Fundamentals

Copper futures broke out to the highest levels since early October of last year on upbeat economic data. Recent US housing data has shown significant improvement in recent reports, reversing the tide of worse than expected data. Economists have been much more upbeat about the state of the US and global economies, as evidenced by bullish statements from former Fed Chairman Alan Greenspan, who stated that the downturn may be ending more quickly than previously thought. Chinese manufacturing data also suggests that the sector is experiencing its fourth month of growth. The July Chinese Purchasing Managers' Index rose to 52.8 from 51.8 in June, which is the fourth consecutive rise in the index. Readings above the 50 mark indicate economic expansion. The meltdown in the US Dollar Index has also aided the strong rally in commodities during the past two sessions. The rate at which the US government has been spending money has not slowed, despite assurances from several government officials, suggesting the path of least resistance for the greenback may be lower.

While the previously mentioned factors can all be seen as bullish for Copper, there are several factors that could put the brakes on the rally. Inventory levels at the LME and Shanghai have both risen, indicating stockpiling of the metal. When looking at the imports of Copper versus actual Chinese consumption, it looks as though there may be quite a bit of non-reportable stockpiling as well. Eventually, this stockpiling could result in high enough inventory levels to cool purchases. US housing data has been very erratic, and there is no guarantee that the recent trend toward a recovery will not reverse course once again. Higher commodity prices could also inhibit economic growth and extend the recession.

Trading Ideas

While both technical and fundamental factors are supportive of Copper prices, the sharp rise in prices suggests traders may wish to remain on the sidelines for the time being. Traders that wish to enter the long side of the market must keep in mind that there is high risk in doing so. Because of this, some traders may choose to consider using options to protect a long futures position, which has higher risk itself because of the lack of liquidity in the Copper options market. Traders who are considering being long the futures may wish to purchase a September 2.60 put (HGU92.6P) and sell a September 2.85 call (HGU92.85C) for even money, thereby possibly limiting downside risk to 2.60, and limiting maximum profit to 2.85.

Technicals

Turning to the September Copper chart, we see the market breaking out above the recent high close of 2.5450. Prices have also eclipsed the 50% Fibonacci retracement level of 2.6654 this morning. If prices are able to hold this level, it suggests the market may be heading toward a test of the $3.00 mark. The fact that the Sep Copper contract is breaking out on overbought levels on the RSI indicator can be seen as especially strong. The oscillator may get up to readings well into the 90's before the market sees selling pressure.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

U.S. Crude Oil futures continue to defy bearish domestic fundamentals, as traders have turned their attention to the Far East where Oil demand is expected to increase. The CLSA China Purchasing Managers Index rose to 52.8 in July, which was the highest reading in the past 12-months. Readings above 50 signal an expansion in manufacturing by the second largest Oil consuming nation, which should offset the continued lackluster Oil demand by the U.S. and European nations. This was not the only bullish news for Oil out of China, with reports that Chinese refiners ramped-up production to near record rates in June, which lowered Chinese Oil inventories by 1.1 million metric tons. Back in the U.S., today's ISM Factory Index readings for July came in above expectations at 48.9, but they are still below the 50 reading needed to show expansion. The lead month September Crude Oil contract has rallied nearly $10 per barrel since last Wednesday, after the EIA reported a much larger than expected 5.1 million barrel expansion in U.S. Crude inventories last week. Though most of the headlines will target rising Chinese demand for the Oil price run-up, it may be the continued weakening of the U.S. Dollar that is behind the rise in not only Oil prices, but commodities in general -- especially as investors start to believe that rising inflation is destined to appear sooner rather than later due to the massive global economic stimuli we have seen this year and begin to move some of their assets into inflation hedges such as Oil and Gold.

Trading Ideas

The sharp run-up in oil prices the past several sessions appears to have sparked an increase in Oil options volatility. Some traders looking to take advantage of this increase may possibly want to look into option selling strategies. An example of one such trade would be selling strangles in Crude Oil futures options. For instance, selling the September 80 calls and the September 60 puts. With September Oil trading at 71.54 as of this writing, the strangle could be sold for 0.50 points, or $500 per strangle before commissions. September options expire in 2 weeks, and time decay will most likely help the short strangle position. Given the potential unlimited risk involved in this strategy, risk management is paramount for successful short options trading. Traders will probably want to consider closing out the trade if September Oil is trading at or above $80 or at or below $60 before the option expiration on August 17th.

Technicals

Turning to the daily chart for September Crude Oil, we notice how the 100-day moving average has curtailed any price corrections of late. The rapid move upward also occurred on higher than average volume, which may be due to window-dressing buying by commodity funds at the end of July. The 14-day RSI looks strong, with a current reading of 61.96. Should the September contract fail to take out its yearly highs of 74.66, a period of price consolidation may be likely, with prices holding within a 5 to 6-dollar range the next few weeks. Support for September Oil is seen at the 100-day moving average, currently at 62.45, with resistance found at the June 30th highs of 74.25.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The US Dollar Index has taken a severe hit since the rally in equity prices began in mid-March, and there may be little let-up from the bear camp. Equity prices have shown resiliency, as traders point to more upbeat housing and manufacturing data. The increased appetite for risk has made the defensive currencies - the greenback and Yen - unattractive to investors. The current administration's increase in government spending has provided traders another reason to be short Dollars. The currency's value is determined by supply and demand, and the current rate at which money is being printed is unsustainable if the government wishes to prevent further declines in the exchange rate. Traders will be keeping a close eye on the progress of health care proposals before both houses of Congress. Passage of such a plan will likely increase government spending by a much greater degree than current estimates. The lack of interest in government debt has also put downward pressure on the Dollar, so it would probably be wise for traders to closely watch the upcoming 3, 10 and 30-year auctions next week. Lackluster results could be a sign that investors are concerned with both the amount of debt printed and the exchange rate of the Dollar.

