Fundamentals

Wheat futures nosedived after the USDA showed that planting intentions were higher than expected. The report indicates that seeding will be 53.8 million acres, higher than the consensus estimate of 53.3 million acres. The front month May contract fell by over 20 cents as a result of the news, indicating the many traders' personal expectations may have been lower than the analysts' figures. The showing could have been much worse if the Dollar Index had posted gains. The index was down 53 points as of the grain market close. Adding to the bearish plantings data, stockpiles of harvested Wheat were up over 30% versus last year. The poor demand for exports could result in even larger gains over last year's levels, creating a glut. The relative stability of the US Dollar has made exports from competitive nations such as Russia and Argentina much more attractive to trade partners. At this point, it looks as though the only factors that could help shift the fundamental landscape for Wheat would be a rapid decline in the exchange rate of the greenback or inclement weather. A sharp Dollar devaluation is an unlikely proposition, given the crisis in Greece, which could keep the value of the Euro in check.

Trading Ideas

Both the fundamental and technical outlooks paint a negative view of the Wheat market in the near-term. We are, however, entering into the early part of the growing season, so weather factors will begin to play a much larger role in the market. There is little news out there at the moment to shift traders' opinions on the grain. Given the fact that prices are approaching critical multi-year support levels, some traders may wish to take a cautiously bearish approach to the market with limited risk potential. One such strategy would be a bear put spread, buying the May Wheat 450 put (WK0450P) and selling the May 430 put (WK0430P) for a debit of 7.0, or $350. The spread risks the initial investment for a potential profit of $650.

Technicals

Turning to the chart, we see prices violating near-term support at the 465 level, and many traders may have their sights set on multi-year lows at the 440 level. If the 440 level is breached, the next area of significant support comes in at 410. The 14-day RSI is at oversold levels at 31.63, which could take the teeth out of a possible continuation of the sell-off. Also, the momentum indicator fell less sharply than prices, hinting that the market may find at least temporary relief.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

It appears that energy traders are looking for better economic conditions later this year, as they continue to bid-up Gasoline futures prices despite a surprising gain in U.S. inventories last week. The most recent Energy Information Administration Energy Stocks report showed that U.S. gasoline inventories rose by 313,000 barrels last week, surprising analysts who were expecting a draw of 1.3 million barrels. Much of the rise in gasoline inventories can be attributed to an increase in refinery operation rates which rose to 82.6%, vs. 81.8% last week. The increase in production seems to be due to improving refining margins as the U.S. moves closer to the peak summer driving season. Also supportive is the belief that the U.S. employment situation is starting to improve. If so, this could lead to increased gasoline demand, as those recently back into the employment pool commute to their jobs. However, in the near-term, U.S. gasoline supplies are at 17-year highs for this time of year, and the storage build last week does make one ponder whether increased demand expectations will be large enough to eat into the large surplus we are currently experiencing. However, Gasoline prices will be hard-pressed to tumble, especially if Crude Oil prices remain near recent highs. Traders are reluctant to sell Crude Oil short, as concerns of potential supply disruptions tied to the potentially volatile political situations in the Middle East and Nigeria have put a "risk premium" into Oil prices that some analysts believe could be as much as between 10 and 15 dollars per barrel! So unless the economic recovery stalls out in the coming months, traders appear willing to keep driving Gasoline prices upward

Trading Ideas

If we look at a longer-term chart for RBOB gasoline, we notice prices have consolidated during the past month, after having nearly tripled since the lows were made back in December of 2008. Although the market seems to have a bullish bias, both large and small speculators are said to be currently holding a sizable net-long position, which raises the possibility of a significant sell-off should some fundamentally bearish news hit the market. Some traders may possibly wish to consider a breakout position which would buy June RBOB futures should the recent highs of 2.3025 be taken out, or sell June RBOB futures should the recent lows of 2.1899 be breached. All traders will need to determine their own risk tolerance on the trade should the initial break-out of the chart consolidation prove to be false.

