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October 2007 Archives

October 1, 2007

Happy Fourth Quarter Everyone!

Copper: A potential strike at Southern Copper Corp. in Peru has sparked a rally in Copper futures this morning, as traders fear a slowdown of production if workers do indeed walk off the job tomorrow. Copper demand continues to outpace production, as demand from China – the world’s largest consumer of the red metal – continues unabated. The London Metal Exchange reported Copper stocks fell by 100 metric tons to stand at 130,675 mt. In early trade, December Copper is trading at 366.40, up 2.40.

Coffee: Traders awoke to the smell of a Coffee rally to start the quarter, as both London and New York Coffee futures were trading sharply higher on fears of potential crop damage in Brazil due to dry weather. Recent weather forecasts have taken rain out of the picture for the main Coffee-growing regions of Brazil this week. In early trade, December Arabica Coffee is trading at 134.55, up 5.90.

Japanese Yen: December Yen futures are on the defensive this morning, as higher world stock indexes over the past several sessions are providing confidence for traders to re-establish Yen carry trades. The Yen is especially weak against the New Zealand Dollar, as the wide interest rate differentials make this pair a favorite for carry trade speculators. In early trade, December Yen futures are trading at 0.8730, down 0.0067.

Mike Zarembski, Senior Commodity Analyst

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Too Much of a Good Thing?

The end of the third quarter left smiles on the faces of Euro Currency bulls, as the 13-nation currency soared to all-time highs against the U.S. Dollar. This means that Dollar-denominated goods are cheaper for those holding Euros, and those vacations to Disneyland are now more affordable for European travelers. However, not everyone in Europe is happy about the currency’s strength – French President Nicolas Sarkozy is among the most vocal European leaders demanding that the European Central Bank (ECB) cut interest rates to stop the surging Euro. The belief is that the strong Euro is hurting European exports, with those supporting a weaker Euro citing a decline in German exports in July as a sign that a strong Euro is curtailing demand from American an Asian buyers. In addition, the spread of the recent credit crunch to Europe is also a cause for alarm, and may take some of the luster off the Euro as a speculative play.

Looking at the daily chart for December Euro Currency futures, we notice aggressive selling taking place after a new contract high was made at 1.4302 earlier in the session. The 14-day RSI reached extremely overbought levels on Friday, closing at 89.86 (readings over 70 are considered overbought). With prices moving up over 9 handles since the middle of August, a bit of profit-taking selling would not be out of line, especially if economic reports continue to show European business activities starting to slow. The next support point for the December Euro is seen at 1.4081, with resistance found at today’s highs of 1.4302. In early trade, December Euro Currency futures are trading at 1.4250, down 0.0043.

Mike Zarembski, Senior Commodity Analyst

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Hot Coffee!

Speculators both large and small were active buyers in Arabica Coffee futures to start the fourth quarter, as a lack of meaningful rainfall in the Coffee-growing regions of Brazil has traders fearful of possible crop damage due to the lack of moisture. Large non-commercial traders were already holding a sizable net-long position before today’s buying spree, with the most recent Commitment of Traders report showing 38,080 net-long positions being held by these traders, up 8,800 contracts as of September 25th. Some origin selling was seen during today’s rally, but not enough to absorb the buy-stops and momentum buying seen this morning. According to private consultants, just over 1/3 of this year’s Brazilian harvest has been sold, with producers continuing to hold onto stocks hoping for higher prices. Should rainfall materialize in the next several days, however, a decline in futures prices may persuade origin sellers to lock in prices while they can. 140.00 is seen as the next resistance point for December Coffee, with support found at 126.50. December Coffee closed at 134.85, up 6.20.

World Sugar futures opened October on a sour note, as speculative accounts were in liquidation mode this morning. Traders reported a large sell order in March Sugar, with trade buyers doing some moderate scale-down buying. The harvest continues in the central-south region of Brazil, with only light precipitation expected this week. Thus far, there’s no news out of Russia as to whether the Sugar import duty will be raised to protect domestic producers who are expected to produce a larger Sugar Beet harvest this season. 9.85 is seen as support for March Sugar, with resistance found at 10.25. March Sugar closed at 9.93, down 0.22.

Mike Zarembski, Senior Commodity Analyst

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October 2, 2007

What, Me Worry?

That may be the mentality of stock index futures traders, as Dow Jones futures surged to an all-time high yesterday afternoon. The rally in the U.S. stock market comes despite predictions from leading experts that the chances of the U.S falling into a recession remain 50/50, and talk from leading fund managers that the Fed has not yet restored confidence in the U.S. credit markets. The U.S. housing market remains mired in a slump, with a report out this morning expecting to show that pending home sales fell to their lowest levels since the index has been calculated starting in 2001. So why are investors enamored with stocks again? One possible explanation might be the changing focus by the Federal Reserve from inflation containment to general prevention of an economic slowdown. The 50 basis point rate cut in September signaled that the Fed is willing to tolerate some moderate increases in inflation in order to prevent a recession in the U.S. This gave traders the confidence to move assets back into the stock market –especially multi-national blue chips – on the belief that the Fed will continue with its “accommodative” stance and keep interest rates low for the foreseeable future. Whether this tactic works and prevents a rapid slowdown of the U.S. economy or just fuels another speculative “bubble” in securities is still unknown, but for stock index bulls it’s “let the good times roll!”

Looking at the daily chart for December mini-Dow futures, we notice traders still in a buying mood after yesterday’s record-setting session. Prices are well above all the major moving averages, and momentum remains strong. The 14-day RSI is now in moderately overbought territory, with a current reading of 81.67. Yesterday’s highs of 14198 will act as resistance, with support found at 13782. In early trade, December mini-Dow Jones futures are trading at 14166, up 9.

Mike Zarembski, Senior Commodity Analyst

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Commodity Prices Tumble as Stocks Come Back in Vogue

Precious Metals: Sharp declines are being seen in the precious metals complex this morning, as a rally in the U.S. Dollar and lower oil prices are slowing the voracious investor appetite for Gold and its brethren. Aggressive speculator selling was seen in Tokyo, with the Tokyo Commodity Exchange (TOCOM) Platinum and Gold contracts showing hefty losses at the close of trading. In early New York trade, December Gold is trading at $738.20, down $15.90, and January Platinum is trading at $1361.00, down $40.20.

Crude Oil: NYMEX light sweet Crude Oil futures continue their sell-off after Friday’s technical reversal, falling below the $80 per barrel mark with traders contemplating lower Oil demand from refineries as profit margins erode. The price of refined products such as Gasoline and Heating Oil have not kept pace with the rising price of Crude, which has cut the margins refiners were getting for processing Oil into energy products. In addition, a stronger greenback the past two days may start to crimp demand for commodities priced in Dollars from foreign buyers. In early trade, November Crude Oil is trading at $79.19, down $0.99.

Dow Jones Index futures: After a record-setting day on Monday, Dow futures continue to climb as traders move back into equities, believing that the worst of the subprime mortgage crisis may be over. The early morning rally comes despite expectations that this morning’s release of the National Association of Realtors' index will show a drop in August in the number of signed contracts to buy previously owned homes. In early trade, December mini-Dow futures are trading at 14182, up 25.

Mike Zarembski, Senior Commodity Analyst

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Commodities Crack

Cocoa futures were pummeled this morning, as overall weakness in the commodity sector in the wake of a rebound in the U.S. Dollar inspired speculative liquidation in the Cocoa market. A weaker British Pound against the U.S Dollar led to arbitrage selling in the New York market to start the session. Trade and origin selling followed, moving the market through support points at $2000 and $1980, and triggering speculative sell-stops along the way. Buyers were scarce as prices fell, with major support at the 100-day moving average of $1948 giving way to spark fresh short-term momentum-based selling. Buyers were found just above the $1900 area in the December contract, which put an end to the day’s losses. $1900 is seen as psychological support for December Cocoa, with resistance found at $1948. December Cocoa closed at $1917, down $113.

After hitting 27-year highs yesterday, Gold futures were ripe for a correction – and correct they did. Gold prices fell over $20 during the worst stretches of the session, as a commodity-wide sell-off hit Gold and the precious metals sector particularly hard. A rebound in world equity markets and a recovery in the U.S. Dollar made Gold investments less attractive to non-U.S. buyers. Moderate sell-stops were seen being triggered below support at $740.00. Despite the heavy selling seen today, technical damage was minimal, with the widely watched 20-day moving average holding and the long–term uptrend remaining intact. Continued speculation that the U.S. Federal Reserve is in an easing mode is fanning fears of rising inflation, which if uncovered in economic data going forward would be supportive to the precious metals sector, and Gold in particular. The next support point for December Gold is seen at $727.00, with resistance found at $747.00. December Gold closed at $736.30, down $17.80.

Mike Zarembski, Senior Commodity Analyst

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October 3, 2007

Crude Above $80 as Inventories Expected to Decline

Crude Oil: Traders were “bargain hunting” in the Crude Oil market after an attempt to move front month November Crude below $79 per barrel was met with fresh buying interest. Prices continue to hover just above $80 per barrel in early trade, with traders gearing up for this morning’s release of the weekly EIA energy stocks report. Current estimates are for a moderate decline in Oil inventories, with traders looking for a decline of between 300,000 and 600,000 barrels last week. Refinery utilization is expected to show a moderate increase of 0.4% to stand at 87.3%. The slight rise in utilization is expected to have resulted in an increase in Oil-derived products, with Gasoline inventories expected to have increased by 500,000 barrels and distillates by 700,000 barrels last week. In early trade, November Crude Oil is trading at $80.54, up $0.22.

Wheat: Grain traders were in a selling mood yesterday, sending Wheat futures down the 30-cent limit all the way through the December 2008 contract. In overnight trade, lead month December Wheat continued to tumble, at one point falling by an additional 30 cents before moderate buying emerged to keep prices above $9.00 by the end of the overnight session. Traders pointed to a stronger U.S. Dollar as reason for the sell-off, as well as disappointment over the fact that the U.S. did not receive any business from Egypt’s latest 80,000 metric ton Wheat tender. However, the Australian Wheat crop continues to be decimated, as high winds and a prolonged lack of rainfall are leading some analysts to further lower their estimates for this season’s production. At the end of the overnight session, December Wheat was trading at $9.00, down 22 ½ cents.

Natural Gas: After rallying to near 6-week highs yesterday, November Natural Gas futures are showing moderate weakness this morning, as traders assess the possibility of a tropical storm forming near Key West, Florida, that has the potential to reach the Texas coast by the end of the week. In early trade, November Natural Gas is trading at $7.357, down $0.057.