The rapidly falling Dollar has resulted in commodity prices increasing at a rapid rate, which could impact the economic recovery at hand. Commodity prices, namely Crude Oil, have increased at a rate which defies logic. This could ultimately become a positive factor for the Dollar if investors begin to question whether the US economy can recover in the face of higher energy prices. This could result in a pullback in global equity markets, which, in turn, could result in investors returning to Dollar-based assets as a defensive play. This scenario does not seem likely to unfold in the near future, as traders have been blinded by talk of green shoots and the end of the recession. While the recession may be nearing an end, the unemployment rate does remain extremely high, and household incomes are falling, suggesting American consumers are ill-equipped to deal with rising energy and food costs.

Trading Ideas

The near-term fundamental and technical outlooks suggest that the Dollar Index may continue to fall. Normally, traders would simply be able to enter the short side of the futures market via the futures contract, but this Friday's non-farm payroll number can be seen as a wildcard and could cause an increase in volatility. It may perhaps be wise to instead enter into a bear put spread on the Sep Dollar Index to limit exposure. Some traders may wish to buy a September 77 put (DXU977P) and sell a September 75 put (DXU975P) for a debit of 0.60 or lower. This trade risks the initial investment of $600 per spread for a maximum profit of 1.40 points, or $1400, if the September futures contract closes below 75.00 on the September 4th expiration date.

Technicals

Turning to the chart, the September Dollar Index shows prices falling below support at 79.00 and heading toward the next significant support areas at 76.00 and 75.00. The 75.00 level, in particular, can be seen as significant, as failure to hold this level could result in the Dollar Index testing all-time lows at 71.05. The weekly chart shows the market confirming a double-top formation. The measure of the pattern suggests that prices could test the 70.00 mark. The RSI indicator is currently showing oversold readings, as are the Slow Stochastics, suggesting prices could see some near-term support.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Traders of U.S. Treasuries have to be shaking their heads in confusion regarding the near-term direction of yields due to confliction fundamentals being released the past few sessions. Earlier this week, September 10-year Note futures prices fell sharply, as Monday's release of the ISM Manufacturing Index came in a better-than-expected 48.9 in July, vs. 44.8 in June. This was well above pre-report estimates of 46.5 and coming ever so closer to the 50 reading, which signals growth in the manufacturing sector. This good news for the economy combined with a surging equities market sent government debt traders into a selling frenzy. However, on Wednesday, the ISM Services Index disappointed traders, having fallen to 46.4 in July, vs. 47 in June. The widely anticipated employment figure also fell to 41.5 in June. On top of this, the ADP private sector jobs survey showed that payrolls fell by 371,000 in July, which was 21,000 more than estimates and could force traders to revise downward their estimates for Friday's always anticipated non-farm payrolls report for July from the current loss of 275,000 jobs. In addition, the Treasury announced the size of its quarterly refunding in August, with the Treasury auctioning a record $75 billion next week. Although it remains to be seen how long investors (particularly foreign buyers) will accept current low yields for U.S. government debt, given the size of the current deficits and the weakening U.S. Dollar, but with no signs that the Federal Reserve's policy of quantitative easing is going to be discontinued anytime soon, buyers may continue to flock to the treasury auctions despite current yields.

Trading Ideas

Given the divided opinions on where Treasury yields are headed, we may be in for an extended consolidation period for Ten-year Note prices. One trading strategy that looks to take advantage of market consolidation is the selling of option strangles. An example of this type of trade in the Ten-year Note options would be selling a September Ten-year Note(TYU9) 118 call and selling a September Ten- year Note(TYU9) 114.5 put. With the TYU9 trading at 116-06 as of this writing, this strangle could be sold for 23/64th, or $359.37 before commissions. The maximum profit would be realized if TYU9 is trading at or below 118-00 or at or above 114-16 at expiration on August 21st. Given the potentially unlimited risk involved in selling strangles, traders may wish to exit the trade before expiration if TYU9 trades at or above 118-00 or below 114-16 before the options expire.

Technicals

Turning to the daily chart for September 10-yr Notes, we notice that prices seem to be forming a descending triangle pattern. This pattern is usually seen in a downward trending market as a continuation pattern. During this time, prices consolidate, but ultimately move in the direction of the current major trend, which is lower. To confirm this pattern, traders would want to see prices break below the recent lows on higher than average volume. Also note that prices are below both the 20 and 100-day moving averages, which can be considered bearish by both longer and shorter-term traders. The 14-day RSI is in neutral territory, with a current reading of 46.24. Support for September 10-yrs is seen at the recent lows of 115-13, with resistance found at the 100-day moving average currently near the 118-08 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Stock index futures are lower this morning ahead of the Non-Farm Payroll report, which is expected to show the economy losing 325,000 jobs for the month of July. The unemployment rate is expected to climb to 9.7 percent. While this figure is expected to show further contraction in the labor market, the payroll number has steadily improved since January, when the report showed a loss of over 700,000 jobs. Employment data remains the unknown variable in the recovery equation, with some analysts expecting a jobless recovery and others forecasting that labor conditions will eventually right themselves during the recovery. What both parties can agree on is the fact that any rebound in economic conditions must be accompanied by increased employment in order to sustain itself or risk falling back into recessionary conditions, as this would prevent the housing market and consumer spending from returning to healthy levels.

Stocks have been riding a wave of enthusiasm for the past month. Construction and housing have shown some signs of life after lackluster data in June. This has caused the financial sector to perform particularly well because of optimism that the lending market may improve, yet traders have to wonder how much of the gains in financials has been driven by short-covering by short sellers that have run out of patience. The high unemployment rate may cause the foreclosure rate to remain very high, and the refinancing boom will only last as long as interest rates remain low. Technology has been another sector that has performed particularly well without concrete data that sales of consumer electronics and other discretionary items will increase anytime soon. The high cost of fuel may hurt the technology sector, in particular, because consumers may clamp-down on discretionary spending.

Trading Ideas

Given the shaky fundamental footing, some traders may be looking for a pullback in equity prices. Even some long-term bullish traders may be looking for the market to come down and test the 950.00 level, which was never tested after the breakout. Therefore, some traders may wish to consider entering into a bear put spread. For example, buying the September 985 put (ESU9985P) and selling the September 965 put (ESU9965P) for a debit of 7.00, or $350. The maximum risk is the initial cost of the spread and the maximum profit is $650 if the September E-mini S&P closes below 965.00 at expiration.