Technicals

Looking at a daily consolidation chart for RBOB Gasoline, we notice the market showing several periods of price consolidation before eventually making new highs since the bull market began back in late 2008. During this time, large non-commercial speculators have been adding to their existing net-long positions, which now total 74,718 contracts and is approaching the all-time high! This large position could make the odds of a significant sell-off increase, especially if support at 2.1899 is taken-out on a closing basis. However, the 200-day moving average does not come into play until the 1.9600 area, so even a relatively large price decline will not turn the long-term trend from bullish to bearish. A close above resistance at 2.3025 basis the June contract could set-up a potential test of the 2.4500 to 2.5000 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Cocoa futures seemed to have momentarily stalled, after flirting with the 3000 level last week. Traders seemed to be a bit less optimistic about the demand situation, with many market observers noting that chocolatiers and other end users of Cocoa beans seem well supplied at the moment. This puts users in a very advantageous position, where they can wait for prices to fall before making additional purchases. This is a letdown for Cocoa bulls, who believed that the slowing of Ivory Coast shipments might have been able to give prices a much needed boost. These demand worries may, however, only be a temporary setback. Stronger economic data around the globe suggests that demand may begin to tick up. Supplies may not be as strong as previously thought. Cocoa growers outside of the Ivory Coast are under tremendous pressure to compensate for slowing exports from the world's largest producer. There is much uncertainty regarding whether Africa's other growers will be able to compensate for the Ivory Coast shortfall. Commodities, outside the US grain market, seem to be picking-up steam from the inability of the Dollar Index to build on recent gains and rising Crude Oil prices.

Trading Ideas

After being in a downtrend since late last year, it looks as though the Cocoa market's fortunes may perhaps be changing. The slowdown in shipments from the Ivory Coast may eventually trump the possibly bearish demand situation. Technically, it looks as though prices may be heading higher in the near to intermediate-term, after confirming the double-bottom. Some traders may perhaps wish to go long the May futures contract on a close above 3000, with a protective stop at 2875 and an upside objective of 3250. The trade risks roughly $1,250 for a potential profit of $1,250.

Technicals

Turning to the daily May Cocoa chart, we see the market confirming a double-bottom pattern last week. However, the market has been unable to pick-up steam after confirming the pattern, which happened to center around the 38.2 percent Fibonacci retracement. The 50-day moving average comes in just above the 3000 level, which is both technical and psychological support. The measure of the double-bottom pattern suggests that prices could come up to test resistance at the 3200 level.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

Treasury bond bears have been stymied once again, as fresh selling failed to materialize once technical support was breached. Front month Bond futures prices fell to their lowest levels since June of 2009, as traders have increased the chances of a Federal Reserve interest rate increase later this year. Much of this optimism is tied to improvements seen on the economic front, especially the gain in U.S. employment last month. Continued signs of an economic recovery should lead the Fed to raise interest rates, with traders now pricing-in a possible rate increase as soon as the September 21st meeting. Although the longer-term trend seems to favor higher treasury yields/lower bond prices, ten-year note yields reaching 4% have attracted buyers -- especially from outside the U.S., as overseas investors look for a "safe haven" in which to invest their funds -- particularly given the continued uncertainly seen in Europe and the Greek debt situation. A rising U.S. Dollar is also helping to make U.S. treasury investments attractive, as a rising Dollar can offset some of the risks of rising interest rates for non-U.S. investors. Many bond traders will now turn their attention to the Treasury's auction of $21 billion of ten-year notes on Wednesday, and $13 billion of 30-year bonds on Thursday, to see if the recent rise in yields will continue to attract buying interest -- especially from Asia, as some traders there begin to lose interest in holding more European debt, given the uncertainty surrounding Greece and other struggling EU nations. If the Treasury auction is deemed successful, it will continue to demonstrate the allure of U.S. investment -- especially in times of uncertainly, and despite the sizable increases in the U.S. deficit.

Trading Ideas

Treasury bond futures prices may be at a crossroads, with the potential for a big move increasing, as bulls and bears battle it out at a key chart support level. Some traders who anticipate a large move in bond prices and are unsure as to the direction of the price move may perhaps choose to investigate the purchase of strangles in 30-year Treasury bond futures. An example of this trade would be buying the June bond 116 calls and buying the June bond 113 puts. With June bond futures trading at 114-21 as of this writing, this strangle could be purchased for 1-48, or $1,750 per spread, not including commissions. The premium paid would be the maximum potential loss on the trade, and the trade will be profitable at expiration in May should June bonds be trading above 117-24 or below 111-08.