Mike Zarembski, Senior Commodity Analyst

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Employment Figures in the Spotlight for Bond Traders

Treasury Bond futures are trying to make a comeback after the pounding they took just two weeks ago, as equities recovered and the yield curve steepened to deliver a one-two punch to reeling Bond bulls! Traders now turn their focus to this Friday’s release of the September non-farm payrolls report. This morning, outplacement firm Challenger, Gray & Christmas announced that U.S. corporations cut 71,739 jobs in September, down 9.7% from the prior month. Also out later this morning is the employment estimate from ADP, which is expected to show that U.S. payrolls – excluding government hires – rose by 80,000 jobs last month. Any signs of a recovery would normally weigh on Bond prices, as signs of stabilization in the U.S. economy may allow the Fed to ease off the gas pedal and start to reassert its focus on fighting inflation. Should the recent recovery in Bond prices stall, some technical traders look for the possibility that a head and shoulders top might be forming on the daily charts. If so, the days of relatively low long-term interest rates might be on the wane.

Looking at the daily chart for December Bonds, we notice the recent rally off the 9/20 lows starting to stall near the 20-day moving average. The ADP payrolls estimate was just released, showing a gain of 58,000 jobs in September. Bond traders showed little reaction to this news, with only a slight sell-off seen in Bond futures just after the release. The 14-day RSI is moderately strong, with a current reading of 60.16. 112-10 is seen as near-term resistance, with support found at the 50-day moving average near 110-30. In early trade, December Bond futures are trading at 111-31, down 0-01.

Mike Zarembski, Senior Commodity Analyst

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Wheat Prices Rebound as Buyers are Found

Wheat futures rebounded this afternoon after weak longs finished exiting the market following yesterday’s limit-down move. Buyers were found after overnight selling pushed the lead month December contract below the $9 per bushel mark. Despite near-record high prices, Wheat buyers continue to lock in supplies, with the USDA announcing sales of 290,000 metric tons of Hard Red Spring and Hard Red Winter Wheat to unknown origins. Traders also expect the USDA to report strong sales in Thursday’s weekly export sales report – current estimates are for U.S. Wheat sales to total between 1.2 and 1.9 million metric tons for the week ending September 27th. The next resistance point for December Wheat is seen at $9.46 ½, with support found at $8.85. December Wheat closed at $9.26, up 3 ½ cents.

Lead month December Copper posted new contract highs this morning, as continued commodity fund buying and labor issues supported prices. Technical traders have renewed optimism now that major resistance at 370.20 has been taken out, negating a potential triple-top formation. Ongoing mine strikes in Mexico and Peru are keeping the supply picture tight. Copper prices were also supported by buying in other base metals – particularly Lead – which reached new all-time highs today. 380.00 is seen as the next resistance point for December Copper, with support found at 361.40. December Copper closed at 376.35, up 5.25.

Mike Zarembski, Senior Commodity Analyst

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October 4, 2007

Factory Orders Peak Traders’ Interest Ahead of Tomorrow’s Payrolls Report

Ten-year Notes: Interest rate traders are focused on tomorrow’s September non-farm payrolls report, but will have to digest what is expected to be a weak U.S. factory orders report first. The Commerce Department is expected to announce that factory orders in August fell 2.8%, according to a Bloomberg survey of economists. This compares to a 3.7% rise in July. In early trade, December Ten-year Note futures are trading at 109-105, down 0-045.

Copper: After a run to contract highs yesterday, December Copper is giving back some of its recent gains this morning, as officials of Southern Copper Corp. agreed to meet with workers at its Peruvian mines to try to settle the strike that started on October 2nd. Traders should expect trading to remain light in coming days, with China – the world’s largest consumer of Copper – on a weeklong holiday. In early trade, December Copper is trading at 373.20, down 2.15.

Euro Currency: December Euro Currency futures are little changed, as traders await an announcement by the European Central Bank on interest rates. The ECB is expected to leave rates steady at 4%, dashing hopes for a 25 basis point increase due to credit market concerns. In early trade, December Euro Currency futures are trading at 1.4127, up 0.001.

Mike Zarembski, Senior Commodity Analyst

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Is a Two Billion Bushel Corn Carryout Total Within Sight?

Reports of higher yields and the potential for slower demand from Ethanol producers have traders looking for a large Corn surplus. Analysts are continuing to raise their estimates of this year’s crop, with private forecasters looking for a total somewhere between 13.3 and 13.5 billion bushels. Weather forecasts are calling for near perfect conditions for harvesting this weekend, which may spur additional hedge selling as producers move Corn to local elevators. U.S. export sales appear solid, with Corn export sales expected to come in between 1 and 1.4 million metric tons last week – the totals will be reported in this morning’s USDA weekly export sales report. Large speculators continue to hold a large net-long position in Corn, with the most recent Commitment of Traders report showing large non-commercial traders net-long 193,687 contracts as of September 25th. If next week’s USDA crop production report holds a bearish surprise for traders, this large long position may be the catalyst for a sharp sell-off should the funds start to liquidate their Corn holdings.

Looking at the daily chart for December Corn, we notice prices below the major moving averages, despite a moderate rally in overnight trading. The 14-day RSI remains weak, with a current reading of 38.35. December Corn is holding just above an area that appears to offer decent support between the $3.30 and $3.40. Should support hold, a test of the 20-day moving average near the $3.60 area is a definite possibility. At the end of the overnight session, December Corn is trading at $3.48 ¾, up 4 ¼ cents.

Mike Zarembski, Senior Commodity Analyst

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Re-energized!

Energy futures ended the session sharply higher – led by Gasoline and Heating Oil – as traders reacted to yesterday’s EIA energy stocks report. Both Gasoline and Distillate stocks declined last week, contrary to expectations of storage builds in both categories. This set the stage for sharply higher prices for energy products, as U.S. inventories remain tight going into the winter. Energy traders are also watching the weather, as a large thunderstorm system moving towards the Bahamas has the potential to become a tropical storm by early next week, and some forecasters expect the system to eventually move into the U.S. Gulf Coast area. Today’s rally in Crude Oil kept prices above the 20-day moving average by the close, which may spark further momentum buying. Support for November Crude Oil is seen at $78.44, with resistance found at $82.02. Support for November Gasoline is seen at 1.9450, with resistance seen at $2.0837. Support for November Heating Oil is seen at $2.1452, with resistance seen at $2.2502. November Crude Oil closed at $81.50, up $1.56, November Gasoline closed at $2.0522, $0.0563, and November Heating Oil closed at $2.2313, up $0.0526.

Gold bulls started flexing their muscles this morning, as an attempt by bears to move the market below $730 was met by aggressive commodity fund buying. In addition, a weaker U.S. Dollar and a sharp recovery in the energy sector were deemed supportive to the Gold market. This morning’s weaker-than-expected U.S. factory orders report for August gave further credence to the belief that the Federal Reserve will lower interest rates once again before the end of the year. Support for December Gold is seen at $725.00, with resistance found at $747.10. December Gold closed at $743.80, up $8.10.

Mike Zarembski, Senior Commodity Analyst

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October 5, 2007

All’s Quiet Before the Payrolls Report

S&P 500 futures: There is a slight bid on e-mini S&P 500 futures this morning, as traders gear up for a rebound in non-farm payrolls in September. Expectations are for payrolls to have increased by 100,000 jobs in September, a sharp rebound from the loss of 4,000 jobs in August. However, many believe that an increase in government jobs will account for the bulk of any rise, as private sector job growth lags behind. In early trade, December e-mini S&P 500 futures are trading at 1556.25, up 4.00.

Dollar Index: December Dollar index futures are trading moderately lower, as traders look for the unemployment rate to rise by 0.1% to 4.7% in today’s jobs report. Traders expect the manufacturing, construction, and financial services sectors to be a drag on employment, keeping alive the possibility of further interest rates cuts in the remaining weeks of 2007. In early trade, December Dollar Index futures are trading at 78.280, down 0.100.

Treasury futures: After closing near the highs of the session yesterday, Treasury futures are moderately lower as traders await the non-farm payrolls report. Average hourly earnings are expected to increase by a moderate 0.3% – the consensus figure for almost every month. If the report shows a bigger increase in wages, Treasuries may be on the defensive as wage inflation creeps back into the spotlight. In early trade, December Ten-year Note futures are trading at 109-180, down 0-02.

Mike Zarembski, Senior Commodity Analyst

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Summary and Reaction to this Morning’s NFP Report

As expected, September non-farm payrolls rebounded, slightly beating expectations with a gain of 110,000 jobs for the month. The unemployment rate jumped by 0.1% to 4.7% and average hourly earnings rose by $0.07, or 0.4%, to $17.57 per hour. In addition, the August payrolls figure was revised upward to 89,000 jobs created, well above the 4,000 lost originally reported. Manufacturing jobs declined yet again – this time by 18,000 jobs – while the construction industry also lost 14,000 jobs in September. The service sector showed the biggest jump in hiring, with 143,000 jobs added.

Market reactions after the report include a sharp drop in Bond prices, with December 30-year Bonds down 0-25, at 111-10. Stock indexes reacted favorably, with the December e-mini S&P 500 up 10.75 to stand at 1563.00. The U.S. Dollar was sharply higher against both the Euro and Yen, and Gold prices fell sharply.

Mike Zarembski, Senior Commodity Analyst

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Gas Glut

Natural Gas futures ended the week on a down note as traders returned their focus to near-record Gas storage levels as the winter heating season approaches. Gas traders bid up prices earlier in the week as two tropical disturbances had the potential to reach the U.S. Gulf Coast. That threat has dissipated, turning Gas bulls into sellers as the week comes to an end. Total Gas in storage is nearing record highs for this time of year, with 3.253 trillion cubic feet available. A late session sell-off kept the November contract from holding above the 20-day moving average of $7.077, which is a negative to technical traders. $7.000 is support for November Natural Gas, with resistance found at the recent highs of $7.505. November Natural Gas closed at 7.070, down 0.207.

Gold futures rebounded sharply this afternoon, after an initial sell-off following the U.S. non-farm payrolls report was met with fresh buying. The comeback of the Euro against the U.S. Dollar was the catalyst for Gold’s recovery, with speculators taking advantage of the early sell-off to add to existing long positions. A larger-than-expected rise in average hourly earnings last month sparked some fears of wage inflation, which may help sway the Fed from lowering interest rates at its next meeting at the end of October. The next resistance point for December Gold is seen at $752.80, with support found at the 20-day moving average of $733.30. December Gold closed at $747.20, up $3.40.