Technicals

Turning to the chart, the September E-mini S&P futures continue to trade near the key psychological and technical resistance area at 1,000. In order for the market to make further gains, prices must advance through this area with conviction. Near-term, the market must hold the 950 level in order to maintain its upward momentum. Both the RSI and slow stochastic indicators show overbought conditions, suggesting the market may come under some near-term selling pressure. It is interesting to note that the RSI indicator has shown bearish divergence from the price of the underlying futures contract.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Sugar futures continue their relentless surge higher, reaching highs not seen in 28 years, as the seasonal monsoon rains in India have been disappointing. This lack of moisture is causing some forecasters to lower the estimates for Indian Sugar production to as low as 15 million metric tons, down from earlier estimates of nearly 20 million metric tons. The potential production shortfall is causing analysts to raise India's potential Sugar imports closer to 7 million tons, up between 2 and 3 million metric tons from earlier estimates. This looks to be the second consecutive season in which Sugar output has failed to keep up with demand and higher prices are needed to help ration demand. There has been little commercial selling of Sugar lately, despite multi-decade high prices, as tightened credit conditions have kept some producers from initiating selling hedges. This has eliminated a natural seller from the market that would have normally emerged during the current rally. Commercial buyers who need to purchase Sugar have to pay higher cash market prices for immediate needs while they await supplies from Brazil in the coming weeks. Speculative traders, especially commodity funds using trend-following systems, have been adding to their long Sugar positions as prices rise. The Commitment of Traders report shows large non-commercial traders added an additional 16,982 net-long contracts, which raised their total to a whopping 205,857 net-long contracts as of 7/28/09. Despite these seemingly bullish fundamentals, traders should be wary of potentially violent price corrections, especially as the market begins to move parabolic. This is especially true should the rains return to the cane growing regions of India and those who are long Sugar begin to look for the exits.

Trading Ideas

Given the sharp rise in volatility that has occurred during the past several sessions, Sugar options have become more expensive. Anyone that may be considering trading Sugar may possibly wish to investigate either bull call spreads, if they believe the market will move higher -- or bear put spreads, if they are expecting a price correction. One of the advantages of these debit spreads is that the strike price sold can help to offset the price of the options purchased. The downside is that the maximum profit is capped by the strike price of the short option. An example of a bull call spread would be buying an October Sugar 21 call and selling an October 25 call. An example of a bearish put spread would be buying the October Sugar 20 put and selling an October Sugar 17 put. The premium paid is the maximum potential loss on the trade, while the maximum profit is the difference between the long and short strike prices, minus the premium paid for the spread.

Technicals

Looking at the daily chart for October Sugar, we notice that the upward move in prices accelerated sharply this week. This up-move comes after two prolonged consolidation periods which served to shake-out weak longs. However, this may also mean that the rally is getting a bit overdone, especially with the 14-day RSI reading a very overbought 83.92. A correction back to the 18.00 to 19.00 area would not be out of the question nor negate the bullish technical trend. 21.00 is the next resistance point for October Sugar, with the 20-day moving average currently near 18.45 acting as support.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Gold futures are little changed this morning, as traders look to the currency markets for direction. The price of the metal has been steadily increasing in recent weeks, aided by rising Crude Oil prices and a falling US Dollar. The greenback has been stronger for the past three sessions, but whether this trend can continue remains to be seen.
The Treasury is holding sales of Notes and Bonds this week, which is of keen interest for Gold traders on two fronts. First, the auctions will show what kind of demand there is for US debt instruments. Low demand may suggest traders are concerned about growing government deficits and will continue to enter the commodity markets at the expense of treasuries. Strong interest in the auction can be seen as bearish for Gold. Secondly, the auctions may help determine the near-term direction of the US Dollar.

Fundamental factors seem to slightly favor the Gold market. Rising commodity prices and relatively upbeat economic data suggest inflation could be a factor sooner rather than later. If economic data shows regression, Gold could stand to benefit as a defensive play. There are several question marks for the precious metals market. Physical demand from jewelry and industry has been weak. Also, ETF demand seems to be sputtering a bit. If economic uncertainty does begin to creep into investors' minds once again, Gold could suffer if the inverse relationship between equity prices and the greenback continues to hold true.

Trading Ideas

Given the mildly positive fundamentals and questionable technicals, some traders may wish to consider a bullish to neutral strategy, such as a bull put spread. An example of such a strategy would be selling the September Gold 910 puts (GCU9910P) and buying the September 890 puts (GCU9890P) for a credit of 2.00 or greater. The spread has a maximum profit of $200, which is the initial credit, and carries a maximum loss of $1,800 if the price of the October Gold futures contract closes below 890 on the August 26th expiration date.

Technicals

The December Gold chart is at a very important level for determining its mid-term direction. Prices must maintain current levels to confirm the uptrend line formed by early and late July lows. If prices bounce from the current levels, it suggests prices may continue to move higher and possibly test the 1,000 mark. Failure to confirm the trendline suggests another failed run at 1,000 and that prices could pull back to the 875-900 range in the intermediate future. Momentum is showing bullish divergence from both price and RSI, suggesting prices could rise in the next few sessions.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

The dog days of summer have definitely arrived in the Corn pit, as prices have been trapped in a relatively tight 60-cent range since the beginning of July. Producers could not ask for more ideal weather conditions this season, with weather forecasts calling for temperatures and moisture to be near normal this week. The weekly crop conditions report released on Monday had the U.S. Corn crop rated 68% good to excellent , up 8% from the ten-year average at this time. Recent above-normal temperatures may have actually helped the Corn crop catch-up from the delayed plantings seen east of the Mississippi River due to rainy conditions during spring plantings. All eyes will be focused on today's USDA crop production report, which will be the first this season with actual field reports. In addition, the USDA had announced that it would re-survey Corn producers regarding the number of acres planted to Corn, since there was some debate as to the accuracy of earlier reports due to the delays in Corn plantings this spring. Analysts are looking for the USDA to announce that the U.S. will produce a Corn crop of nearly 12.500 billion bushels this year, up from the 12.290 billion bushel estimate in July, and well above 2008 Corn production of 12.101 billion bushels. Average yield estimates are for 157.1 bushels per acre, up 3.7 bushels per acre from the July estimate. 2009/10 ending stocks are expected to have jumped to 1.7 billion bushels, up 150 million bushels from the July report. U.S. Corn exports are at 91% of the USDA's projections for the current market year, up slightly from the 5-year average. With the current price consolidation pattern starting to get long in the tooth, any surprise in today's report could be the catalyst for a breakout from the recent price range.