Technicals

Looking at the daily continuation chart for 30-year bond futures, we notice that prices have tried to rebound after Monday's declines to recent lows of 114-06, after key support at 114-16 failed to hold. Prices are still well below both the 20 and 200-day moving averages, and momentum as measured by the 14-day RSI remains weak, with a current reading of 36.87. The next major support point appears at the June 2009 lows near 111-21, with resistance now seen at last week's highs of 116-12.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Aussie Dollar futures traded at their highest level in almost 3 months after the Reverse Bank of Australia, the nation's central bank, decided to raise rates 25 basis points. The currency has already gotten a huge boost recently from strengthening commodity prices, and now, the RBA decision has given investors even more incentive to flock to the high yield currency. The healthy economy in Australia leaves the door open for further tightening down the road, while most Western central banks will be limited with regard to tightening rates. The Aussie has posted solid gains against the Euro as well, due to the soap opera that is the Greek financial crisis, indicating this rally could have some legs. China's stimulus packages have created a strong demand for base metals, which suggests that the pace of economic growth in Australia, a major trade partner, may remain robust and outpace many of its Western counterparts. The strong gains posted by the Canadian Dollar, which has traded at parity with the greenback for two consecutive sessions, may also create a buying opportunity for the Aussie. Traders who may see the Canadian as overbought may decide to exchange loonies for Aussie Dollars in order to stay long higher yielding currencies from commodity-based economies. The Australian currency is not without risks, however. The strong gains in the Crude Oil market have provided a boost for commodities as a whole, and commodity-based currencies. If the high price of Oil is seen by traders as too much of a burden for the recovering global economy, prices of commodities may give back some of their recent gains. This could have an adverse effect on the Aussie.

Trading Ideas

The fundamental outlook for the Aussie Dollar remains extremely favorable. The strength of the Australian economy and favorable interest rates could entice some traders wishing to exit Euros and disappointed in the low yield of US Dollars. The chart, however, does not yet support this view. Some traders may wish to wait for the June futures contract to close at or above 0.9400 before entering a long futures position, with a protective stop at 0.9300 and an upside objective of 0.9700. The trade risks approximately $1,000 for a potential profit of $3,000.

Technicals

Turning to the chart, we see the June Aussie Dollar contract taking-out relative highs made a month ago. This suggests that prices, at the very least, could test 2010 highs at 0.9275 made in mid-January. On the weekly chart, we see prices approaching the upper boundary of the downward sloping consolidation area. A breakout of the consolidation area suggests that the market may resume the uptrend it has been in since March of last year, and could possibly break highs made in July of 2008 and trade close to parity.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

The Japanese Yen futures have rallied the past few sessions as continued fears about the debt situation in Greece have trader covering previous short positions. Few would say that conditions in the Japanese economy would warrant a strengthening Yen, as the country continues to fight deflationary fears, with the Bank of Japan (BOJ) once again keeping interest rates near zero, with little signs that this policy will change any time soon. This low interest rate policy has made the Yen a favorite borrowing currency for so called "carry trades" with speculators "borrowing" in Yen to make investments in higher yielding currencies or securities. These trades work well when investors are looking to increase their risk in order to gain potentially large percentage returns. However, once traders look to lower their exposure to risk, the unwinding of the "carry trades" tends to sparks a rally in the Yen as traders buy back their short positions in the currency to exit their trades. Among the most popular of these trades was long Euro/short Yen, so the continued uncertainty concerning the Greek debt situation had many traders covering this trade adding support to the Yen. Additional Yen strength may also be coming from increasing expectations that China is preparing to let the Yuan float more freely from the current bands in place. This belief was highlighted from the recent visit to China by U.S. Treasury Secretary Timothy Geithner. Any potential upward revaluation of the Yuan could spill over into other Asian currencies such as the Yen or the Korean Won and it appears that some traders may already be positioning themselves for this outcome. Any meaningful Yen rally would not be welcomed by Japanese exporters who have voiced their concerns to the Japanese Government about the detrimental affects to their industries and profitability should the Yen continue to strengthen. This could set the stage for potential government intervention in the FX markets to help weaken n the Yen, should economic conditions turn for the worse, though it has been several years since the BOJ has used intervention as a "tool" to control the value of the Yen, the potential for intervention is out there which may curtail the extent of any upward correction in the Yen.