Mike Zarembski, Senior Commodity Analyst

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October 8, 2007

Copper Tarnishes Bull Run

Copper: After rising 2.4% in London trading last week, Copper futures are giving back those gains in early trade, with traders fearing that Chinese demand will dry up in light of high prices. However, Copper could receive a boost later in the week if a strike by workers at Southern Copper Corp. in Peru continues into its second week. In early trade, December Copper is trading at 361.55, down 10.90.

Wheat: Chicago Wheat futures continue their decline from all-time high prices, with traders looking for sharply increased plantings this fall as producers take advantage of “attractive” new-crop Wheat prices. Wheat futures in Paris were down as much as 4% in late morning trade, adding to the weakness in the Chicago market. At the end of the overnight session, December Wheat was trading at $8.76 ¼, down 13 ¾ cents.

Dollar Index: The greenback is higher versus the Euro and Yen in early morning dealings, as traders expect European finance ministers to discuss ways to halt the Euro’s steep climb against the U.S. Dollar during the ECB meeting in Luxembourg today. In early trade, December Dollar Index futures are trading at 78.490, up 0.255.

Mike Zarembski, Senior Commodity Analyst

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Bears Eating Beef

It was a bad week to be “bullish” on Live Cattle futures, as the most active December contract ended the week at 3-month lows. The prospect of weaker beef demand is mostly to blame for the sell-off, with South Korea placing a temporary block on U.S. imports due to the discovery of spinal material in a shipment. In addition, the recent recall of ground beef due to e-coli contamination is hardly encouraging consumers to eat more beef products. Ample supplies of pork and poultry are also weighing on Cattle prices, with consumers turning to cheaper competitors at the dinner table. Now that Corn prices have started to come down from lofty levels, producers may be encouraged to keep young Cattle on feedlots longer, which would result in heavier weights once they come to market.

Looking at the daily chart for December Cattle, we notice Friday’s sharp sell-off sent prices below the 100-day moving average to end the week. However, the 14-day RSI has reached moderately oversold levels, with a reading of 23.22. Friday’s release of the weekly Commitment of Traders report shows large speculators have started to liquidate their long position in Cattle, with the net-long position by large non-commercial traders falling by 3,336 contracts as of October 2nd. However, the net-long position is likely even smaller, given the sharp sell-off we saw last week. 95.25 is seen as the next support point for December Cattle, with resistance found at the 100-day moving average at 97.82. December Live Cattle closed Friday at 96.12, down 1.72.

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Bulls Lack Energy as Crude Rally Stalls

Energy futures were not immune from a commodity wide sell-off this afternoon, as a rebound in the U.S. Dollar and diminishing storm threats in the Gulf combined to pressure the Oil complex. November Crude Oil fell below $79 at its worst levels of the session, and November Gasoline moved below psychological support at the $2 level. The rebound in the greenback over the past several sessions has triggered a sell-off in the commodity sector in general, with the CRB index down over 4 points in late morning trade. However, traders report lighter than average trade, with U.S. banks and government offices closed for the Columbus Day holiday. Technical traders have noted a potential head and shoulders top forming on the November Crude chart, with “neckline” support seen at $78.44. Should the “neckline” hold, the next resistance point is found at the recent highs of $81.74. Meanwhile, traders await the next EIA energy stocks report, due out Thursday at 9:30 AM Chicago time. November Crude Oil closed at $79.02, down $2.20.

Wheat futures took a tumble this morning, with the Soft Red Winter Wheat contracts traded in Chicago falling by the 30-cent limit as traders reacted to weekend rainfall in the parched Wheat growing areas of Australia. In addition, traders are looking towards next year’s crop, with expectations that producers will plant heavily this fall to take advantage of the favorable price being quoted for new-crop Wheat futures. Bullish Wheat traders will note that volume was light due to the Columbus Day holiday, which may have exaggerated the sell-off in many of the commody markets this morning, including Wheat. The December contract closed below the 20-day moving average for the first time since July, which may signal further selling by momentum traders. The next support point for December Wheat is seen at the September 14th lows at $8.28, with resistance found at $8.88. December Wheat closed at $8.60, down 30 cents.

Mike Zarembski, Senior Commodity Analyst

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October 9, 2007

Can a Currency Be Too Strong?

Euro Currency: December Euro Currency futures fell to 3-week lows in early trade, as European finance ministers attempt to talk down the Euro out of concerns that the currency has gotten too strong against the Dollar and the Japanese Yen. This has caused speculators long the Euro to start booking some profits. In early trade, December Euro Currency futures are trading at 1.4052, down 0.0106.

Cocoa: New York Cocoa prices are supportive this morning, defying bearish fundamentals of a rise in Ghana’s Cocoa production forecast and a sharply higher U.S. Dollar against the British Pound. In addition, the Cocoa harvest in the Ivory Coast has begun, which may spur some origin hedge selling on any rally attempts. In early trade, December Cocoa was trading at $1835, up $19.

Crude Oil: The sell-off continues in the Crude Oil market, as traders expect a build of U.S. Oil inventories last week. According to a Bloomberg survey of analysts, U.S. Oil stock rose by 1.5 million barrels last week, as refinery usage declined due to seasonal maintenance. As a reminder, this week’s EIA energy stocks report will be out on Thursday at 9:30 AM – instead of Wednesday – due to the Columbus Day holiday on Monday. In early trade, November Crude Oil is trading at $78.57, down $0.59.

Mike Zarembski, Senior Commodity Analyst

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Sugar Prices Become Sticky

Sugar futures have been stuck in a narrow 1-cent per pound trading range since August, as a large world surplus has capped most rally attempts, and the increased use of Sugar for fuel in light of rising Oil prices have drawn out buyers below the 10 cent area. India is holding onto a large Sugar surplus, with the International Sugar Organization estimating almost 11.5 million metric tons available for export. This news alone is keeping buyers at bay and encouraging commercial selling on any rally attempts to the 10.25 to 10.30 area. However, lower world prices for raw Sugar are encouraging producers to switch more cane production towards fuel usage, with Brazil expected to dedicate a bit more than half of its cane output to the production of Ethanol. With the fundamentals at an apparent stalemate, the focus shifts to speculators’ positions in the market. The most recent Commitment of Traders report shows both large and small non-commercial traders are net-long a combined 73,386 Sugar contracts as of October 2nd. This sets up a battle between speculators and hedgers to see who will blink first and allow prices to move out of the recent multi-month range.

Turning to the daily chart for March Sugar, we notice how tightly the three major moving averages have become as market volatility has declined sharply. The 14-day RSI is firmly in neutral territory with a current reading of 41.35. With speculators net-long Sugar futures, an attempt to move prices below major support at the bottom of the trading range around the 9.35 area may spark a rash of sell-stops as longs throw in the towel. An attempt to rally prices above the 10.36 resistance area should be met with stiff hedge selling, but if producers decide to hold back in hopes of higher prices, a rally above 10.36 could encourage large specs to add onto existing long positions, meaning a test of the 11-cent area would not be out of the question. In early trade, March Sugar is trading at 9.80, up 0.05.

Mike Zarembski, Senior Commodity Analyst

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Soybeans Rally on “Turnaround Tuesday”

It appears that bulls took the Columbus Day holiday off, as pent-up buying emerged throughout a good portion of the commodity markets this morning – especially Soybeans. Traders noted fresh speculative buying once yesterday’s highs of $8.39 ¼ were taken out during the opening minutes of the day session. The weekly USDA export inspections report was mildly supportive to Soybeans, with 17.998 million bushels inspected for the week ending October 4th – up from the 13.617 million bushels reported the previous week and well in line with pre-report estimates. The recovery in Wheat futures from sharply lower levels overnight was also deemed a positive factor by Bean traders. Hot and dry weather in the Soybean-growing regions of Brazil is a deterrent to early planting by producers, as adequate soil moisture is needed to get the crop off to a good start. Support for November Soybeans is seen at $9.19, with resistance found at the 20-day moving average, currently at $9.65 ½. November Soybeans closed at $9.50 ¼, up 24 ¾.

Gold futures rebounded after a lower start to the session, as the U.S. Dollar curtailed some of its gains against the Euro, and Oil futures rallied back above $80 per barrel to spark fresh buying by investors looking for an inflation hedge. Metal traders will also be awaiting the details from the minutes of the September 18th FOMC meeting for clues on whether Fed governors are poised to make further interest rates cuts this year. The September meeting saw the Fed cut the Discount and Fed Funds rates by 50 basis points each on concerns of a slowdown in the U.S. economy due to the recent short-term credit crunch. If it appears that the Fed is wont to make further rate cuts, this could be construed as “inflationary” and act to support Gold prices. Support for December Gold is currently seen at the recent lows of $726.30, with resistance found at $750.70. December Gold closed at $743.10, up $4.40.

Mike Zarembski, Senior Commodity Analyst

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October 10, 2007

What Credit Crunch?

Copper: Copper futures are bucking negative news this morning to move higher in early trade. Workers for Southern Copper Corp. ended their weeklong strike after agreeing to let the government set wages. In addition, LME Copper stocks rose by 1,775 metric tons this morning. However, fund buyers took advantage of an earlier price dip to purchase Copper. 3-month Lead futures made a new all-time high of $3,860 per ton this morning. In early trade, December Copper is trading at 366.75, up 4.35.

Two-year Notes: Yields on Two-year Notes continue to rise, as the risk premium for buying Treasuries wanes. Also affecting yields was the reaction to the release of the Fed minutes from its September 18th meeting, which gave no indication that interests rates will be cut again after the 50 basis point reductions last month. In early trade, December Two-year Note futures were trading at 103-0600, down 0-0100.

Japanese Yen: December Yen futures continue to hover near 8-week lows, as traders re-establish so-called “carry trades.” Risk appetites appear to have increased, as traders look for higher-yielding assets in which to invest their borrowed funds. However, Yen futures continue to hover just above the 100-day moving average at 0.8556, which should act as support. In early trade, December Japanese Yen futures were trading at 0.8584, down 0.0020.

Mike Zarembski, Senior Commodity Analyst

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Calm Before the Winter Storm?

Oil futures continue to cling to the $80 per barrel level, despite an expected increase in U.S. Crude inventories last week. Despite being several dollars off all-time highs, Crude prices are still up over 15% the past two months, as a sell-off in the U.S. Dollar has made commodities priced in Dollars more attractive to foreign buyers. In addition, there is still a “weather” premium built into Oil futures, as the peak hurricane season nears an end. So why do Oil prices continue to hover at such lofty levels? One reason is the fear that Heating Oil stocks will remain tight as we near the start of the winter heating season. Traders expect Distillate stocks – which include Heating Oil – to have fallen by 750,000 barrels last week, as refinery rates continue to remain below average. With Heating Oil stocks well below last year’s totals, the Energy Department announced that it expects home Heating Oil prices to rise by 16% this year. If true, it may be a long cold winter for energy bears!