Trading Ideas

Given the recent tight range in Corn prices, some traders may wish to look into the purchase of at-the-money straddles in Corn options in anticipation of a price breakout from the recent range. With December Corn trading at 331.25 as of this writing, just before the USDA report is scheduled to be released, the December 330 straddle is trading at 57 cents, or $2850 per straddle, with the premium paid the maximum risk on the trade. Ironically, today's USDA report may actually decrease option volatility after the report is released, as traders take off some of the risk premium built into options prices ahead of the government report. Barring a major move in prices after the report is released, traders might possibly be able to buy the straddles even cheaper at some point during the next few sessions.

Technicals

Looking at the daily chart for December Corn, we notice that prices are near the low end of the recent 60-cent trading range. Prices are below both the 20 and 100-day moving averages, which gives the edge to the Corn bears. The 14-day RSI is reading a neutral 42.00. The July 22nd lows of 314.75 remains support for December Corn, with the top of the recent price range at 376.00 acting as strong resistance.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Euro currency futures are higher this morning, on news that the French and German economies unexpectedly expanded during the second quarter of the year. This adds to the negative Dollar sentiment caused by the FOMC stating that the central bank will keep rates low for an extended period of time. Also, the Fed will be discontinuing its treasury buying program in October, which could also have negative repercussions for the greenback. Index futures around the globe are higher on the positive GDP data, which shows that investors are once again in risk-taking mode, which would favor the Euro versus the US Dollar. The Fed policy statement confirms what many traders had already believed - that the ECB will be much more aggressive in tightening rates in the future than the Fed. If equity prices are able to continue posting solid gains, the Euro figures to build on its gains against the USD. The primary concern that Euro bulls may have at the moment is whether or not equities will be able to build on recent gains. Economic data on both sides of the Atlantic has certainly turned much more positive in recent weeks, but traders may be jittery about the quick rise in equity prices recently. This could result in a pullback in the stock market, which could cause the exchange rate of the Euro to correct.

Trading Ideas

Longer term fundamentals and technicals paint a positive picture of the Euro, but the near-term outlook is a bit unclear because of the run-up in equity prices. Some traders may possibly wish to take a more non-directional approach and enter a credit put spread by buying the Sep Euro 1.37 put (ECU91.37P) and selling the Sep Euro 1.39 put (ECU91.39P) for a credit of 0.0025.

Technicals

The September Euro chart shows prices maintaining the uptrend line. In order for the market to maintain its upward momentum, prices would need to trade above the recent high close of 1.4430. The 50-day moving average, in addition to the uptrend line, has acted as support since early July. Failure to hold the trendline and the 50-day MA could be seen as a sign that the intermediate trend may reverse. Despite prices rising for three consecutive sessions, the momentum indicator is flat, suggesting prices could possibly pull back in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Soybean traders got some bullish news from the August crop production report released on Wednesday, as the USDA lowered its estimates for the U.S. Soybean crop. The USDA estimated U.S. Soybean production at 3.199 billion bushels, down just over 60 million bushels from the July report and below average analysts estimates of 3.213 billion bushels. Lower yield estimates were responsible for the decline, as the USDA lowered average yield estimates to 41.7, vs. 42.6 in July. Soybean planted acreage increased by a smaller than expected 300,000 acres to stand at 76.8 million acres. Soybean exports are expected to remain robust, with China having just purchased another 113,000 tons of U.S. Soybeans. China may continue to be a major purchaser of U.S. beans this year, as drought conditions in northeast China have traders lowering their estimates of China's Soybean production this year. The USDA has lowered China's Soybean production to 15.4 million metric tons, down 0.2 mt from the July estimate. U.S. old crop Soybean carryover is expected to remain at a very tight 110 million bushels, as buyers scramble for adequate supplies before this year's U.S. Soybean harvest begins.

This tightness can be seen in the structure of the Soybean and Soybean Meal futures markets, which are in a backwardation. A market in a backwardation has the nearby futures priced higher than the more deferred months. In Soybeans, we notice both August and September Beans trading at a much higher price than the new-crop November contract, which should not be a surprise given the tight old-crop carryover. However, what is interesting is that from the Jan 10 contract and beyond, we are also seeing the market in a backwardation for the new crop futures, which infers that traders believe demand will continue to be robust after the U.S harvest is completed and before we see supplies of beans coming in from the southern hemisphere.

Trading Ideas

Given the tight supplies of old crop Soybeans and continued strong export demand, some traders may wish to explore bull spreads in Soybean futures. An example of this trade would be buying September Soybeans and selling November Soybeans. As of this writing, September Beans are trading at a 48 ½ cent premium to the November Beans. Traders buying the spread would want to see the spread differential continue to widen. Risk management is crucial to any successful trading plan, and traders should be aware that spread trading may not necessarily be less risky than holding an outright position, as it is possible for one contract month to be trading higher and another lower simultaneously.

Technicals

Looking at the daily chart for November Soybeans, we notice the 20-day moving average is attempting to cross over the 100-day MA. If successful, this could be interpreted as a bullish signal by momentum traders. However, bulls still have some hurdles to overcome, as the market's attempt to breakout above the recent consolidation pattern was thwarted by selling pressure yesterday. There is also a bearish divergence forming in the 14-day RSI, which could be signaling that buying pressure is beginning to subside. Wednesday's high of 1066.00 should act as resistance in the November futures, with support found near the 976.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

December Corn futures are down this morning and continue to trade near the 320-325 range. The forecast of a large Corn crop, in addition to a strengthening Dollar, has weighed on prices and has prevented any sort of recovery. On top of the bearish crop reports, feed use may continue to decline, as evidenced by the extreme weakness seen in the Live Cattle and Lean Hog markets. Cattle production may fall by nearly 3% in the third quarter of the year, and the Lean Hog futures prices are continuing to trade at a discount to cash prices, hinting at further weakness. The Midwest Corn crop has seen steady rains over the past month, but the rains have been below seasonal norms. The recent heat wave may make crops vulnerable to stunted growth going into the fall harvest. It is interesting to note that while the Corn crop remains very large on the surface, the delayed plantings may result in smaller ear sizes, thus lower yields than the USDA had expected. The late start to the season means that farmers are expected to push the harvest back a bit, extending the period in which crops are vulnerable to inclement weather. This is not an overwhelmingly bullish development, but something some traders may wish to keep an eye on.

