barrows and gilts is 45.5 cents/lb. (61.5 cents lean) in 09′ and 50 cents/lb. (67.5 cents lean) in 10′. June hogs closed down 1.775 last week. Support comes in between 65.25 and 65.75 while resistance is at 68.90. We’re still looking for 71+ and own 72 calls for clients; put limits to exit at 170 points, paid 90 points.
Financials
Stocks: The Dow suffered its second loss in 10 weeks to lose just over 300 points or 3.6% to 8269. The S&P had its worst week since early March giving up nearly 50 points or 5% to 883. The NASDAQ snapped a 9 week winning streak to lose 59 points or 3.4% to 1680. The media reports “green shoots”, I report “brown sh-ts” in terms of what is to come. We have cautioned investors about becoming too enamored with the most recent 35%+ rally and feel it has now run its course with more down to come. As consumers continue to spend less, as seen with last weeks’ retail sales and credit card defaults, increased fear will return to the marketplace. When a governor throws out the idea to sell off icons too raise money, you know things are rough. 900 should serve as resistance on the S&P and 8400 in the Dow, support at the 20 day moving average at 880 and 8200 respectively. On a breach of those levels 830 and 7800 would be our objectives.
Bonds: June 30-yr bonds traded higher by 2’15.5 points gaining for the first time in 8 weeks. Both the daily and weekly charts indicate we should get a bounce short-term. Support is seen at 122’10 followed by 121’20 with resistance at 124’14 followed by 126’00. The rally in Treasury’s may still have upside being the amplified Fed buying. June 10-yr notes were higher by 1’03 last week to close just above the 20 day moving average. Support is seen at 120’27 while resistance comes in at 122’15. March 10′ Euro-dollars have been up for the last 9 sessions making new contract highs. Yes, that is against our current holdings but sell into this strength because one day soon it will end. We would recommend light exposure; for every $10,000 allocated to this trade you should be short 2 contracts.
Currencies
The Euro traded lower by 183 ticks last week after reaching a 7 week high against the dollar. After failing to get thru 1.37 which will now serve as resistance the Euro should move lower this week. Support is seen at 1.3350 followed by 1.3250. On a significant dollar rally we could see 1.30.
The Loonie was lower by 222 ticks closing lower for the first time in the last 10 weeks. We advised clients to exit their long futures and to buy July 83 cent puts against their long options exposure in September. Resistance is seen at .8625 with support at .8400 though we could see a move to .8200 if energies fall apart. The 50 day moving average is .8175 and if prices were to get close we would cover our puts and look to reverse.
The Aussie gave up 220 ticks as commodity currencies were punished. If the dollar and yen were to continue north and commodities continued south for the time being we could get back to .7000. Resistance is seen at .7625 with support at .7400 followed by .7300.
The Swissie lost 157 ticks last week, which virtually came all on Friday, down 160 ticks. Resistance comes in at .9000 with support between .8875 and .8825. If the Euro was to get hit hard the Swissie could trade to .8700.
The Pound closed only 66 ticks lower last week and may need to play catch up on the downside this week with other currencies. Resistance is seen between 1.5275 and 1.5375 with support at 1.4950. For a position trade we are advising getting short with a target of 1.46 with stops above 1.5350.
With the exception of the dollar, the yen was the only currency to gain ground last week picking up 385 ticks. Support comes in at 1.0350/1.0375 with resistance at 1.0625 followed by 1.0800. If equities continue south the Japanese yen should continue north. The BOJ is expected to do nothing on rates this week. We would advise recent long entries to put in profit orders.
The Kiwi lost 196 ticks last week. Resistance is at .6000 with support eyed at .5725. On a further commodity correction expect .5600.
The US dollar was higher by 74 ticks to put in a positive showing after 3 consecutive losing weeks. The impressive part was the dollar made a new 4 ½ month low and held it’s ground. 82.00 should continue to act as support while resistance is seen at 83.75 then 84.90. Being prices are so oversold, if we garner momentum in the next few weeks 85.50/87.00 is attainable.
Grains
As of last week the USDA said 48% of the corn was planted, down from the five-year average of 71%.The USDA estimated 09-10 US ending stocks at 1.145 billion bushels, down from 1.600 billion bushels in 08-09. July corn was down 2 3/4 cents after trading to its highest level in four months. Resistance is seen at 4.32 while we see support at 4.15 followed by 4.03. When July trades down to 3.85 we’ll be advising clients to buy December 09′.