Trading Ideas

Traders who believe the recent Japanese Yen rally is nothing more than a short-term correction may wish to investigate the purchase of bear put spreads in the June Yen futures options. An example of this trade is buying the June Yen 1.07 puts and selling the June Yen 1.02 puts. With June Yen futures trading at 1.0748 as of this writing, the spread could be purchased for about 145 ticks or $1,550 per spread not including commissions. The premium paid is the maximum potential loss on the trade with a maximum potential profit of $6,250 minus the premium paid should June Yen futures be trading below 1.0200 at option expiration in June.

Technicals

Looking at the daily continuation chart for Japanese Yen futures we notice the major uptrend in the value of the Yen since the major low made back in June of 2007. Recent trading activity has favored Yen bears, however, as prices have fallen below both the 20 and 200-day moving averages which can be viewed as a bearish signal by both long and short-term trades. However, it would still take a price move below the uptrend line, currently at 1.0250, to really signal a major trend in trend. The recent sell-off below 1.0600 sent the 14-day RSI into oversold levels, which may have triggered some of the short-covering rally attempt we have seen the past few trading sessions. The April 2nd lows at 1.0566 should provide near-term support for the June Yen, with near-term resistance now seen at the 20-day moving average currently near the 1.0860 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Since the beginning of March of 2008, new crop July wheat has been in the midst of a major bear market, as prices have fallen by nearly 60% the past two years, as the all-time high prices reached in 2008 encouraged producers worldwide to increase wheat production. However, now that wheat prices have moved towards more "reasonable" levels, there are some signs that U.S. export demand may begin to increase. U.S. weekly Wheat export sales totaled 323,700 tons for the 2009/10 crop marketing year, which is well above the 117,000 tons needed each week to reach the USDA expected totals for this year. The rise in exports comes despite a rising U.S. Dollar, which would make U.S exports more expensive to foreign buyers. The USDA in its April Supply/Demand report lowered 2009/10 U.S. Wheat ending stocks by 51 million bushels to 950 million bushels. The USDA also lowered world wheat carryout totals by 1 million metric tons to 195.8 million tons. Although the decline in both U.S. and world wheat ending stocks should be viewed as supportive to wheat prices, traders still acknowledge that U.S. wheat ending stocks are at 10-year highs. Large and small speculative accounts are holding net-short positions in Chicago Wheat futures totaling a combined 69,032 contracts, as of March 30th. However this net-short position has begun to decline, as some of the large commodity funds have started to cover their short positions -- especially as prices have rallied off contract lows the past several day. However, some analysts believe that any rally in July Wheat futures will be short-lived, as U.S. wheat producers will take advantage of a rise in futures prices to hedge current production ahead of this season's harvest.

Trading Ideas

With the upcoming harvest looming and the potential for hedge selling likely to increase, some traders may wish to take advantage of the recent rally in wheat prices to establish a short position in wheat futures. One such trade would be selling call options in July Wheat futures, and an example of this trade would be selling the July wheat 540 calls. With July wheat trading at 478.25 as of this writing, the July 540 calls could be sold for about 3 cents, or $150 per option, not including commissions. The premium received would be the maximum potential gain and would be realized if July Wheat is trading below 540.00 at option expiration in May. Given the risk involved in selling naked call options, traders should strongly consider having an exit strategy in place in case the trade moves against them. One such risk management plan would be to close out the short calls before expiration should the option premium move up by 3 times the amount of premium originally received.

