| Opening Calls for 01/28/2009 | |||||||
|---|---|---|---|---|---|---|---|
| Bonds | -20 | Sugar | -21 | Beans | -8.5 | Crude | -33 |
| S&P 500 | +17.9 | Cotton | +18 | Meal | -3.2 | Unleaded | +16 |
| Dow | +148 | Cocoa | +28 | Soyoil | -5.1 | Heat | +75 |
| Yen | -43 | Coffee | -75 | Corn | -3.8 | Nat Gas | -25 |
| Euro | +90 | Wheat | -3.3 | ||||
| Swiss | -23 | Gold | -12.80 | ||||
| Canada | +35 | Cattle | +20 | Silver | -22.50 | ||
| Pound | +144 | Hogs | +15 | Platinum | -32.0 | ||
| Dollar | -390 | Copper | +190 | ||||
Archive | January, 2009
Morning Opening Calls – 2009.01.28
Sugar Market Commentary – 2009.01.27
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The technical action in sugar remains positive and the focus of attention is still on the potential for a small crop in India which will add to the projected world production deficit. March sugar has pulled above the 10.50-12.50 3 1/2 month consolidation and is in the process of testing the key resistance at 13.14. This represents a 50% correction of the August to October break. A slight rise in open interest on the break-out is positive but technical indicators show a short-term overbought condition. The market demand factors are in a transition but short-term demand still looks mostly negative. However, the tighter than expected supply from India could spark increased imports and might also spur other buyers to act now, not later. One of India’s state-run firms issued a tender to import near 22,000 tonnes of raw sugar last week and traders believe that India could import near 1 million tonnes. The Farm Minister last week indicated that sugar production could drop to 18 million tonnes as compared with 26.3 million last year as producers shifted to other crops and oilseeds. March sugar pushed sharply higher on the session yesterday and has closed higher in 6 of the past 7 trading sessions. March sugar moved above 13 cents for the first time since early October and open interest has also moved to the highest level since October. A sharp break in the US dollar, strength in the gold market and growing inflationary concerns have also helped support the uptrend. Traders see potential imports from India as a bullish factor.
TODAY’S GUIDANCE: We still have short-term demand concerns for the market but traders are looking past the short-term and assuming that the massive monetary stimulus of the past six months combined with the outlook for another massive economic stimulus package in February could be enough to help the economy bottom and prompt some inflationary concerns.
Stock Market Commentary – 2009.01.25
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The stock market is expected to be locked into a choppy two sided trade today as the flow of scheduled data is expected to provide periodic selling interest, but the markets also look to have to weather partially undermining corporate earnings reports again. The market is hopeful that the White House will step up its promotion of the upcoming stimulus package and for the time being that expectation at least is a partial offset of the constant flow of negative headline stories on the economy. Perhaps seeing the Treasury Secretary nominee confirmed will provide a positive lift to the market, but first the market will have to get beyond another reading from the housing front in the form of US existing home sales data morning. Unlike the Treasury market which appears to be poised to embrace a negative track, the stock market might be able to put an occasional positive spin on things in the wake of offerings from Washington. Therefore, we suspect that the market might be initially locked within the prior week’s trading range.
DOW: Critical support in the March Mini Dow is seen at 7,888, with solid resistance seen up at 8,108 but one has to concede to the fact that the market has maintained a pattern of lower highs on the charts. With the January 20th Commitment of Traders with Options report for Dow Jones Index $5 showing the Non-commercial position to be net long 8,884 contracts, with the Non-reportable position net short 645 contracts, that made the “combined” spec and fund position net long 8,239 contracts as of early last week. With the Mini Dow technically trading above the level where the COT report was measured, one could suggest that the Mini Dow spec long has actually increased and therefore more technically orientated long liquidation is possibly due in the coming trading sessions.
NASDAQ: Critical support in the March Nasdaq is seen down at 1146, with initial resistance seen up at 1185. In fact, the January 20th Commitment of Traders with Options report for Nasdaq Mini showed the Non-commercial position to be net short 15,844 contracts, with the Non-reportable position net short 35,377 contracts, that made the “combined” spec and fund position net short 51,221 contracts as of early last week. With the Nasdaq sitting above the level where the COT report was measured, the net spec short position might be overstated a bit. Nonetheless the Nasdaq would appear to be somewhat prone to developing into an oversold technical condition, but in the end the technicals don’t appear to so oversold that the downside tilt will be ruled out.