Looking at the daily chart for November Heating Oil, we notice prices holding above both the 50- and 100-day moving averages. However, it appears that a trading range may be forming, with the 50-day moving average at 2.1300 acting as solid support and the 20-day moving average near the 2.2200 area providing resistance. The 14-day RSI backs up this assumption, with a neutral reading of 44.84. In early trade, November Heating Oil is trading at 2.1820, down 0.0020.

Mike Zarembski, Senior Commodity Analyst

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Bears Freshly Squeezed as O.J. Rallies to 4-Month Highs

Orange Juice futures surged this morning as speculative buying emerged ahead of Friday’s USDA crop production report. Traders expect a rebound in Florida Orange production for the 2007-08 crop year, with current estimates calling for production to total between 170 and 200 million 90-lb. boxes, well above the 129 million box harvest this past year. Traders report fairly heavy technical buying, with buy stops triggered above near-term resistance at 139.00 and 144.00 in the November futures. Prices surged as high as 147.00 before selling emerged to cap the day’s gains. Options volume was heavy as traders position themselves before the government’s first official estimate of the 2007-08 crop. 149.25 is seen as the next resistance level for November Juice, with support found at the 100-day moving average of 133.90. November FCOJ closed at 141.60, up 4.55.

Short-covering buying sparked a rally in Corn futures this afternoon, as traders square up positions ahead of Friday’s USDA Crop report. Traders are looking for an increase in U.S Corn production, with average estimates calling for a 13.5 billion bushel crop versus last month’s estimate of 13.308 billion bushels. Average yields are expected to have increased as well, with traders looking for a nearly 2 bushel per acre gain from last month’s 155.8 bushels per acre USDA estimate. Additional support for Corn today came from gains in pit mates Wheat and Soybeans. Despite today’s rally, December Corn remains well below the major moving averages, with resistance found at the 50-day moving average at $3.52. Support is seen at the recent lows of $3.35. December Corn closed at $3.47 ¼, up 4 ¾ cents.

Mike Zarembski, Senior Commodity Analyst

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October 11, 2007

No Lead Balloon Here!

Lead: 3-month Lead futures traded on the London Metal Exchange continue to hover near all-time highs this morning. Increasing Chinese demand and lower world output are among the catalysts for the sharp price rise. Disruptions to supplies out of Australia are expected to cut world Lead output by 4% this year. 3-month Lead is currently trading at $3865 per ton.

Crude Oil: Oil futures prices keep climbing, trading over $82 per barrel in early trade on concerns that energy product inventories will be tight this quarter. In this morning’s energy stocks report, U.S. Distillate stocks are expected to show a drop of 775,000 barrels last week, according to a Bloomberg News survey. Gasoline inventories should show a more modest decline of between 300,000 and 500,000 barrels. In early trade, November Crude Oil is trading at $82.05, up $0.73.

Gold: A weak U.S. Dollar is supporting Gold futures prices this morning, as traders continue to look at the yellow metal as a hedge against inflation. However, some analysts caution that Gold prices may be due for a correction, as speculative net-long positions in the U.S. approach record highs. In early trade, December Gold is trading at $752.20, up $6.00.

Mike Zarembski, Senior Commodity Analyst

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October 12, 2007

Grain Double Whammy

Wheat – Wheat led the charge in grains yesterday, closing limit-up in the front month December futures. World Wheat stocks remain very tight, and the Australian harvest – already reduced in size due to drought – is of very poor quality. Wheat stocks are expected to shrink to 300 million bushels, down over 60 million bushels from the September report. After selling off sharply since the beginning of the month, the December contract jumped 37.50 cents the last two days, which can at least partially be attributed to funds squaring up positions prior to this morning's USDA Supply and Demand and Export Sales reports. Funds were reportedly short roughly 14,000 contracts (futures and options) coming into trading yesterday. Yesterday's rally did little to improve the technical outlook for Wheat, which remains bearish overall, but is showing signs of a possible short-term reversal. Momentum did turn positive and comes into trading at +38. The RSI stands at a neutral 51 percent, which leaves the door open for a possible run-up before the market experiences overbought conditions in the short term. Solid support comes in at 865, with minor support in the 775 area, while resistance can be found in the 895-900 area, 911.25 and contract highs of 961.50.

Soybeans – Beans have been a solid performer this week, climbing 56 cents over the last three trading sessions. Today's USDA Supply and Demand report is expected to show production at 2.648 billion bushels, which is higher than prior estimates, but lower than last year's 3.188 billion bushel figure. Yield per acre is also expected to rise to 41.9 bushels per acre, which trails last year's yield of 42.7 per acre. Talk among traders suggests that the yield may actually drop to 41 bpa due to the flooding in the Midwest in August and a warm, dry September. Funds have a net-long position of roughly 114,000 contracts (futures and options), which could spark a fire sale if today's numbers are disappointing. The November Bean chart is a bit messy. After confirming a bear flag on Monday, which figured to send the market into a tailspin, Beans rallied sharply to negate the pattern. The price action Tuesday and Wednesday caused a bullish engulfing on the charts, but momentum and RSI are showing bearish divergence. This confusion on the chart is not unusual in the days leading up to a key report, but leaves many traders scratching their heads nonetheless. Support comes in at 958 and recent lows of 922, while resistance can be found 994 and contract highs of 1017.75.

Corn – Corn remains the neglected child of the grain sector, unable to get the attention of traders. The USDA report may need to show some major surprises to get Corn traders excited. With analysts hyping up Corn in the early part of the year, farmers diverted acres earmarked for other crops, creating a glut. Analysts forecast the total U.S. Corn crop at 13.459 billion bushels, compared to13.308 billion in last month's report and 10.535 billion last year. Other than the rally late last month, which gave Corn bulls false hope, Corn prices have hovered near the $3.50 mark since June. Ethanol production has not been the boon that many expected, but an increase in the figure from the USDA may finally call Corn bulls into action. The December Corn chart seems to be forming a bearish coiling consolidation pattern, which could lead to more downside. Momentum comes in slightly bearish at -3 and the RSI is a neutral 37 percent. Support comes in at 335 and 325, while resistance can be found at 360 and 370.

Rob Kurzatkowski, Commodity Analyst

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Currency Notes

The U.S. Dollar continues to be predominately weaker against most of the major currencies, with the exception of the Japanese Yen. Equity, energy and metals markets are surging higher, helping to sustain the fundamental bearish spot market trend for the buck. Meanwhile, higher export commodity market prices for Crude Oil, Gold and Silver are boosting currency values relative to the greenback for countries such as Canada, Australia and New Zealand. However, these commodity markets are beginning to reach overvalued technical levels, which may lead to a downward short-term correction and negatively impact currency prices.

Investment funds are seen moving back into carry trades, fueling fresh selling of the Yen against the majors. Borrowing Yen to fund higher-yielding investments may remain an attractive strategy for the time being, after the Bank of Japan decided to leave interest rates unchanged at 0.5% yesterday. The risk for the Yen in this situation is the rapid unwinding of these carry trades in massive quantities, which can cause abnormal price movement to the upside that the Central Banks do not favor in the least. This has led to concern among politicians and voting bank members in Japan over the decision not to move rates higher – a debate that is likely to continue in the public forum until the Central Bank meets again on October 31st.

Euro traders have seen prices rebound up to 1.4240 after a mid-week drift lower from 1.4000. The 10-day moving average is seen crossing back into bullish territory with a sustained a break above 1.4140, and looks to consolidate at current levels. Fundamental and technical pressure is mounting for another test of all-time highs, with resistance at 1.4300 a potential target.

Today’s U.S. Dollar data includes a September month-over-month retail sales figure expected to come in slightly higher at .3%, as well as September Producer Prices, excluding the auto industry. The PPI measures average changes in selling prices received by domestic producers of goods and services over time from the perspective of the seller. Finally, the University of Michigan 5-year Survey – a trader favorite – may provide some indication as to whether consumers feel like spending their money. Given the rising cost of consumer goods – including food – this promises to be an interesting release.

At the end of the Asian session, the EUR/USD trades 1.4180, Dollar/Yen 117.45, Pound Sterling 2.0265, and Dollar Canada .9785.

Currency Analyst Heather Mitchell

October 15, 2007

Sterling Silver

Silver – Silver futures are higher in early trading, sparked by weakness in the greenback. Precious metals have gotten a lift recently with petroleum prices skyrocketing and inflation fears mounting. Silver, as a dual-use metal, has also benefited from strengthening industrial metal prices. Friday's PPI number was mixed for precious metals traders – the overall figure was inflationary, but core PPI was tamer than forecast. Traders should have a better overview of inflation following Wednesday's CPI data. Crude Oil is trading at record levels once again this morning and if prices do not reverse course, the likelihood of higher inflation spilling over into the economy would likely increase. December Silver is trading above resistance of $14 this morning, which could lead to further technical buying. Momentum is beginning to show slight divergence from RSI, which could temper some enthusiasm for the metal, especially with resistance at 14.200 coming into the picture. Momentum remains strong overall, coming in at +1.210, but the RSI comes in overbought at 75.5 percent. A solid close above critical resistance at 14.200 could send prices soaring to levels not seen in quite some time. Support can be found at 13.600 and 13.250, and, in addition to 14.200, resistance comes in at contract highs of 14.565.

Crude Oil – November Crude Oil is trading just below $85 after setting a record close on Friday. While bullish inventory numbers aided prices last week, political tensions are sending prices jumping this morning. The Turkish parliament is voting this week on whether to attack Kurdish bases within Iraq to counter their domestic Kurdish insurgency. A larger-scale military conflict between Iraq and Turkey would interfere with petroleum production and exports, and would threaten to destabilize the region. Given the tendency for Crude traders to immediately pump in a “war premium” in response to any geopolitical tension, prices may skyrocket if and when the first shots are fired. November Crude is currently in uncharted territory, giving traders a difficult time locating resistance areas. Friday's close was a breakout above previous highs of 83.42, which would be seen as support with a few solid closes above this area. Momentum is beginning to lag a bit behind the RSI, which could lead to some consolidation. Support comes in at 82.34 and 79.00, while the market may find some resistance at the 85.00 and 87.00 areas.