Trading Ideas

Fundamental and technical outlooks suggest that the downside potential for the Corn market is somewhat limited. Some traders may, instead, try to buck the trend and look beyond the current market fundamentals and test the long side of the market. Other traders could listen to what farmers have been saying - on the surface, the fundamental picture looks bleak, but in the fields, Corn ear sizes may be much smaller than expected and the USDA's estimate may be erring on the high side. The risk of a long play is very high, but with the high risk could potentially come high reward. Traders may wish to consider buying a December Corn 350 call (CZ9350C) and selling a December 380 call (CZ9380C) for a debit of 6 cents, or $300. The trade risks the initial investment for a potential profit of 24 cents, or $1,200, if the December Corn contract finishes above 380 on the November 20th expiration date. More conservative traders may wish to exit the trade for a credit of 15 cents or higher prior to expiration.

Technicals

The December Corn chart shows prices flirting with a potential downside breakout on solid closes below the 320 level. In the event of a downside breakout, prices could test the 300 mark or beyond on the downside. Substantial rallies are needed for Corn technicals to turn positive. Solid closes above the 375 level could turn the tide and result in further price stability. The momentum and RSI indicators are relatively flat and offer little guidance at this point. The slow stochastics, however, have slid into oversold levels, suggesting the market may see some near-term price stability.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

Traders of frozen concentrated orange juice futures (FCOJ) were in for a wild ride last Friday, as two leading private forecasts regarding the size of the 2009-10 Florida orange crop varied widely. FCOJ futures prices fell sharply, after widely followed analyst Elizabeth Steger released her Florida Orange crop estimate of a 154 million 90-pound boxes. This was well above most traders' estimates of a crop size closer to 145 million boxes. The estimate, which came out just minutes before the close of trading, sent prices down over 8%. However, not everyone agrees with Ms. Steger's estimate, as just after the close, the market received the crop estimate from juice processer Louis Dreyfus, which came in at a much more friendly 141 million boxes. Both estimates are well below the 162.1 million box crop seen in the 2008-09 season, as a dry spring and below normal winter temperatures were expected to affect this season's crop size. Florida's orange production has been down the past several years, as various citrus diseases, urban development and hurricanes have laid claim to a large number of citrus groves. With both private forecasts now out of the way, OJ traders will be watching the weather forecasts for the development of tropical activity as the Atlantic tropical storm season moves into its traditionally peak month of September. Any signs of impending strong storms forming in the Atlantic could spark traders into building in a risk premium into OJ futures and futures options prices. The first major government forecast is scheduled on October 9th, when the USDA releases its first projections. In the meantime, traders should be "juiced-up" for increasing volatility in the OJ market.

Trading Ideas

Despite Friday's sharp sell-off in OJ futures, the bullish trend in prices remains intact. Given that we are now at the start of the peak hurricane season, options are relatively expensive. Traders who expect prices to continue to move higher may wish to give some consideration to purchasing bullish call spreads in OJ options. The benefit in purchasing call spreads is that the premium received from the short leg of the spread will help to partially offset some of the initial cost of the long leg of the spread. The downside is that by selling a higher strike option, you are limiting potential gains should OJ futures move well above the short leg of the spread. With November OJ trading at 105.05 as of this writing, a 110/130 bull call spread could be bought for about 5.50 points, or $825 per spread, not including commissions. The premium paid is the maximum loss on the trade, with a maximum profit of $3,000 minus the premium paid, should November OJ be trading above 130.00 at option expiration on October 16th.

Technicals

Looking at the daily chart for November Orange Juice, we notice the market has been in an uptrend since the weekly lows were made on June 29th at 79.00. Since that time, prices have rallied over 35 cents per pound, as traders began to anticipate a smaller Florida orange crop as well as tighter supplies. However, yesterday's sell-off moved prices below the widely watched 20-day moving average, which triggered a sell-signal by short-term momentum traders. The market was ripe for a correction, as large speculative accounts may have become a bit too long. The most recent Commitment of Traders reports shows large non-commercial traders added an additional 1,442 net long contracts as of August 11th. Small speculators were also becoming more bullish, with non-reportable traders adding 1,481 net-long contracts last week. Ironically, this occurred just before the recent highs were made, and the recent sell-off should help shake out these weak longs that came to the bullish party a bit late. The 14-day RSI has turned lower, after spending time last week in overbought territory, with a current reading at a very neutral 47.56. Last Wednesday's highs of 114.75 are now seen as resistance for the November contract, with support found at the August 3rd lows of 93.00.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Wheat futures have been on a steady price decline as the market attempts to digest higher world supplies this year. The USDA is its August Crop production report, estimated that the U.S. fall Winter Wheat crop would total 1.537 billion bushels, up from their 1.525 billion bushel estimate in the July report. This increase was also reflected in the 2009-10 carryout estimates which the USDA raised to 743 million bushels, up 37 million bushels from July. World Wheat production also increased this year, causing the USDA to revise upward the world carryout total to 183.56 million metric tons. This bearish news comes at a traditionally weak time for Wheat prices, as the U.S. harvest is being completed. However, U.S. producers may be reluctant sell their current harvest right away, given sharply lower cash market prices. Low Wheat prices may also affect the number of acres planted to Winter Wheat this upcoming season, especially in more marginal Soft Red Winter Wheat growing areas in the mid-southern states like Missouri, Tennessee, and Arkansas, where the cash basis has been running almost one dollar below futures. U.S. Wheat exports have been steady, with recent tenders coming from Egypt and Japan. However the wild card could be India, which is suffering from rising food prices due to below normal monsoon rains this year. Although India's wheat supplies seem adequate, it appears that they will not be exporting Wheat as earlier feared.