Technicals

Looking at the daily chart for July Chicago wheat, we notice how far prices have fallen the past two years! The recent minor up-move the last few sessions seems to be nothing more than short-covering ahead of this past Friday's USDA report. The market had tried to move above the 20-day moving average last week, but failed to hold above this widely watched technical indicator for more than one day. The 14-day RSI has turned down, with a current reading of 44.34. The contract low at 460.50 made on April 5th remains as key support for July wheat, with resistance found at the recent high at 508.50.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The Euro posted its strongest gains versus the US Dollar in over half a year after the EU unveiled an aid package for Greece, lowering the chances of the nation defaulting on its debt. The pan-European Union hoped to temper some of the fears surrounding debt of member states by offering the $61 billion aid package. The Dollar, for the most part, has been able to do no wrong in the eyes of traders, as long as the dark cloud of the Greek crisis hung over the EU. Despite taking seemingly forever to come to an agreement, European policy-makers hoped to hush critics that have suggested that credit risk may spread throughout the region, and that the tension surrounding the handling of the crisis could drive a wedge between member states, possibly leading to dissolution down the road. For the time being, many currency traders seem to be rushing to cover short positions. The size of the short position in the Euro is said to be extremely large, which suggests that the near-term short-covering rally could eventually turn into a much more sustained rally. The European policy-makers that were initially against such a bailout may have finally realized that government borrowing costs across the continent could have risen substantially. Lower borrowing costs could possibly lead to economic health, which figures to support the currency. Greece and the rest of Europe, however, are not out of the woods yet, as spending must be reigned-in for the bailout to be successful. The risk of a Greek default has not been eliminated, but rather, mitigated by the move. Traders have been betting on the EU not being able to reach an accord on the situation, so it will be interesting to see how traders behave once the dust settles.

Trading Ideas

The EU finally coming to a resolution on financing for Greece, despite heavy resistance from Germany, could bode extremely well for the currency. It was as if the EU built the Pillars of Hercules to take the weight of the word off of Greece's back. The technical outlook also looks to have shifted in favor of the Euro, after the confirmation of the double-bottom pattern signaled a possible end to the downtrend. For this reason, some traders may wish to take a bullish approach and enter into a bull call spread by buying the June Euro 1.39 calls (ECM01.39C) and selling the June Euro 1.42 calls (ECM01.42C) for a debit of 0.0060, or $750. The spread risks the initial cost for a potential profit of $4,250 if the Euro closes above 1.4200 at expiration.

Technicals

Turning to the daily chart, we see the June Euro confirming a double-bottom pattern. This suggests that the downtrend that began in December may possibly be reversing course. It is interesting to note that the pattern was confirmed on a gap up and the market closing near the lows of the session. Prices managed to close above the 20-day moving average, suggesting that a near-term low may be in place. Yesterday's close did fall slightly below the 50-day moving average, after trading above the average for much of the session. Failure to close above the average could be seen as a technical defeat for the bull camp.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

It appears that Lumber futures traders are an optimistic group, as prices have steadily climbed to make new contract highs, as the lead month May contract briefly moved above psychological resistance of $300.00 per 1,000 board feet. This was the first time since July of 2007 that front month Lumber futures have reached this price level, leaving many analysts puzzled at the price strength -- especially with the U.S. housing market still struggling to find a bottom. Lumber prices have more than doubled since January of 2009, as the steep global recession and collapse in the U.S. housing market sent Lumber futures prices below $140.00 -- levels not seen since 1986. Low Lumber prices forced many producers out of business or triggered sharp declines in production as mills struggled to survive. However, the vast amounts of economic stimuli in the global economy have triggered fears that rising inflation will take hold, especially as further economic recovery takes hold. This belief has many investors and traders taking a renewed interest in commodity investments as a potential hedge for rising inflation in the future. This may be one of the reasons for the strength in the Lumber market, as well as diverse markets such as Crude Oil and Gold, whose rise in price seems counter to current market fundamentals. The most recent Commitment of Traders report shows both large and small speculators were holding net-long positions in Lumber futures as of April 6th, and that they increased their long positions by 446 contracts this past week. Although speculators have apparently jumped on the bullish Lumber bandwagon, it will be interesting to see if cash market participants are willing to step-out and buy at these lofty price levels -- especially with the new housing market continuing to struggle. Unless we see actual Lumber demand begin to improve, Lumber futures may struggle to move much higher, and a price correction caused by speculative long liquidation is not an unlikely scenario.