Wheat – Wheat traders were disappointed by Friday's USDA data, but the underlying fundamentals remain strong. Traders may want to keep in mind is that this was not really a Wheat report – the main focus was on Corn and Soybeans. With Corn finally finding some solid footing, traders began liquidating the long Wheat / short Corn spread, which sent the market into a tailspin. Overall, fundamentals remain strong, with world carryout expected to be at its lowest levels since 1948, cuts to the U.S., European and Australian Wheat crops, and increased exports offsetting lower feed use. Technically, the picture for December Wheat is not as rosy. The market is very close to breaching the key 830 area, which could trigger a substantial sell-off. Momentum remained positive despite closing limit down to come in at +11.50, and the RSI is neutral at 38 percent. In addition to 830, support can be found at 815 and 760, while resistance comes in at 895 and 911.25.

Rob Kurzatkowski, Commodity Analyst

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Bubblin’ Crude

Crude Oil rose to a new all-time high today, topping the $86 mark for the first time ever. The Turkish government and the Iraqi Kurds have been butting heads of late, and the repercussions of this cross-border spat is being felt in the Crude market. With the Kurdish rebel bases located near major pipeline systems, fears of a supply disruption in Crude Oil are running high. Of course, the market is constantly on the lookout for supply threats around the globe, so it’s hard to tell if this latest dustup has already been priced into the Crude market as a risk premium during the recent climb. The Crude Oil inventory report comes out on October 17th.

Over in the beverage market, bulls are not drinking Coffee. Dropping below the 20-day moving average (which was support earlier last week), java is most certainly a bear drink today. Although Coffee did manage to stay above psychological support at 130, it could slip back to the 120 area should it fill the gap that was created last month before the 20-day mark. The only area where we could see some other support is around the 127 mark, right above the gap-up.

Mike Tosaw, Director of Education

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October 16, 2007

Golden Age

Gold – Gold continued to move higher, aided by a jolt in the energy sector. The spike in Crude Oil to record levels has benefited the precious metals sector, signaling inflationary times ahead. Traders – mainly outside of the U.S. – have been allocating funds to physical commodities due to the weakness in the Dollar, which has diminished returns on other investment products. With prices in other commodities such as grains looking a bit toppy, commodity bulls have allocated larger portions of their funds to the metals, especially Gold, which has seen a recent upswing in demand. December Gold broke through the key 61.8 percent Fibonacci retracement last month, signaling a possible test of 790.00. Gold technicals remain bullish overall, but the market is beginning to look overbought, as gauged by the RSI and slow stochastic indicators. Support can be found at 735.00 and Fib support at 717.20, while resistance comes in at 775.00 and contract highs of 791.00.

RBOB – Gasoline futures jumped to a new record high. Geopolitical tensions dominated headlines throughout the trading day, as Turkey maintained its stance that a military operation in northern Iraq’s Kurdish region is a possibility. This would likely interrupt both petroleum supply lines and U.S. military supply lines, drawing out the current conflict and adding additional war premium to petroleum prices. Prices have retraced a bit after making gains overnight on some profit-taking. Yesterday's close signals a breakout over previous highs, but the market may be tempered by an overbought reading on the RSI. The slow stochastics are closing in on overbought levels as well, which could signal a small turnaround or consolidation. Momentum remains very strong, coming in at +.1300. Support can be found at 2.10 and 2.00, while resistance would likely come in at 2.20 and 2.25.

Copper – Copper is trading slightly lower this morning due to lackluster starts in London and Shanghai. Copper has traded off the weakness in the Dollar and the prospect of higher U.S. inflation, with everything quiet on the labor front. Prices have been further aided by tight supplies of the base metal and soaring transportation costs. Non-commercial net longs have increased their position almost threefold over the past week, which marks the largest net long position in over eighteen months. After closing above the 3.70 resistance mark earlier this month, December Copper has broken down a bit, and a close below 3.58 could spark some long liquidation. The 9-day MA is in danger of crossing below the 18-day MA, which would be a bearish technical signal in the mid-term. Momentum remains strong at +.27 and the RSI is a neutral 49 percent. Support comes in at 3.50 and 3.42, while resistance can be found at 3.70 and 3.78.

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Crude Concerns

Crude Oil prices continued to rise today on mounting tension in the Middle East. The November contract managed to creep above the $88 mark for a brief spell before retracing back into the $87 range. With Crude continuing to make new highs, there is likely to be debate among traders as to how long the ride can possibly last.

Just as it was yesterday, much of today's movement was based on what is happening in Northern Iraq. The Kurds are located by the Ceyhan pipeline, which carries oil to a tanker-loading terminal in the Mediterranean. This pipeline has been struggling to carry its usual load ever since the U.S. invasion of Iraq in 2003. The current dispute between Turkey and the Iraqi Kurds may be more reason to believe that prices are going to continue to rise.


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October 17, 2007

Bernanke Rocks the Market

e-mini S&P – Comments by Ben Bernanke yesterday sucked the life out of equities in the early going and the market was unable to recover, with the S&P posting a second consecutive day of double-digit losses. The Fed Chairman warned investors that while the Central Bank’s rate cuts will help the economy, the Fed cannot “insulate investors from risk,” and noted that the slumping housing sector is likely to continue its drag on the economy. DataQuick Information Systems also released data showing that southern California home sales declined by nearly 30 percent in September, with the lowest number of units sold since the company began tracking housing data in 1988. The market will have more housing data to digest with today’s release of Housing Starts and Housing Permits at 7:30 AM CST. The figures are expected to come in at 1.285 and 1.3 million, respectively, both down from August. Also hitting the newswires, Citigroup, JPM and Bank of America announced that they have set up a rescue fund of sorts to bail out global credit markets at the behest of the Treasury Department. The fact that such a fund was set up probably adds more fear than comfort to the marketplace, at least among small investors. The spike in Crude Oil prices has also weighed on the market in the first two days of trading this week. Technically, the December e-mini continues to stay in an uptrend, but the close below the 18-day MA may signal that a near-term high is in place. The RSI and slow stochastics are both in neutral territory, which leaves room for more downside before the market ventures into oversold territory. Support comes in at 1530.00 and 1500.00, while resistance can be found at 1566.00 and all-time highs of 1586.75.

Wheat – Wheat finished lower overall, but did bounce back late in the day to avoid a technical breakdown. Lack of positive fundamental news seems to have taken the wind out of the Wheat market's sails, leading to this most recent wave of selling. Unwinding of long Wheat / short Corn spreads after Friday's supply and demand report and continued profit-taking helped push things to the downside, even as traders have largely shrugged off the news that heavy rains have set back early winter Wheat planting. December Wheat held above the critical 830 mark, which if violated would have confirmed a head and shoulder reversal pattern. Wheat found solid support around 815, which also happens to be in the neighborhood of the 50-day SMA, and the strong close formed a bullish hammer, which may give Wheat a slight bullish short-term technical bias. The momentum indicator showed almost no change from the previous trading session and registered a bearish -40.50. Both the RSI and slow stochastics are showing oversold levels, which could give the market a lift. Support comes in at 815 and the 38.2 Fibonacci retracement support of 765.25, while resistance can be found at recent highs of 890 and 911.25.

10-year Notes – The treasury markets have retreated since the surprise rate cut in August drove 10-year Note yields down to 21-month lows of 4.3 percent. Traders have been reluctant to jump into the treasuries despite credit fears and weakening economic indicators. This hesitance has been based on a number of wildcard factors, including inflation fears stoked by rising energy prices and the growing belief that the Fed may shift gears and raise rates. Last Friday's PPI data showed contained inflation, but traders are looking for follow-through in this morning's CPI release. The housing report may not make much of an impact on the market unless there is a huge surprise one way or the other. December Notes have weakened technically, with prices trading below the 50-day SMA for the over a week. A close below 108-00 may spark selling and trigger stops. Support can be found at 108-00 and 106-13, while resistance comes in at 109-06.5 and 109-30.

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Bears Get a Hint of Gold Fever

December Gold climbed as high as 769 today before retreating to the 759 level in the afternoon. Since breaking through resistance at the 720 level in early September, Gold has been on a major uptrend, soaring more than 5% in less than a month. This rapid pace has put Gold above both its 15-and 25-day moving averages.

On the economic front, core CPI came in right at expectations. With Gold usually viewed as a hedge against inflation, today's pullback may be the result of some profit-taking in long positions. Gold hasn’t seen prices like this since last May when it flirted with the 800 mark – the next level of major resistance which is still miles away at this point. For now, this is very much a momentum trader’s market.

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October 18, 2007

More Fed Watching

Dow Jones – Stocks mounted a comeback in late trading yesterday, as optimistic traders hoped that the Fed would once again slash rates at the end of the month. Housing starts were at the lowest levels in 14 years, and the CPI report showed that inflation is tame for the time being. Meanwhile, S&P also downgraded a host of sub-prime debt last year. The release of the Fed's Beige Book – which showed slower growth in the 3rd and 4th quarters – really sparked the equity markets late in the day. All of this unimpressive economic data leads many to believe that the Fed will take action, especially given Ben Bernanke's recent comments about the housing sector being a drag on the economy and the inability of the Fed to insulate investors from risk. The late rally stopped what could have been a technical breakdown on the December Mini-Dow chart yesterday, as the market was able to hold above support at 13830. Momentum is showing positive divergence from RSI, suggesting a possible recovery in the coming days. The RSI is showing oversold levels in early trading, which may be a prelude for a Friday bounce. Traders will keep an eye on the 9 and 18-day SMA, which are very close to crossing on the downside. Support comes in at 13830 and 13550, while resistance can be found at 14085 and 14237.

Bonds – The Bond market was strong yesterday and in overnight trading, as disappointing economic data keeps rolling in. Bonds have not been the defensive play recently because of a weak greenback and investors choosing to look elsewhere – mainly commodities – to address their inflation concerns. The weak Dollar has played a key role in all of this, with large treasury market players China and Japan seeking alternatives. The belief that a rate cut is coming and fresh sub-prime fears in the minds of fixed income traders have boosted December Bond prices by more than a point and a half over the last two days. December Bonds also have some positive technical factors going for them. The slow stochastic indicator showed an upward crossover, and the momentum indicator has outpaced the RSI. Also, the market looks as though it may be confirming a breakout from the wedge pattern it has been forming since the beginning of September, which could push prices above recent highs of 114-08. Support comes in at 111-05 and 110-00, while resistance comes in at 112-10 and 113-00.