Trading Ideas

With Wheat prices hovering near contract lows and the harvest nearing completion, it is possible that the seasonal lows in Wheat might be near. Those traders looking for a possible rebound in Wheat prices may want to possibly consider purchasing call options in the winter trading months. An example of such a trade would be to buy a December Wheat 530 call. With December Wheat trading at 499 ½ as of this writing, the 530 calls could be purchased for about 21 cents, or $1050 per contract, not including commissions. The premium paid is the maximum risk on the trade. In this case, with the option purchased for 21 cents, the trade will be profitable at expiration if December Wheat is trading above 551.

Technicals

Looking at the daily chart for December Wheat, we notice that the downtrend in place since the June highs is still firmly intact. There was only a brief period in early August where prices moved above the 20-day moving average, but that move drew nothing but eager sellers looking for a rally to sell into. It will take a move above the current trendline to get bulls more excited about the Wheat market. The 14-day RSI has reached oversold territory with a current reading of 27.83. 475.00 is seen as support for December Wheat, with resistance found at the downtrend line currently near the 544.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Soybeans are higher this morning, after Argentina's senate approved a bill that would give the President authority to impose an export tax on grains. This has the market fearing that this could curb exports of Soybeans by farmers. Protests against a similar resolution last year had an adverse effect on exports and forced importers to buy Beans from the US. Farmers may also hold-out for higher prices, further tightening exports from the world's third largest exporter. Dry growing conditions in Argentina can also been seen as bullish, as they can result in lower than expected yields. In the US, the USDA reported large purchases from China for three consecutive days, suggesting that demand has remained stout. Suggestions that China will offer subsidies to crushers also offers support, as it would likely lead to further imports of the oilseed.

News that the CFTC will be eliminating position limit exceptions for Deutsche Bank and another unnamed firm can be seen as bearish for Beans. This will lead to an unwinding of positions by long only funds, so traders remain cautious entering the long side of the market. The timeframe for such a liquidation has not yet been set, adding to the air of uncertainty. The Soybean Belt has been getting some much needed rain in recent days, but this will be followed by a dry spell. This can be seen as slightly bullish, as much of the rain will be in the eastern portion of the growing region which needed the rains. Bean fundamentals have remained very mixed over the past week, leading to the range-bound trading we have seen. The CTFC cracking down on speculation may be the deciding factor for the market in the near-term, especially if more firms lose their position limit exceptions.

Trading Ideas

The fundamental picture for Soybeans remains neutral to slightly negative, given the fact that the CFTC could wind up making even more funds unwind long positions. The commission may, however, give funds a bit of time to roll-out of positions to ensure orderly trading. If there was a greater sense of urgency to the unwinding of positions, the fundamental outlook in the near-term would be considerably more bearish. Technically, some traders may be looking for some follow-through to the bear flag pattern. Such traders may possibly wish to take advantage of the situation by entering a bear put spread, buying the October Soybean 950 put (SV9950P) and selling the October 930 put (SV9930P) for a debit of 8 cents, or $400, and an objective of 15 cents, or $750.

Technicals

Technically, the November Soybean chart suggests a downward near-term bias. After confirming an M-top formation earlier this week, the market quickly made its measured move to the downside. The rangebound trading that followed the move appears to be forming a bear flag formation, suggesting prices could test July lows below 900. The recent breakdown resulted in the market trading below the major moving averages. For momentum to shift back to the bull camp, the market must turn back above the cluster of moving averages between 972 and 988. The RSI has shown bearish divergence from prices in recent sessions, which could add to the downside pressure of the market.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Traders got inkling from the API energy stocks report that Crude Oil inventories had fallen last week, but not even the most bullish energy traders expected the 8.397 million barrel draw in U.S. Crude Oil stocks that the Energy Information Administration (EIA) reported this week. In addition, the EIA reported that both gasoline and distillates stocks also fell last week, despite a moderate uptick in refinery utilization. Sharply lower Crude Oil imports were behind much of the declines in Oil stocks, which fell by 1.417 million barrels per day last week. Although the market reacted quite bullishly to the inventories report, there are some who believe the sharp drop in imports signals continued weak demand by refineries which are operating at well below capacity due to overall weak demand. The big question both Crude bulls and bears must now answer is whether rising oil prices will act as a break on any economic recovery. If they do, then Oil prices may have risen too quickly given current economic conditions. This is especially true should Chinese Oil demand begin to ease once the vast economic stimulus provided by the Chinese Government runs its course. Traders should also be aware of the movement of the U.S. Dollar. A weakening greenback has sparked increased interest in owning commodities, especially by institutional traders as an inflation hedge. With a large number of traders holding short Dollar positions, any change in trend could spark massive buying in U.S. Dollars, which in turn could force traders to begin selling commodities, including Oil, as strength in the Dollar would make Dollar-denominated Commodities more expensive for non-Dollar buyers and potentially curtail demand.

Trading Ideas

October Crude Oil has had three attempts to take out the recent highs of 75.27 reached on June 11th, and each successive attempt has made a slightly lower high in the process. The next major support point for October Oil is at the recent lows near the 67.50 area. Traders who believe Oil prices will pull back yet again may possibly wish to look into bearish put option spreads in Crude Oil futures. With October Crude trading at 74.30 as of this writing, a trader could purchase an October 73 put and sell an October 68 put for a net debit of 1.70, or $1,700 dollars per spread before commissions. The premium paid is the maximum risk on this trade, with a potential profit of $5,000 minus the premium paid should October Crude Oil be trading below 68.00 at the option expiration in September.