S&P 500: Critical support in the March S&P is seen at 810.90, with initial resistance seen up at 835.90. Apparently the market seems to have carved out a fairly solid consolidation support zone around the 800 level and that level could be an extremely important pivot point on a closing basis over the coming two weeks of trade. At least initially the market seems to be capable of discounting another round of negative scheduled US data points, with the market instead seemingly holding out hope for some movement from Washington in the stimulus front. It is also possible that a key buy out in the drug sector and anticipation of progress on the stimulus program will keep the markets attention away from the economic negatives. However, the January 20th Commitment of Traders with Options report for S&P 500 Stock Index showed the Non-commercial position to be net short 3,781 contracts, with the Non-reportable position net long 61,913 contracts, and that made the “combined” spec and fund position net long 58,132 contracts in the S&P as of early last week. Therefore the S&P is the most overbought of the major traded index markets and a return to the 850 level would obviously pump up the spec long in the S&P to a more vulnerable level.
Coffee Market Commentary – 2009.01.25
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The market seems to be in a position to move higher over the near-term as higher prices may be needed to keep the pipeline active. Demand for coffee sees a little less sensitivity to the recessionary economic news than many commodity markets and the longer-term impact of the recession may be to see increased inflationary pressures once the economy bottoms. March coffee inched higher on the session on Friday and managed to hit the highest level since November 10th as the early moderate set-back in prices failed to break Thursday’s lows. The surge higher in gold and other commodity markets, a recovery in the stock market and a surge higher in crude oil helped support the recovery off of the early lows. Talk that the Colombia cash trade remains tight and that European coffee buyers are searching for alternatives helped provide support. In addition, a turn down in the US dollar after a surge higher Thursday night may have helped the market recovery from the lows as well. The outlook for a world production deficit for the coming year remains the foundation of a potential rally into the spring. Colombia cash markets traded as high as 26 cents premium to the May futures contract last week which is up from near a 20 cent premium in late December and near a 9 cent premium back in October. The strong basis indicates firm cash demand. The Commitment-of-Traders reports, released on Friday, showed that trend-following funds were net buyers of 2,986 contracts for the week ending January 20th to reduce their net short position to just 1,217 contracts. Given the recent trend in the market, futures look vulnerable to increased fund buying if resistance levels are violated. The technical action is positive for an uptrend while short-term technical indicators are a bit overbought. The market is coming off of an extreme oversold condition and a 50% retracement of the 2008 break for May coffee leaves a longer-term upside objective of 143.25 with a first retracement objective of 134.20. US ICE daily exchange stocks were down by 5,166 bags to 4.317 million with 13,600 bags pending review. Stocks have been on a decline for much of January and the small amount of coffee pending review suggests more declines ahead.
TODAY’S GUIDANCE: Open interest continues to rise and reached the highest level since late October. Rising open interest on the recent rally despite a hefty net short position by speculators is seen as a positive technical development. Open interest was up more than 3,000 contracts on Thursday to 132,696 contracts.
Opening Calls – 2009.01.26
| Opening Calls for 01/26/2009 | |||||||
|---|---|---|---|---|---|---|---|
| Bonds | -160 | Sugar | +6 | Beans | +16.8 | Crude | +14 |
| S&P 500 | +0.9 | Cotton | +28 | Meal | +4.0 | Unleaded | +23 |
| Dow | +8 | Cocoa | +39 | Soyoil | +4.2 | Heat | -83 |
| Yen | -60 | Coffee | +15 | Corn | +7.8 | Nat Gas | -92 |
| Euro | +9 | Wheat | +12.3 | ||||
| Swiss | +1 | Gold | +9.30 | ||||
| Canada | +58 | Cattle | +25 | Silver | +19.50 | ||
| Pound | +121 | Hogs | -10 | Platinum | +170.0 | ||
| Dollar | -190 | Copper | +325 | ||||
Market Headlines – 2009.01.26
STOCKS: We can’t argue against periodic bounces but we doubt rallies will hold
BONDS: The bear camp retains the edge as the fear of funding troubles remains
CURRENCIES: Temporary lull in Dollar favor gives the C$ and Pound a temp lift
COPPER: The copper mkt might be able to bounce but gains should be fleeting
METALS: The bias in prices is clearly pointing upward to start the new week
CATTLE: USDA report news supportive for supply but demand concerns persist
HOGS: Probing for low enough price to encourage demand or exports; chop
BEANS: Two-sided trade near recent highs is supportive for meal and soybeans.
CORN: Lack of sellers supporting corn. This could take corn to the Jan highs.
WHEAT: Traders do not seem inclined to sell in wheat. We agree.
ENERGY: Bulls resolve will be tested by more bad economic news this week
COTTON: Large commercial take bulk of deliverable stocks; exports strong
COFFEE: Slight overbought technical condition but breaks still a buy
SUGAR: Outside market support but demand concerns persist; a bit overbought
COCOA: A pickup in fund participation may be needed for a push above $2,720
Gasoline Strategies – 2009.01.25
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In keeping with the strategic philosophy offered in this issue’s Commodity Outlook, we would like to point to the potential for a major bottoming in unleaded gasoline prices later this year. In the meantime the market continues to see a patently bearish supply build-up in the front end of the energy marketing channel. But without a significant refining margin, there is little incentive to build product supply. This could ultimately prove to lay the groundwork for a major bottoming in RBOB prices this spring. Further slowing of the economy appears to have left the energy markets anticipating even more demand destruction directly ahead. With the Dollar recently seeing a pattern of strength, there would seem to be a number of forces working to keep near prices tilted to the downside. On the other hand, given the state of the economy and the drive for efficiency, it is our opinion that US refinery rates are going to remain very low.