Coffee – Coffee is trading lower overnight on weak technicals and ample rains in Brazil. Brazil is forecast to receive light to moderate rainfall, which will aid budding in the new crop. Forecasts for two cold fronts expected to hit the growing region within the next week and a half helped to slow the price decline yesterday. With neither front expected to be particularly severe, traders have opted to take profits and adopt the wait and see approach before reacting. Technically, Coffee remains weak and is currently trading below the 128.00 support area. Traders are paying attention to the key 125.00 support area which if violated could send prices below 120.00, possibly toward the mid-teens. Resistance can be found at 133.25 and 138.50. Momentum stands at a weak -1.80 and the RSI is a neutral 36 percent coming into trading. The RSI has dipped into oversold territory, suggesting that the decline may stall or even get a bounce at 125.00.

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Coffee Stays Below the Averages

Coffee cooled off today, with the December contract dropping 2.8% to finish at 125.90. The Coffee market has seen considerable volatility lately, with prices falling nearly 9% over the last four days – the high just a few days ago (10/14) was at 139.42.

Looking at the chart, Coffee is currently below both its 15- and 25-day moving averages, and has broken through the 128 support level established on September 30th. The next level of support below this is around 120. In order to get to that level, it must drop another 5 points, or 4%. Today the low was put in at 122.3, so it's not out of the question.

Mike Tosaw, Director of Education

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October 19, 2007

Crude Not the Only Oil Rocketing

Soybean Oil – December Bean Oil jumped to new contract highs yesterday on the strength of export sales figures. Exports jumped to 26,400 metric tonnes, surpassing analyst estimates ranging between 5,000-15,000 MT, as foreign buyers attempted to capitalize on the weak U.S. Dollar. Bean Oil has been rising, mainly on the strengthening Soybean prices. The skyrocketing Crude Oil market could support prices further, with Bean Oil being the preferred choice of many biodiesel plants due to its ease of use in starting the reaction process. The daily chart looks bullish, with the market breaking out to new highs. However, things are looking a bit overextended at the moment, which could trigger profit-taking. Both the RSI and slow stochastics are registering overbought readings, coming in at 74 and 76 percent, respectively. Momentum is trending higher, which suggests continued strength. Support comes in at 40.00 and 38.55, while resistance can be found in the 42.00 area.

Euro – The Euro jumped to all-time highs against the greenback, with currency traders expecting the Fed to continue with its expansionist policies. Several banks have posted disappointing earnings, leading many to believe that no financial institution is immune to recent subprime woes and the housing slump. With economic indicators weakening, some economists have been jumping the gun to declare a recession, even though the data does suggest snail-paced growth. Like most foreign currencies, the Euro is beginning to look a bit overbought. Also, other than the Aussie and Yen, there has been bearish divergence between momentum and RSI in the major currencies, which suggests traders may be taking profits in the coming days. Both the RSI and slow stochastics are coming in at overbought levels, and the stochastics are close to crossing to the downside, which would be bearish near-term. Support comes in at 1.4050 and 1.3900, while resistance will likely come in around 1.4350 and 1.4500.

Copper – Copper had a meltdown yesterday, shedding 6 cents. The weak U.S. housing market and technical selling were the main drivers in the market. Worker turmoil has subsided in recent weeks, which may result in higher supplies of the base metal. Adding to oversupply worries, U.S. jobless claims came in higher than expected, suggesting that a turnaround in construction spending may be coming later rather than sooner. Copper has bounced back a bit this morning on a weaker U.S. Dollar and traders closing positions before the weekend. The December Copper chart confirmed a double top reversal pattern, which may send prices into the mid-3.30's. The market is beginning to look a bit oversold on the recent wave of profit-taking, with the RSI coming in at 26 percent and the slow stochastics at 25.71, which could lead to some consolidation or even a bounce. Support comes in at 3.46 and 3.40, while resistance can be found at 3.66 and 3.74.

Rob Kurzatkowski, Commodity Analyst

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October 22, 2007

Stock Indexes Feel the Heat

S&P – The stock market commemorated the 20th anniversary of the Black Monday meltdown with a huge sell-off on Friday. The lingering credit crunch has hit the markets especially hard over the past week, stoking fears that the economy may contract even if the Fed continues cutting rates. Many traders had been tolerating the disappointing housing numbers, figuring that corporate bottom lines might at least benefit. But this view has largely changed in the wake of Bank of America's disappointing earnings release, which demonstrated yet again that subprime debt worries are very much in play. The subprime worries have made their way around the globe, with international investors scooping up distressed debt and the European and Asian markets bracing for the oncoming pinch. The bludgeoning of the market continues this morning, with the December e-mini S&P dropping over 12 points after shedding over 40 on Friday. American Express and Countrywide – both with heavy debt exposure – are set to release earnings today, and traders anticipating bad numbers have been dumping shares of both stocks in the early going. The December e-mini dropped below the 50-day moving average on Friday as the market closed on support in the 1505 area. Currently, the market is well through this support area, as well as the key 1500 psychological mark. The e-mini is also very oversold, registering a 24 percent reading as of Friday's close and a reading in the low teens this morning, which could bring some bargain hunters back into the market. Likewise, slow stochastics are very oversold, but have not given an indication when a crossover will take place. Support now comes in at 1485 and 1465, while resistance can be found at 1520 and 1530.

Wheat – Wheat went limit-up on Friday on news that Russia plans to curb exports, a move that would test the already tight stocks in the global Wheat markets. Wheat is off this morning, as Russia enacted a 10 percent tax on exports instead of the 30 percent tax many were expecting. Solid rains across much of the winter Wheat-growing region have only been a minor obstacle to farmers still planting and should aid growth. Traders may continue the recent liquidation phase in the market due to the weak technicals and lack of positive fundamental data. The market confirmed a head and shoulders top last week that measures a move into the low 700's. Support has been found in the 50-day moving average, with the market unable to even temporarily break through this area. Momentum is beginning to show fairly significant bearish divergence from the RSI and price, suggesting a near-term bearish bias. Support can be found at 815.50 and 765, while resistance comes in at 890 and 910.

Copper – The fire sale in the equity markets has Copper traders liquidating positions. The weaker-than-expected growth in the U.S. housing sector continues to plague the market, but a broader global slowdown could send the market spiraling downward. If economic conditions cause a recession in the U.S. and a slowdown in Europe and Asia, Chinese exports would likely slow significantly, which could dramatically decrease demand for Copper going forward and decrease the chances of fresh stockpiling by China. December Copper confirmed a double top, measuring a move to 338.20 last week. It looks like the 50-day moving average has provided some support to the market – at least initially – in overnight trading. Momentum is showing bearish divergence from the RSI, suggesting possible further downside. Support comes in at 342 and 332, while resistance can be found at 358.10 and 366.

Rob Kurzatkowski, Commodity Analyst

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Gold Takes a Breather

Gold finished today in the red, with the December Comex contract shedding more than 10 points after setting highs last Friday at 774. Despite today's setback, Gold is on a serious uptrend over the last few weeks. Both the 15- and 25-day moving averages are still below today’s close, though the 15-day average was touched at 752 this afternoon.

Several fundamental factors also may have had a hand in today’s sell-off. Long Crude Oil traders are in profit-taking mode, pushing prices down to 87.56. Though not low by any means, this is nevertheless a bit of a retracement from the lofty 90 level. The Dollar Index also had a positive day, with the December contract increasing to 78. With more bullish interest in the Dollar and Crude pulling back a bit, Gold traders may have found a reason to “flee from safety” today.

Mike Tosaw, Director of Education

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October 23, 2007

Techs save the day

E-mini NASDAQ – Stocks rebounded mid-session, as investors flocked to the tech sector as a safe haven of perceived strong earnings going forward, especially with the Christmas shopping season nigh. After the close, tech heavyweights Apple and Texas Instruments both posted earnings that topped street estimates, with Apple blowing away estimates of $0.86 a share with a $1.01 post. Banking shares managed to rebound somewhat on news that Bear Stearns has forged a strategic alliance with a Chinese bank to get a stronger foothold in the lucrative Chinese investment banking sector. The FDIC warned that the subprime squeeze will get worse before it gets better, with the number of resetting ARM mortgages expected to peak in the second quarter of next year. There are now rumblings that the credit card and auto loan industries will be the next to feel the pinch, as home mortgages are generally a priority over other debt for consumers. Unlike the broader market, the NASDAQ mainly looks technically sound, not backing down from recent highs and trading above the major moving averages this morning. Momentum remains strong at a healthy +92.00 and the RSI is neutral at 44 percent. Support comes in at 2125.00 and 2075.00, while resistance can be found at 2175.00 and 2200.00

Crude Oil – Crude Oil dropped for the second consecutive session as traders took profits. Turkey has reiterated plans to invade the Iraqi Kurdish region, with the Turkish prime minister recently commenting that no foreign power (read: the U.S.) will dictate what the nation does in its own security interests. What remains to be seen is the scope of the conflict. In addition to Turkey and Iraq, heavily Kurdish regions exist in Iran, Syria, and Armenia, which could also be drawn into a conflict. On the fundamental front, Crude Oil inventory data has been bearish recently, and many traders are looking for another build in Wednesday EIA report. A slowing economy could weaken demand, and traders still have Chinese industrial production on tap later this week. December Crude Oil is showing overbought readings on both the RSI and slow stochastic indicators, which suggests that the market will either labor going higher or may break down a bit. Momentum is very strong at a robust +5.76 coming into trading and the indicator is showing very slight bullish divergence from RSI. Support can be found at 84.75 and 82.45, while contract highs at 88.49 may act as resistance.

Bonds – The treasury markets took a pause yesterday to cool off after December Bonds gained almost three points over the prior three trading sessions. There was some profit-taking yesterday, and many traders were reluctant to add to their positions ahead of the FOMC meeting next week. Bond traders may also be reluctant after several failed rallies over the past year. The FDIC warning over subprime debt helped he market avert a broader sell-off, but Bonds have not felt their classic “flight to quality” effect recently due to the weaker Dollar. Bond technicals could also be blamed for the pause yesterday, as the market is extremely overbought on the RSI and slow stochastics, with the stochastics close to crossing over to the downside. Yesterday's indecision led to a spinning top pattern, which suggests some negative short-term bias. Support comes in at 112-10 and 111-13, while resistance can be found at 113-16 and 114-08.

Commodity Analyst, Rob Kurzatkowski

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Buy the Hump, Sell the Dump and Don’t Diddle in the Middle

Corn has been trading in a range of about 330-390 over the past three months, but today saw a turn to the downside. The high on the day for the December contract came in shortly after the open at 368, before the bears came charging in to force a close around 361. Corn did manage to close above its 25-day moving average at 360.28, even though it snuck below for a brief period at a low of 359. It is still several points above the 15-day moving average.