Technicals

Looking at the daily chart for October Crude Oil, we notice prices are holding above both the 20 and 100-day moving averages, which gives Oil bulls the edge. However, the failure to take out the highs of 75.27 may be a sign that the bullish momentum is beginning to lose some steam and a sizable correction may be forthcoming if resistance is not taken-out soon. The most recent Commitment of Traders report shows speculators net-long about 125,000 contracts as of August 11th, but this was just before we saw the wild price swings that occurred during the past several sessions. This price action may have shaken-out weak longs, especially smaller speculative accounts. There are several support points at the 20-day moving average (MA) near 71.30, the uptrend line near 68.42, and the 100-day MA near 65.45. The 14-day RSI is reading a moderately strong 60.08.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Copper prices have stagnated below the key 3.00 level, as investors are concerned that growing Chinese inventory levels may harm demand. Traders are also questioning whether the global economic recovery will be able to stimulate demand sufficiently to warrant price advances beyond the $3 mark in the near-term. Chinese Copper inventory levels are at currently 2-year highs, and Shanghai inventory levels are expected to show another build when data is released later this week. Recent Chinese stockpiling suggests that imports of the base metal may shrink in August, but to what degree imports will slow remains to be seen. Imports had dropped by 86,717 tons from June to July, but it is unlikely that August will see this large of a drop. Nonetheless, a drop of over 50,000 tons in August is not out of the question, despite strong demand from manufacturing and construction. Housing data in the US, which can be seen as a relatively minor influence on the overall Copper market at this point, has been encouraging, but hardly enough to push further price advances.

Copper may look to outside markets for price support in the near future. The suggestion that the US government deficit will grow at an even higher rate than previously thought does not bode well for the Dollar. Investors sold on a global economic recovery but skeptical about stock market valuations may increase their holdings of commodities. The Copper market, in particular, has been an avenue for US investors to participate in Chinese economic growth without having to delve into the Chinese equity market, either directly or through ETFs. Crude Oil prices will likely have a heavy influence on base metal prices, suggesting Copper traders should perhaps closely watch the movements of the petroleum market.

Trading Ideas

Although near-term technicals and fundamentals seem to be favoring the short side of the market, Copper has proven to be one of the most unpredictable markets. This suggests traders should remain cautious and manage their position and risk closely. For traders who desire to enter a short position, it may perhaps be wise to wait for a close below 2.74 and enter a stop at 2.85. The downside objective of the trade would be 2.55. Some longer-term traders may choose to remain on the sidelines at the moment and wait for a pullback in prices to levels in the 2.50 and 2.60 area to possibly enter the long side of the market. Conversely, if the chart does not confirm a bearish reversal, some traders may wait for closes above the 3.00 mark to signal an upside breakout. Copper fundamentals remain very strong over the long term, but the commodity's success may be its undoing in the near-term.

Technicals

The September Copper chart is beginning to show signs of potential weakness and may be in the midst of forming a small M-top formation. The market has taken a much needed breather over the past two weeks, consolidating between 2.75 and 2.95. Traders probably should not rush to judgment and enter the short side of the market before the M-top pattern is confirmed with a solid close below 2.7415, as the market could just be in consolidation mode before making further advances. The RSI indicator is showing very strong bearish divergence at the moment, indicating a negative near-term bias.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Having watched Sugar futures soar to 28-year highs recently on concerns that a disappointing monsoon season in India would force the world's leading sugar consumer to import sugar. Some grain traders believe that Rice futures could be the next market to feel the effects of India's plight. According to Indian government officials, the annual monsoon rains were estimated to be 26% below normal for the period beginning on June 1st. The lack of rainfall has forced Indian Rice producers to plant about 20% less acres of Rice this season. Last year 34.1 million hectares were devoted to Rice production vs. only 27.2 million hectares this season. The lack of rain has caused the price of food staples to rise by 30%. However, government stocks of Rice are considered ample at the present time, unlike that of Sugar. Also, rains have finally come to some of the northern growing regions of India, which has raised some hopes that some of the crop damage due to drought could be diminished. In the most recent USDA Crop Production report for August, government forecasters estimated world Rice carry-over for the 2009-10 season would fall to 84.04 million metric tons (mmt), down from 94.51 mmt in the July estimate. However, U.S. Rice carry-over is expected to increase to 23.9 million hundredweight, up moderately over the July estimate. Though Rice futures are little known outside of the old CBOT floor, this market has a history of making sizeable trending moves, especially if large speculative traders enter the market. This could cause volatility to soar, especially if the current crop problems in India turn for the worse.

Trading Ideas

Given the potential for increased volatility in Rice futures going into the fall, some traders may wish to investigate potential trades in the Rice futures options market that will take advantage of an increase in volatility. One such trade would be buying strangles. A long strangle position is made up of a long call and a long put in the same trading month but at different strike prices. An example of a long strangle in Rice options would be buying the November 14.20 calls and buying the November 12.60 puts. With November Rice trading at 13.50, the straddle could be purchased for about 44.5 points, or $890 per strangle, not including commissions. The maximum risk on this trade would be the premium paid, and the trade will be profitable at expiration in October if November Rice is trading above 14.645 or below 12.155.

Technicals

Looking at the daily chart for November Rice, we notice prices continue to hover above the key 100-day moving average (MA), which is viewed by many technical traders as a longer-term bullish signal. However, the 20-day moving average is acting as resistance, which is keeping short-term momentum traders from turning bullish. The 14-day RSI is stuck in neutral territory with a current reading of 28.25. The recent highs of 13.855 are seen as the next resistance point for November Rice, with the 100-day MA, currently near the 12.855 area, seen as support.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The Canadian Dollar is lower for the third consecutive session on weaker Crude Oil prices and risk aversion. The loonie was among the best performing currencies against the greenback from March to June because of the recovery in global equity markets and commodities, but has been among the worst performing currencies during the month of August. The Canadian Dollar's success was its own undoing, as traders bought-up other commodity currencies that did not perform quite as well. News that China may try to rein in capacity growth in steel and cement, as well as energy, can be seen as having a negative impact on the Canadian currency in the near term. This policy suggests that base metal, coal and petroleum imports may suffer in the near- term to avoid a possible supply glut. If the Chinese government is successful in this regard, it would be seen as bullish for the loonie over the long haul, despite the negative short-term impact.

