It always amazes me how short-term investors’ memories are. There is chatter of improving U.S. and world economies, which we feel is way too premature. Corporations are reporting optimistic numbers but could that be because expectations were so low? We’ve lost 2 million jobs in the last 6 months and because unemployment dropped 0.1%, which I still doubt is the case, it is supposed to be viewed as positive? Commodities are moving higher and this signals a recovery…I don’t think so. Treasuries and equities are trading in tandem as opposed to inversely, this will not last. The dollar is not being sought out as the fear trade and it actually rallied on positive economic news? As my basketball coach used to say, sometimes the best offense is a good defense.
Energies
The DOE reported crude oil supplies were up 1.7 million barrels, supplies of gasoline were down 200,000 barrels while heating oil supplies were down 300,000 barrels. September crude oil closed up $1.63 trading to its highest level since 6/30. Expect $73/74 to act as resistance with support coming in at the 9 day moving average at $69.40. The chart looks overbought; a trade down to $66/67 is not out of the question. At this time we’re not advising getting short, but we would suggest being out of longs. September heating oil was higher by just over 8 cents last week but it too is showing signs of a top with prices ending last week 6 cents off their highs. Resistance is seen at 1.95/1.96 with support at 1.8850/1.89 followed by 1.83. September RBOB closed lower by 45 ticks as prices failed to make their way to higher ground after 3 positive weeks. Resistance is seen between 2.05 and 2.07 with support at 1.94 followed by the 20 day moving average at 1.87.
The DOE reported underground supplies of natural gas were up 66 billion cubic feet last week to 3.089 trillion cubic feet. Supplies are now up 23% from a year ago. September natural gas closed up 4 cents which would not have been possible without the 11% move higher on Monday. Resistance comes in between 3.85 and 3.90 with support at 3.55 followed by 3.40. We continue to buy clients November $1 call spreads. The settlement on the $5/6 call on Friday was $2700.
Grains
USDA report out Wednesday 8/12
September corn was lower by 20 cents last week taking prices back to the levels from 2 weeks ago. We used this pullback to re-establish longs for clients but this may have been premature. The idea was to have light exposure into the USDA and then look to react depending on the numbers. We advised clients to buy December $4 calls between 12/15 cents. Support in September is seen at $3.05/3.10 with resistance at $3.35 followed by 3.55.
August soybeans were higher by 44 cents last week. Resistance is seen between $11.90/12.00 with support at $11.55/11.60. On a bullish USDA report we should see prices back over $12/bushel and on a bearish report expect a retreat back to $10.80. We still have no exposure with our clients in soybeans but for those who wish to trade we would advise the new crop (November) or trade soy meal at this point. As we stated last week one of our better performing CTA’s has a long soy meal position.
September CBOT wheat was lower by 42 ¼ cents last week trading to a new contract low taking prices below $5/bushel. We currently own December calls for clients and depending on the USDA we may look to add to this loser or a place to exit and cut their losses. Support comes in at $4.55/4.60 with resistance at $5.10. September KCBOT wheat was a loser of 34 ¾ cents last week. Support is seen at $5.00 with resistance at $5.45/5.50. The same trade opportunity exists in the KCBOT/CBOT spread this week as did last week. Look for an entry between 16-19 cents with a stop close only at 10 cents and a target of 35 cents. Last week one could have entered this spread at 16 cents and by Friday’s close we were back at 25 cents.
Softs
September cocoa was lower by $73 last week. We are holding October 2500 puts at a loss currently for clients. Resistance is seen at 2860 then 2900 with support at 2695, which is the 50% Fibonacci retracement level and the 50 day moving average.
October sugar jumped up 2.10 cents gaining 11.2% to another new contract high with ongoing talk of a shortage in India. It was the highest spot price for sugar since 81′. There is also talk of possible dry weather in Brazil. Prices have now moved higher 18 out of the last 21 days; a move we feel is unsustainable. We’re on the sidelines with clients waiting for a correction that seemingly may never come. Why this is truly frustrating is I’ve been preaching about sugar being one of the most undervalued commodities now for 4 years and I’m missing a historic move. At this point the charts do not matter.
October cotton was higher by 2.73 cents. Support is seen at the 50 day moving average at 58.25, resistance is seen at 61.00 followed by 62.50. We have no exposure into the USDA report but we are pricing out ways to get clients long with futures and options.
September orange juice gained 10.65 cents or 11.7% last week. Support is seen at 94.00 while resistance comes in at the recent high at 104.85. We are looking to buy dips most likely in the November contract.
September coffee was higher last week by 9.75 cents or 7.6% to trade to its highest level since 6/5. Now we recognize we definitely left too early. The performance of the softs in the last 3 weeks has been reminiscent of the pre-bubble days in commodities. We are trying not to get caught up in the euphoria and still institute disciplined money management and we advise you to do the same. Resistance is seen at 140.50, support between 133.50 and 134.00.
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.
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