From a fundamental standpoint, Corn may have been following the lead of one of its grain complex brethren today, as news of Russian export tariff increases drove down the price of Wheat.

From a longer-term perspective, prices are still well below the highs of 431 seen last June. With shorter-term support and resistance levels at 330 and 390, the market is squarely on the fence. Should Corn break above the 389.5 mark set on September 27th, a bull market may be in the works. However, it is firmly in the “don’t diddle in the middle” stage right now.

Mike Tosaw, Director of Education

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October 24, 2007

The Loonie Takes Flight

Canadian Dollar: December Canadian Dollar futures rose to new intraday highs as traders began accumulating currencies in commodity-exporting nations. Canadian retail sales came in above analyst expectations, which helped stabilize prices above the 1.0325 mark. The strong retail number was led by auto sales, suggesting that confidence in the economy is very strong, as consumers tend not to purchase big ticket items in times of uncertainty. The Loonie did begin to drift away slowly from intraday highs as traders took some profits off the table, fearing being stuck in long positions at all-time highs. During the late-2005 to mid-2006 commodity bull run, traders began to accumulate commodity related currencies such as the Canadian and Australian Dollars to synthetically trade the commodity markets as a whole, while avoiding the violent price swings in commodities like Crude Oil and Copper. Technically, the daily December Canadian chart appears to indicate some consolidation or possibly a small correction ahead. The RSI recently peaked on October 15th, but the market continued to trek higher, which is typically seen as bearish. Since the beginning of the month, momentum has slowly drifted lower, even as prices have risen to record highs. Support comes in at 1.0175 and 1.0100, while resistance can be found at 1.0400 and 1.0435.

RBOB: While the Crude Oil market has been grabbing headlines, Gasoline prices have quietly risen to all-time highs. Whether RBOB prices are able to sustain these high levels remains to be seen. Refinery capacity has been underutilized compared to prior years, Heating Oil demand figures to get a seasonal rise and any type of military action by Turkey in Iraq will probably disrupt supply. On the other hand, Gasoline demand tends to diminish once the weather begins to cool and the seasonal trend is for lower inventories. Traders will probably be keeping an eye on the finished products numbers more so than Crude inventories. A sharp rise in distillate inventories would likely cause a sell-off, provided nothing changes on the geopolitical front. Mastercard reported that Gasoline demand is down 1.0 percent for the week, which can partially be attributed to the rising cost of fuel. December RBOB seems to have found some support in the 2.11-2.12 area. Momentum is beginning to show bullish divergence from RSI and price trend, which suggests short-term upside bias. The last three days of selling were partially driven by the overbought conditions on the RSI and slow stochastics. In addition to 2.10, support comes in at 2.07 and the 38.2 percent retracement of 2.04, while resistance can be found at 2.14 and contract highs of 2.19.

Wheat: Wheat closed limit-down in the December contract, as traders adjust for what is typically a weak export season. The thinking that Russia may hike export taxes more than previously stated spilled over to Monday's session, but traders lost faith in the news yesterday, which pulled the rug out from underneath the market. The lack of news has caused traders to get antsy and liquidate positions. Wheat also suffered a small technical setback, with the market unable to breach the 18-day moving average to the upside. The market is lower overnight, and December Wheat is trading below the 50-day moving average as of the 6:00 AM CST eCBOT halt. This would probably be viewed as a weak technical signal longer-term, as the contract has not traded below the average since mid-May. After confirming a head and shoulders top, the market did bounce a bit, but a close below recent lows could trigger an extended sell-off. Momentum has been weak and has outpaced both price and RSI to the downside. Support comes in at 815.50 and 760, while resistance can be found at 878 and 910.

Rob Kurzatkowski, Commodity Analyst

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October 25, 2007

Treasury Safety Net

Bonds: Bonds rallied toward early-September highs on Merrill Lynch’s subprime write-downs and a home sales report that showed the housing market reeling. The Merrill news sent stocks lower on the open after the company reported a staggering write-down of $7.9 billion, with just under $21 billion of mortgage-based debt outstanding. Existing home sales dropped an eye-popping 8 percent, almost double consensus estimates. Certain key higher-priced real estate areas – namely the Northeast and Southern California – were hit especially hard due to the inability of purchasers to get approval for jumbo loans. Fed Governor Kroszner, speaking before the House Financial Services Committee, stated that mortgage reform should not hurt the mortgage securitization sector. This is setting up an investor versus homeowner showdown in which neither side, or the overall economy, will benefit. Laws enacted to protect consumers would, in all likelihood, lead to a devaluation in mortgage-backed debt resulting in further write-offs of bad debts and, ultimately, more difficulty for homeowners seeking financing. On the other hand, leaving borrowers without a safety net could cause more damage over the long haul, given the fact that the number of loans resetting will not peak until the second quarter of next year, at which time a record number of foreclosures is possible. Government debt could act as a safe haven for investors, provided inflation remains low. The market came close to its September 10th highs, but traders were reluctant to push prices higher ahead of the FOMC policy meeting next week. Fed Fund futures have priced in a 100 percent chance of a rate cut, leaning toward a quarter point. Technically, December Bonds look bullish on the daily chart, but the market is very overbought at the moment. The overbought conditions and Fed uncertainty may be setting the stage for some consolidation or possibly a small retreat. Last week’s breakout from a descending triangle is measuring a move to 116-00. Momentum remains strong, coming in at +3-06. Support can now be found at 113-00 and 112-10, while resistance comes in at 114-08.

Crude Oil: Petroleum traders got a shot in the arm today from the weekly inventory numbers. Crude Oil imports slowed by over a million barrels a day over the last week, and ending stocks were down over 5 million barrels versus estimates of a million barrel rise. Distillates also surprised, as Gasoline inventories fell by almost 2 million barrels versus estimates of a 1 million barrel rise, and Heating Oil and Diesel showed a draw of 1.85 million barrels. Turkey was said to have hit Kurdish targets along the Iraqi border, pushing the market higher prior to the EIA and DOE releases. Fundamentally, Crude is trading well above where supply and demand would dictate, and the recent Turkish crisis has combined with commodity and hedge funds putting fresh money into the market to push prices toward the $90 mark. For now, any new developments – positive or negative – in regard to the Iranian nuclear program and/or Turkey-Kurd crisis could affect prices violently. December Crude made new intraday highs overnight, reaching 88.99. Momentum showed some bullish divergence from the RSI and price over the past three days, suggesting upside technical bias. December Crude is at overbought levels, which could hamper rallies. Support comes in at 84.85 and 82.50, while resistance may be found at 90.00.

Copper: Copper suffered another day of losses yesterday on the poor global economic outlook. The disappointing housing data kept prices from rallying with the rest of the precious metals market. Copper has followed Crude Oil and Gold higher this morning, as the U.S. Dollar continues to flounder and equities recover. China did increase its own output of the base metal by 24 percent on the year and all is quiet on the labor front, which could hold back price advances. After confirming a double top, the market has broken down, but has yet to reach the measured move of 20 cents from the breakout. Momentum continues to lag behind both price and RSI, suggesting that more downside may lie ahead. Support comes in at 341.00 and 339.00, while resistance can be found at 357.50 and 361.50.

Rob Kurzatkowski, Commodity Analyst

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October 26, 2007

Oil's Perfect Storm

Crude Oil: Crude Oil continues to climb this morning and is currently trading above the $90 mark. In recent days, the market has had a number of factors going for it – a weak Dollar, falling inventories, traders accumulating commodities, geopolitical conflict and a cryptic oil cartel. The greenback continues to slide ahead of the FOMC meeting next week, with traders now thinking that a half-point rate cut may be in order. The soft Dollar has caused traders to load up on commodities as an inflation hedge. Crude was drifting lower prior to the EIA's inventory report, but the lower supplies gave Oil bulls the jolt they needed. OPEC has pledged to increase exports by 500,000 barrels, but the cartel has not indicated that it would further increase output, saying the market was “well supplied.” There are also indications from tanker tracking companies that the 500,000 increase is going to be more in the 50,000 range. In addition to the ongoing conflict over the Iranian nuclear program and the Turkey-Kurd situation, there were reports that Israeli warplanes were shot at, but not hit, over Lebanon. All of these factors are “what if” forces driving the market higher, but not actual economics like the supply report. Hedge and commodity funds seem to be pushing prices much higher than supply and demand would dictate, so a withdrawal of money from the market by these funds could trigger a sell-off at any point. December Crude continues to look bullish on the daily chart, but the market is very overbought. Momentum continues to outpace RSI to the upside, which is bullish over the near-term. Support comes in at 88.50 and 84.75, while resistance may be seen at 92.00 and 95.00.

S&P: Stocks finished nearly unchanged in a wild day of trading yesterday. Prior to the open, durable goods orders and weekly jobless claims both came in worse than expected and the market immediately sold off. New home sales were better than expected, but the prior two months were revised down by 60,000 and 69,000, respectively, negating any positive that could be drawn from the report. The market then began to brush aside the economic data and focus on corporate earnings, which have been solid. As we approach Wednesday's FOMC rate decision, the market figures to trade in a choppy, erratic manner reminiscent of yesterday's action. The only report released today is the Michigan consumer sentiment figure at 8:45 AM CST, which is expected to come in at 82.3, up slightly from last month's 82.0. Technically, the ESZ07 is trading in a sideways consolidation pattern between 1495 and 1530, without a clear direction in the near-term. The market is still well above the weekly uptrend line, and it would take a sell-off into the low 1400's for the market to break down longer-term. Momentum is showing bearish divergence from the RSI, which points to a negative bias in the near future. Critical support and resistance are 1495 and 1550, with a close beyond either level likely to determine market direction over the medium-term. In addition to these key levels, minor support and resistance come in at 1508 and 1542, respectively.

Gold: Precious metals continue to climb on the tumbling greenback and skyrocketing Oil prices. Gold has benefited from climbing commodity prices and inflation-averse investors. Lower rates likely mean more USD downside and possibly more upside for the precious metals market. December Gold is trading above recent highs of 776.90, which would be considered a technical breakout if the market is able to hold these levels. Momentum is beginning to show some bearish divergence from the RSI. Given the sharp climb in prices in the early going, a close below 776.90 would probably be considered bearish by traders and could spark some profit-taking by Gold traders who have been faked out by the market before. Gold is overbought on both the RSI and slow stochastics, suggesting possible profit-taking in the near-term. Support comes in at 765.00 and 750.00, while resistance can be found at 783.00 and 800.00.