Trading Ideas

Given the sharp run-up in Lumber prices since the beginning of March, some traders are looking at a possible price correction being long overdue. However, trying to pick a top in this bull market by selling futures outright could entail more risk than some traders would like, especially given the Lumber market's notorious history of multiple limit moves. Some traders who are looking for Lumber prices to correct but wish to limit their potential loss may wish to investigate the purchase of Lumber put options. An example of this trade would be buying the July Lumber 280 puts. With July Lumber trading at 304.30 as of this writing, the July 280 puts could be purchased for about 9.00 points, or $990.00 per option, not including commissions. The premium paid is the maximum potential loss on the trade, and the trade will be profitable at expiration in June should July Lumber be trading below 271.00.

Technicals

Looking at the daily continuation chart for Lumber, we notice the huge move Lumber futures have made since October of last year. Prices are well above both the 20 and 100-day moving averages, and the up-trend line drawn from the October lows does not come into play until the 275.00 area. However, the 14-day RSI is showing a major bearish divergence, which may signal that a price correction is well overdue. Resistance for May Lumber is seen at the contract highs of 300.90, with support found at the 20-day moving average, currently near the 287.30 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Gold futures are lower this morning, continuing their pause after climbing more than $70 an ounce from recent lows. This can be seen as a much needed pause after climbing sharply, which may prevent the market from going boom and bust. Investment demand for the precious metal may continue to increase if the Euro continues to post gains versus the US Dollar. The greenback has been under attack from several fronts. Commodity based currencies, such as the Aussie, the Canadian Dollar and Brazilian Real, have had extremely strong showings on gains in Crude Oil and base metal prices. The Euro is beginning to recover against the Dollar after the EU reached a compromise on the Greek bailout plan. Finally, demand for US treasuries has eroded because of the continued resilience in global equity markets and concerns that the market is oversupplied due to the mountain of debt issued in recent months. All of these factors seem to point toward stronger Gold prices. Consumer spending is beginning to increase, albeit sluggishly, which when coupled with rising Oil prices, could open the door for inflation to seep into the economy. While all of this is bullish for Gold, the precious metal market is not without downside risk. Gold traders have been an increasingly fickle bunch, losing some of the gusto that had helped push the price of the metal to current levels. The sharp increase in Crude Oil prices may be a major economic concern going forward. If the price of black gold reaches the triple digits, it could break the back of the economy. After the housing and lending markets had a meltdown several years ago, it was the sharp spike in energy and commodity prices that was the final dagger to the US and global economies. An exact replica of this scenario is highly unlikely, but increasing consumer costs could result in a sharp reversal of the economic recovery, leading to lower precious metals prices. High double-digit Oil prices could support a rally in Gold without an unraveling of the recovery

Trading Ideas

Given the bright fundamental and technical outlooks, some traders may wish to take on a bullish position in Gold. The bullish enthusiasm could be clouded, however, if the Crude Oil rally goes unchecked. For this reason, a bull call spread may possibly be in order for some traders, and they may wish to investigate buying the June 1180 calls (GCM01180C) and selling the June 1200 calls (GCM01200C) for a debit of 8.00. The spread risks the initial investment for a potential profit of $1,200.

Technicals

Turning to the chart, we see June Gold crossing resistance at the 1150 level and pausing. This consolidation on the daily chart, which appears as a small pennant, seems to favor further gains since the preceding move was up. Closes below the 1150 level can be seen as a technical setback for the market. Failure to break down below the 1150 level suggests that the market may possibly be ready to attack all-time highs above 1200. The overbought conditions on the RSI may have contributed to the sluggish action recently. Now that the indicator has come back down to neutral levels, buying pressure may ensue.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