In the coming two months we might see operating rates fall as low as 80%. While some players will discount the importance of ethanol in the natural energy supply chain, it has become somewhat important in various regions of the US, and a sustained lack of profitability in that sector could put yet another element of tightness into the US product markets in the coming months. Into the middle of December, US gasoline stocks were as much as 7.3 million barrels below year ago levels. Even with the recent deficit narrowing to only 1.7 million barrels, we suspect that any deficit at all could be very important indicator for future price action, especially if the new government manages to “re-contain” financial sector turmoil and the prospect of aggressive stimulus is given more fanfare.
Clearly, implied gasoline demand is running markedly below year ago levels, but we have to think that retail gasoline prices running as much as $2.25 per gallon below what they were last spring and summer will serve to resurrect consumer demand. While the market probably won’t offer up any early, clear signs of an improvement in the US economy, it is our opinion that even a slight improvement in sentiment might be worth as much as 50 cents per gallon in unleaded prices. In other words, we think that traders have to play for the prospect of May RBOB prices rocketing back above the $1.70 to $1.85 level at some time before the contract goes off the board. However, the lingering threat of demand destruction, a strong Dollar and periodic bouts of deflationary pressure could initially damage any investment in long May or June RBOB call premium. Therefore traders should attempt to hedge the speculative costs of that play with the purchase of at the money March RBOB bear put spreads!
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Commodity Outlook – 2009.01.25
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With the sharp slide in the stock market following the installation of the new Administration last week, it is clear that the residue of slowing in the global economy will continue to surface in the near term. Unfortunately the US economy doesn’t seem to have gotten fully around the financial sector threat yet, and with potentially severe trouble seemingly surfacing last week in the UK Banking system, there might be more than one trouble spot facing the commodity markets in the coming weeks. With many physical commodities seeing a noted recovery bounce off the December lows and extending those gains through the first days of 2009, it is clear that some of the oversold pricing might have been mitigated. However, in looking ahead it is also clear that even more pipeline type slowing is to be expected in the January US monthly unemployment report that is due out in the first week of February. Therefore, it is our opinion that macroeconomic sentiment is set to worsen dramatically in the coming weeks, especially if the financial sector turmoil serves to rupture consumer sentiment even further. With the added burden of a rising US Dollar, the outlook for most physical commodity prices is suspect. We would suggest that traders look to implement short side plays in markets that are vulnerable to demand destruction.
While some markets are obviously overbought and vulnerable to bearish near term technical and fundamental developments, it might also pay to keep a longer term market perspective in place for signs of what could eventually become a major bottoming event in the coming 2 months, such as natural gas, unleaded, copper, cattle, hogs, sugar and coffee. In the near term, we remain short term bearish toward soybeans, cocoa, crude oil, corn and cotton. As always, we must reiterate the need to utilize option and futures combination strategies to actively participate in these volatile markets. In some cases traders might combine long term bottoming expectations with bearish short term market views to reduce the cost of a long term position. For instance, those that are longer term bullish toward unleaded prices might attempt to benefit from potential near term weakness in the lead up to the next unemployment report by purchasing longer term calls, and then selling near to expiration just out of the money calls. Taking another approach, traders that are longer term bullish toward corn prices might look to be short corn futures and long December 2009 calls for an eventual recovery. In the near term, with current corn prices 70 cents above the December lows and corn demand thought to be falling off sharply, the corn market could be vulnerable to a slide below the January lows.
While we doubt that deflationary concerns will return to the full blown levels seen in early December, the combination of patently bearish macro economic conditions and distinctly bearish 2009 ending stocks projections could send December 2009 corn prices to the lowest levels since early December. For those traders who are short futures and long calls, this could serve to finance an investment in the long side of corn.
In the energy complex, those with a long term bottoming mentality toward unleaded gasoline might consider the purchase of near to expiration puts as a hedge against an even larger outlay of capital for long call plays! We still see the prospect of a major bottoming in select physical commodities in the coming months, but if one is forged, we can probably expect periodic aggressive bouts of deflation.