Rob Kurzatkowski, Commodity Analyst

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October 29, 2007

Supply Concerns Keep Crude on the Move

Crude Oil – Crude Oil continues to climb this morning on news that Mexican production in the Gulf of Mexico is expected to drop by 600,000 barrels a day due to a storm. Friday, gunmen kidnapped oil workers in oil-rich Nigeria – the second attack in less than a week. Traders are genuinely concerned about supply for the first time in a long time due to the sharp drop in weekly Crude Oil inventories and a suggestion that OPEC isn't making good on its pledge to increase output by 500,000 barrels a day beginning in November. Geopolitical tensions remain unchanged, with Turkey continuing to battle Kurdish rebels and Iran thumbing their nose at the rest of the world with regards to the country's controversial nuclear program. Crude Oil continues to follow through on the bullish flag pattern confirmed on Thursday. The market is giving overbought readings on the RSI and stochastic indicators, but this has done little to slow the market given all of the outside fundamental factors. Momentum is climbing and showing bullish divergence from RSI, suggesting this rally may not be short-lived. Support comes in at 88.50 and 85.00, while resistance may be found at 95.00 and 97.50.

S&P – Index futures are higher again this morning on expectations that corporate earnings will remain strong. The focus has been the booming tech sector and petroleum companies, who figure to benefit from rising Crude Oil prices. Traders are looking to the Fed to slash interest rates on Wednesday, with the focus on how much – not if – the central bank will lower rates. The market shrugged off very disappointing economic data last week with the thinking that earnings will remain strong through early next year, at which time the interest rate cuts should make their way through the economy. The December e-mini S&P is trading just below the key psychological 1550.00 mark, and a solid close above the level could bring more buyers into the market. A close above1550.00 would also push the market above all major moving averages for the first time in over two weeks. Momentum is showing bearish divergence from RSI, which suggests that the recent rally may begin to fade. Support comes in at 1525.00 and 1500.00, while resistance can be found at 1550.00 and 1573.50.

Bonds – Bond futures are slightly lower in quiet trading this morning, as traders await Wednesday's Fed decision. Bond traders have been optimistic about the upcoming FOMC meeting, with many now expecting a half point cut. The reason for this optimism is that the FOMC has been seen as very consumer conscious, and housing has clearly been on the Board's mind. This type of thinking could be setting fixed income traders up for a letdown, with the central bank likely sticking to quarter point cuts to stave off inflation. A half point cut may be too much for Bond traders as well, as the Dollar would likely plummet, which would decrease demand for USD-denominated investments, including treasuries. December Bonds failed to advance beyond early September highs and the market remains overbought, even after a third consecutive negative session. Momentum has been flat to lower and has been moving in lockstep with the RSI indicator. The market has found some support in early trading at the 9-day moving average. Support comes in at 112-10 and 111-13, while resistance comes in at 113-20 and 114-05.

Rob Kurzatkowski, Commodity Analyst

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Oil Sets Another Record

Oil was the hot topic again today, closing at new record highs above $93 a barrel. The higher prices were triggered in part by poor weather conditions in Mexico, where Petroleos Mexicanos – one of the largest Crude suppliers to the U.S. – halted its production of 600,000 barrels a day due to an impending storm. Although expected to be clear by week’s end, weather-related events tend to dictate their own schedules on the marketplace.

Other news affecting the price of Crude today came from the familiar quarters of the Middle East, where Turkey and the Iraqi Kurds continue their geopolitical bob-and-weave. With the Kurds still threatened by the imposing Turkish military, the Iraqi foreign minister has warned of serious consequences if the Turks were to begin a ground attack.

The chart shows an obvious uptrend since mid-August. With prices moving as much as they have since then, Oil bulls may be getting ready to take a break if this news cools off for a while. Today's closing price is still well above the 15- and 25-day moving averages. Oil is very hot right now, but for how long?

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October 30, 2007

Hot Chocolate

Cocoa – Cocoa prices jumped sharply on news that black pod disease is spreading, and many farmers may not be able to contain the outbreak because the government agency that would normally provide financial assistance has had its funds frozen. World Cocoa output is expected to easily surpass demand by around 100,000 metric tons, provided the outbreak does not worsen beyond expectations. If the fungus problem becomes more widespread, the chances of a smaller crop of low quality increase significantly. It will be interesting to see if large Cocoa users such as chocolate makers react by purchasing current stocks to offset the possibility of higher prices in the future. December Cocoa confirmed a double bottom on the daily chart on Friday, which measures an upside move to 1980. The market is a bit overbought at the moment and is heading toward resistance at 2000, which could slow down further advances. Momentum remains strong, but is starting to lag behind both price and RSI. Support comes in at 1915 and 1890, while resistance can be found at 1980 and 2000.

Wheat – Wheat finished close to limit-up in the front month December contract on expectations that exports will remain strong. There is also a consensus building among traders that Australia will once again downsize its crop due to the severe drought there. Wheat is sharply lower this morning on a broad sell-off in commodities, with traders now thinking that yesterday’s rally was overdone. The recent run-up in energy prices has driven freight prices to new highs, which may curtail imports. The current winter Wheat crop is sprouting well ahead of schedule, but reports from southern Kansas and parts of Texas suggest planting may be behind in these states due to heavy and no rains, respectively. December Wheat remains bearish on the daily chart, and a close above 855 may be needed to swing short-term technicals higher. Momentum is showing some bullish divergence from RSI, suggesting some short-term firming or even strength. Support comes in at 790.25 and 760.50, while resistance can be found at 855 and 880.

Australian Dollar – The Aussie rallied to 23-year highs on overall Dollar weakness and strong commodity prices. The USD finished weaker against all of the majors except the Yen on expectations that the Fed will lower rates on Wednesday. Australia’s economy relies heavily on exports of raw materials – namely industrial metals – so the broad commodity rally was certainly a driving force for the Aussie. The December Aussie did give back a good chunk of early gains on the late-day Copper sell-off. High interest rates may keep the Aussie attractive going forward, but commodity liquidations and technically overbought levels may make hamper further advances. The December contract had a weak close, forming a bearish gravestone doji pattern on the daily chart. Momentum is showing bearish divergence from the RSI and price action which, in addition to the bearish chart pattern and overbought levels, suggests a negative short-term bias. Support comes in at .9050 and .8800, while resistance can be found at yesterday’s intraday highs of .9246.

Rob Kurzatkowski, Commodity Analyst

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Bears Eat Their Wheaties

Wheat gave back about half of what it gained yesterday, with the December contract closing down 14.5 at 814 on the heels of a 28.5 point gain yesterday. Wheat continues a downtrend that started at the beginning of this month when the contract peaked at 961. Following the moving averages, both the 15- and 25-day have yet to catch up to the current downward pricing action.

Although slow stochastic indicators are still above the 20 mark – a number below 20 indicates a potential reversal – volume has remained stable since the month began, and we are still above psychological support at 800. Buyers came in on October 25 and 26 as Wheat dipped below that mark, but there is no charted support at that number within the last year. If 800 does not turn out to be the magic number, there is no support until around the 740 mark established in late August.

Also worth mentioning is that Crude Oil once again fell below the 90 mark today – an almost 4% decline on the session. The weekly EIA report is due tomorrow at 10:30 AM Eastern time. The Fed is also scheduled to give a policy statement on interest rates, which always makes life interesting in the markets.

Director of Education Mike Tosaw

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October 31, 2007

FOMC Decision – Trick or Treat?

Crude Oil – Today figures to be a volatile day for the Crude Oil market, as traders await weekly petroleum inventories figures and the Fed rate decision. Crude inventories are expected to show a weekly gain of 600,000 barrels, but Distillates and Gasoline are expected to show a draw of 1.1 million and 300,000 barrels, respectively. Two conflicting reports by tanker tracking companies regarding OPEC making good on its promise to increase exports by half a million barrels a day starting November 1 has led to some confusion among traders. The Fed has stuck with its forecast of moderate growth next year, which is favorable for petroleum demand, and may lead to inaction later this year to stave off inflationary pressures. December Crude Oil had a weak close, finishing near the lows of the day after trading below $90 late in the session. The market was able to find some support this morning around the 9-day moving average. Momentum is still slightly outpacing RSI, which sets a moderately bullish tone short-term. Support comes in at 88.50 and 85.00, while resistance can be found at contract highs of 93.70 and 95.00.

E-mini S&P – Index futures are trading higher this morning ahead of the Fed rate decision. Today is a report-heavy day for the stock market, and traders will have plenty of data to digest. GDP – expected to show an annual growth rate of 3.2 percent – is released at 7:30 AM CST, followed by Chicago PMI, Construction Spending and the weekly petroleum inventories report. Weakness in the figures, especially GDP and Construction Spending, figures to be bullish for stocks, as it would likely force the Fed to lower rates even further at its December policy meeting. U.S. stocks have done well on overseas exchanges in early trading, with many investors viewing the shares as a great value because of the weak Dollar. Technically, the December E-mini remains in a holding pattern, waiting for direction. The market backed off of its initial test of the 1550 resistance area, and a solid close above this mark would be needed to turn the technicals bullish. A close below the 1525 mark could be viewed as bearish near-term. Support comes in at 1525 and 1500, while resistance can be found at 1550 and 1570.

Silver – Precious metals took a hit yesterday on weaker energy prices and profit-taking. Nothing has fundamentally changed for the sector, although the Wall Street Journal’s resident Fed watcher did cast some doubt over tomorrow’s expected rate cut, saying that the housing sector has not slipped enough to cause the central bank to act. Writer Greg Ip’s statement caused some jitters in the equity markets and offered some support to a battered greenback, sending metal prices lower. An increasing number of traders are beginning to come to the conclusion that the Fed will not act this time around to leave the door open for a rate cut at the end of the year. If the Fed does act, traders believe the policy statement will likely have a very hawkish tone, which would likely bolster the Dollar and send metal traders into retreat mode. There was widespread profit-taking in commodities and Silver traders were no exception, especially with the market at overbought levels. Technicals will likely take a back seat to fundamentals today as traders await word from the Fed. Longer-term, the December Silver chart remains bullish and is measuring a possible move toward the $16-16.50 area. The initial rejection at the 14.55 resistance area is a negative sign shorter-term. Momentum remains strong despite the market finishing lower, and the indicator is showing bullish divergence from RSI. Support comes in at 13.80 and 13.50, while resistance can be found at 14.55 and 15.05.

Rob Kurzatkowski, Commodity Analyst

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