Traders are also beginning to sense that the rally in equities and commodities may be overdone for the time being. This could result in risk aversion by traders, which would benefit the US Dollar and Japanese Yen at the expense of higher yielding, or "new" currencies, such as the Canadian and Australian Dollars. Crude Oil inventories showed an unexpected build yesterday, which could adversely affect the Canadian Dollar, as it is Canada's largest export. It is interesting to note that Nigerian Crude Oil production has recently increased significantly due to better security measures in the Niger Delta region. Nigerian insurrection has been a minor driving force behind the Crude Oil rally, so relative stability can be seen as a negative for Oil prices. Crude Oil is also approaching its uptrend line, and a breakdown below this key trend line could result in a stagnation in Oil prices, which could further pressure the loonie.

Trading Ideas

Given the negative technical and fundamental bias, some traders may possibly wish to consider taking on a bearish position. It may possibly be advisable, however, to wait for the double-top to be confirmed on a solid close below 0.9000 in the September contract before entering into such a position. The apparent double-top could turn out to, in fact, be a wedge pattern over the long run if the top is not confirmed. One may wish to enter into a short futures contract on a close below 0.9000, with a stop at 0.9300 and a downside objective of 0.8550. The potential risk is roughly $3,000, while the potential gain is around $4,500, depending on the exact point of entry.

Technicals

Turning to the chart, it appears that the September Canadian Dollar is coming close to a key technical level near 0.9000. A breakdown below this level would confirm a double-top formation on the daily chart, which could send prices down to the mid 0.80's. A close above 0.9300 would negate the pattern. This support area at 0.9000 also coincides with the 50-day moving average. A significant close below the average could signal that the trend may be shifting downward over the intermediate future. We also see a bearish crossover in the slow stochastics, signaling weakness.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

After failing to hold above the $3000 per ton level, bullish traders ran for the exits in December Cocoa futures yesterday, as selling in equities and oil spilled over into the commodities markets including Cocoa. Cocoa prices have been in an uptrend for most of the year, as lower than expected production out of the Ivory Coast, the world's biggest producer of Cocoa, and a dearth of high quality supplies forced users to bid-up prices to obtain quality supplies. Arrivals at the ports in the Ivory Coast are running about 14% behind last year's totals, with a fair amount of the inventory not meeting quality standards. However, the next season's crop is believed to be off to a good start, as weather conditions have improved. This has led some traders to believe that Cocoa is now overpriced given current user demand and potential for improved production in the upcoming season. Although some weather forecasters are calling for the possible formation of an El Nino weather pattern later this year, it is too early to forecast any possible effects on West African Cocoa production should an El Nino pattern appear. Recent weakness in the British Pound vs. the U.S. Dollar also encouraged arbitrage selling in the New York market, as well as general commodity fund selling tied to weaker equities and oil prices. With large speculative accounts holding a net-long 20,968 contracts as of 8/18/2009, according to the most recent Commitment of Traders Report, it will take fresh bullish fundamental news to keep commodity funds from pairing their long positions now that strong resistance at $3000 has held.

Trading Ideas

Given the market's rejection to the $3000 level and solid support seen around the $2500 to $2600 area, some aggressive traders may wish to sell strangles in December Cocoa options just outside of this price band. An example of this trade would be selling the December 3200 calls as well as the December 2400 puts. With December Cocoa trading at 2800 as of this writing, this strangle could be sold for 120 points, or $1200 before commissions. The credit received would be the maximum potential gain in the trade and would occur should December Cocoa be trading above 2400 and below 3200 at the option expiration in November. Since a short strangle has unlimited loss potential, traders who choose to initiate such a trade should closely monitor their positions and possibly consider closing out the trade should December Cocoa trade at or above 3200 or at or below 2400 before the options expire.

Technicals

Looking at the daily chart for December Cocoa, we notice that yesterday's sell-off accelerated once the 20-day moving average was violated. This is viewed as a sell signal for short-term momentum traders and triggered sell stop orders below support at 2900. The 14-day RSI also displayed a bearish divergence, as Tuesday's recent highs of 3025 failed to produce a new high reading in the RSI. 2700 is seen as the next support point for December Cocoa, with 3025 as major resistance.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Gold prices have pulled back slightly this morning, after rallying four straight days on weaker equity index futures prices. The precious metal remained impressively strong last week, posting gains despite weaker energy prices. The continued strength of global equities has fueled speculation that inflationary pressures will begin to pick up speed. While the news that China plans to curb excesses in heavy material industries can be seen as bearish for base metals and energies, the impact on Gold remains to be seen. The overall negative tone the news sets for heavy metals, coal and petroleum could spill over into precious metals, causing stagnation or weakness. On the other hand, traders still bullish commodities in general could exit base metals and energies and enter the precious metals market instead.

Some of the choppiness seen in Gold prices is directly related to the movement of the US Dollar, which has remained range-bound for the month of August. The outlook among analysts and traders seems to favor further downside for the greenback going forward under the crushing weight of government spending. The question seems to be when, rather than if, the dollar will falter. For this reason, the long-term outlook for the precious metal remains bullish. Nearer term, it seems that the Gold market could be trapped in range-bound trading, much like the greenback and equity prices.

Trading Ideas

Given the uncertain technical and fundamental outlooks, some traders may wish to enter into a neutral strategy - for example, a condor spread. Traders desiring to explore such a strategy may wish to consider selling the October Gold 1000 call (GCV91000C) and buying the October 1015 call (GCV91015C), for a credit of 2.20. At the same time, some traders may wish to sell the October Gold 900 put (GCV9900P) and buy the October 885 put (GCV9), for a credit of 1.50. The maximum profit on the spread is the initial credit of $370, and the maximum risk is $1,130.

Technicals

Turning to the chart, we see that the December Gold contract continues to trade in a sideways range centering around the 950 level. While the indicators and chart seem to point toward continued choppiness, the risk seems to remain on the downside. If the December contract were to close below the 930 level in the near-term, it would confirm a head and shoulders top, which could send prices below the key psychological 900 mark. Conversely, a close above 970 would negate the pattern and be seen as an upside breakout. The momentum indicator is showing slight bearish divergence from both price and RSI, indicating possible near-term weakness.

Rob Kurzatkowski, Senior Commodity Analyst