As of last week the USDA said 14% of the soybean crop was planted, down from the five-year average of 25%. The USDA estimated 09-10 US ending stocks at 230 million bushels, up from 130 million bushels in 08-09. The USDA reduced its estimate of the 08-09 US ending stocks from 165 to 130 million bushels. That put the ending stocks to use ratio at just 4%, matching the lowest in 6 years. July soybeans ended up 25 3/4 cents reaching a 7 month high before backing off. We feel an interim top has been made and in the short-run prices will come off. Resistance is seen at 11.50 with support at 11.15 followed by 10.90. There is an outside chance we see 10.30 but much of that will depend on the weather. We expect to collect the entire premium for clients who sold the June $11 calls. Although the trade is currently against us we like the idea of selling July and buying November on a spread looking for the spread to narrow, as of Friday’s close the spread was -1.54 ¾.
As of last week the USDA said 35% of the spring wheat was planted, down from the five-year average of 78%.The USDA estimated 09-10 US ending stocks at 637 million bushels, down from 669 million bushels in 08-09. The USDA is expecting world wheat production of 657.6 million tons in 09-10′, the second most ever, helped by anticipated increases in Argentina and Australia; weather contingent. July CBOT wheat closed down 13 cents as prices were unable to take out $6. Resistance comes in at 5.85 with support at 5.65 followed by 5.40. July KCBOT lost ¾ of 1 cent failing to get thru 6.45 on the upside. Resistance comes in at 6.38 while support is seen at 6.18 then 5.95.
Softs
July coffee closed up 90 ticks, trading to the highest level in over 6 months. The recent upswing is on easing of economic worries and expectations for a smaller Brazilian harvest. Selling capped the move at 130 which should serve as resistance as coffee showed signs of exhaustion last week, support at 126 followed by 122.
The USDA kept its estimate of the Florida orange crop unchanged at 158 million boxes, but increased the projected juice yield from 1.64 to 1.65 gallons per box. Florida’s orange groves badly need rain as prices have advanced to nearly 7 month highs gaining a further 2.50 cents last week. Last week’s high should act as resistance at 95.50 with support coming in at 90.00. Stand aside but look at weather in So. Florida to determine direction.
July world sugar was down 40 ticks following oil prices lower but only after probing 16 cents and trading at levels not seen since July 06′. The recent run has been impressive and was most likely caused by a larger than expected world deficit. The USDA estimated that there will only be 289,000 tons of sugar in the US at the end of the 09-10 season. ISO reported world production of sugar will fall short of consumption in 08-09 by 7.8 million tons. For 09-10, the ISO expects a world production deficit of roughly 4.75 million tons. Resistance is seen at 15.60 while support is at 14.65; the 20 day moving average. Expect 13.50/14.10 where we would start to explore longs again.
As of last week the USDA said 32% of the cotton was planted, down from the five-year average of 39%. The USDA estimated 09-10 US ending stocks of cotton at 5.6 million bales, down from 6.8 million bales in 08-09. July cotton was lower by 3.50 cents making last week the second negative week in the last ten. It appears an interim top was made as prices should head lower. Support is at 54.00 followed by 52.25 with resistance at 59.00. We advised clients to exit their July/ December spreads unscathed.
July cocoa was lower by $161 closing lower 4 out of the 5 days last week. Support comes in between 2225 and 2275 with resistance at 2400; the 20 day moving average. If the dollar does in fact move higher look for cocoa to continue south, we will explore longs closer to 2000.
Metals
June gold gained $14.30 last week trading to its highest levels since 4/1. Resistance comes in at 955 while we see support at 915 followed by 890. Considering outside markets with the US dollar gaining, and equities and energies falling the gold market held up well. For options we still like the idea of $100/150 call spreads in October and in terms of futures we have been advising clients to scale into mini-gold contracts in June.
July silver was unchanged on the week as prices have yet to make up their mind on what the next direction will be. Do not over think this trade, the trend is up but prices are oversold, the play is to be cautiously long until the market tells you different. Tighten up stops but don’t exit because there may be more immediate upside on futures. In terms of options if you are near your objective take a profit. Closely monitor the gold: silver ratio that we mentioned last week. Resistance is seen at 14.35 followed by 14.60 while support comes in at 13.50 followed by 12.85/12.90.
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.