Sugar Market Commentary – 2009.01.23
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Sugar looks to remain volatile over the near-term as market fundamentals clash. India may shift from a world exporter to a world importer this year and world production may come in below world consumption. These positive fundamentals clash with the overbought condition of the market and concerns that demand from key world importers will be declining in the months just ahead. Recessionary demand for sugar is one issue and weak energy prices could also direct more of Brazil’s 2009 cane crop to sugar production as compared with ethanol. March sugar closed 22 lower on the session yesterday but up 28 points from the lows. A sharp break in the stock market and further weakness in the energy markets had traders concerned with the demand outlook for both sugar and ethanol out of Brazil. Demand from Russia is especially in question and there was also talk that Brazil production looks to climb sharply again for the 09/10 season. Ideas that the market was technically overbought after the recent bounce added to the short-term selling pressure. There is talk that India may soon allow the import of raw sugar and not force an export obligation of the same amount and the country is also considering cutting import taxes. One of India’s state-run firms issued a tender to import near 22,000 tonnes of raw sugar and traders believe that this is just a start and that India could import near 1 million tonnes. The Farm Minister this week indicated that sugar production could drop to 18 million tonnes as compared with 26.3 million last year as producers shifted to other crops and oilseeds.
TODAY’S GUIDANCE: Money is currently flowing to the US with traders sensing more and more financial difficulties in Europe. The surge in the dollar adds to the negative demand tone for sugar and India is unlikely to be an aggressive enough buyer to offset recessionary demand for sugar and ethanol. On the other hand, inflationary concerns are on the rise and all commodity markets may find support if gold keeps advancing.
Energy Market Commentary – 2009.01.27
by Dave Hightower on January 27, 2009
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Crude oil has seen a choppy trade overnight at times finding some support from a cold temperature outlook and OPEC’s efforts to cut back production. But the market has also given up ground as equities trim gains and as the Dollar bounces off overnight lows. While trading has been whipsaw, crude oil may still find support from economic optimism linked to the prospects for a quick passage of an Obama stimulus plan and the prospects for the Fed to conduct some quantitative easing at this week’s Fed meeting. The market may also garner some support from the cold weather this week boosting fuel heating demand. It also seems as if March crude oil is in the midst of a technical correction that may temporarily provide short-term price support and possibly even push the market back towards $50. An economic rescue plan from Japan’s government and a better than expected reading on German business sentiment may also help improve market sentiment. But the price action in the energy market seems to be closely tied to the action in the equities market and crude oil has traded weaker as the stock market’s rally seems to be losing some steam. While March crude oil seems to have the technical potential to trade higher, we still have doubts that a rally above $50 will be able to hold up for too long unless an economic recovery theme is fully embraced. OPEC has shown some capacity to cut back production and that seems to have put in a temporary price floor near $40. But it’s still unclear if OPEC’s efforts will be enough to offset additional oil demand destruction which is likely to be seen if the economy continues to show signs of deteriorating. In fact, today’s reports on regional manufacturing and consumer sentiment have the potential to remind the market that the fundamentals still favor the bear camp. Also, this week’s inventory report is expected to show a sizable gain in oil stocks and that could be another limiting factor for the bull camp. On the other hand, crude oil has shown good resiliency to bad news. Technically March crude oil looks poised for a move back to test $50. But the market will likely have to absorb some negative economic news today and so higher price action in crude oil will likely require strong upward leadership from the equity markets.
HEATING OIL: March heating oil has seen a choppy two sided trade overnight as the market still looks to be attempting a technical correction from oversold levels. The market may garner some support from the cold weather seen over the last several weeks in the US heating region. In fact, most traders expect a pickup in heating demand to result in a decline in distillate stocks in this week’s inventory report. On a purely technical basis March heating oil may have the capacity to trade back to the $1.50 to $1.53 price range. But we have doubts the market will be able to hold at these higher price levels for too long, especially if today’s manufacturing report comes in weak. With US industrial energy demand on the decline and temperatures expected to turn warmer in early February, there seem to be a number of bearish obstacles that could derail the market’s technical price recovery.
GASOLINE: March gasoline also saw a choppy two sided trade overnight, but still within the range that has confined the market for more than two weeks. The technical action gives the impression that the market could be building a base to move higher. A close over $1.2782 would be needed to confirm an upside breakout. But with economic conditions likely to get worse before getting better, we have doubts gasoline demand will be able to support any significant rise in retail pump prices. Also, most traders expect this week’s inventory report to show another sizable rise in gasoline stocks and that should remind traders that the fundamental setup still favors the bear camp. In fact, the market has pulled back from overnight highs and gasoline could come under further pressure if today’s economic reports come in weaker than expected. The coiling pattern in March gasoline suggests the market is going to make a directional decision soon. However, a break back towards the December lows seems more likely unless the market begins to embrace an economic recovery theme or OPEC can further tighten supplies.
TODAY’S ENERGY MARKET GUIDANCE: Look for a choppy trade with technical signals pointing up for crude. But a rally in crude oil will need to be sparked by a strong recovery in the stock market.