Precious metals traders have seen Gold prices, in U.S. Dollar (USD) terms at least, move relatively sideways since the all-time highs were reached back in December of last year, as a strengthening "Greenback" has taken a bit of the luster off the yellow metal. However, one member of the precious metals group, Palladium, has bucked the negative USD influence and has soared to contract highs. Investor interest in Palladium, as well as Platinum, has increased sharply this past year, after the introduction of physically-backed exchange traded funds for both Palladium and Platinum here in the U.S. back in January. Nearly 580,000 ounces of Palladium are being held by this ETF, taking supplies out of the market since its introduction. Palladium is a key component in catalytic converters for automobiles, which accounts for over 50% of demand for this metal. With definitive signs of a worldwide economic recovery and auto sales surging in Asia (especially China), many traders are expecting industrial demand for Palladium to increase as well. Given the relatively thin trading volume in Palladium, volatility can rise sharply -- especially if speculative interest continues to increase. Over 80% of global Palladium production is centered in only two countries -- Russia and South Africa -- and any supply disruptions out of these countries could cause a sharp up-move in prices. One only has to look at a Palladium futures chart from late 2000 and early 2001 when Palladium prices soared to over $1000 per ounce, as supply disruptions out of Russia caused shortages of the metal, which triggered a monumental short-squeeze as speculators and short hedgers, who were caught on the wrong side of the market, were forced to cover short positions at historically high prices, as few sellers were found. With Palladium prices currently 50% below the historic highs seen in 2001, some analysts believe the up-move in prices may still have some legs, especially with Gold futures trading at near historic highs and Platinum trading over $1,000 higher than its close cousin.

Trading Ideas

Although it might be mentally difficult for many traders to buy a new high in Palladium futures outright, its technical performance has been impressive -- especially when compared to the performance of Gold futures recently. Some traders who expect Palladium prices to continue to gain on Gold prices may wish to investigate buying June Palladium and selling June Gold. June Palladium is trading at a $608.00 discount to June Gold as of this writing, and traders choosing to buy the Palladium/Gold spread would want to see the discount continue to narrow.

Technicals

Looking at the daily chart for June Palladium for the past 6 months, we notice the over $200 per ounce rally as signs of an economic turnaround took hold. After a minor correction in late March, prices have steadily climbed, with Wednesday's surge on high volume a potential signal of fresh speculative interests entering the market. Even if the market is overdue for a correction, prices would still have to fall below the 100-day moving average, which is currently near the 433.00 area, to cause any major structural damage to the current bull move. The 14-day RSI has moved into overbought territory, with a current reading of 77.42. 600.00 now looks to be the next resistance level for June Palladium, with support seen at the 20-day moving average near the 493.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Crude Oil futures broke out if its mini 5-day slump this past Wednesday, after the Energy Information Administration (EIA) reported that U.S. Crude Oil inventories unexpectedly had fallen the previous week. The just over 2.2 million barrel crude drawdown broke a streak of ten consecutive weeks of inventory gains, as a sharp drop in oil imports and an increase in refinery utilization were behind the inventory decline. This relatively bullish report caught a number of traders flat-footed and sparked a hefty short-covering rally that appears to signal the market may be ready for another test of recent highs of 87.59 in the June futures. Oil demand from China, the world's second largest consumer of oil, is also expected to increase, with Chinese refineries using 34.56 million metric tons of Crude Oil in March - which is up 18% from year ago levels, as higher than expected economic growth in the first quarter (up 11.9%) contributed to increasing demand for refined products. Not only are Oil fundamentals beginning to show some signs of improvement, but we also have increased investor concerns about the potential of rising inflation in the futures -- especially as the huge financial stimulus continues to work its way through the world economy. The vast liquidity in the energy markets makes this commodity sector a favorite trading vehicle for many large institutional accounts who wish to place a portion of their capital in commodities. In fact, both the NYMEX and ICE Oil futures markets have posted record trading volume this past week. The belief, true or not, that commodities in general -- including Crude Oil -- can be considered an investment class, not just a trading instrument, may end up trumping actual Oil fundamentals, which could keep Oil prices moving upward for some time to come.

Trading Ideas

Some bullish Oil traders may wish to take advantage of the recent pull-back in prices from Friday to investigate the purchase of call options. An example of this trade would be the purchase of June Crude Oil 86 calls. With June Oil trading at 84.00 as of this writing, the June 86 calls could be purchased for 1.87, or $1,870 per call, not including commissions. The premium paid for the calls would be the maximum risk on the trade. The trade would be profitable at expiration in May if June Crude is trading above 86.00 plus the cost of the option, which in this instance would be 87.87.

Technicals

Looking at the daily chart for June Crude Oil, we notice Friday's steep sell-off has negated the gains seen from the surprising EIA report on Wednesday. The sharp drop in equity prices tied to the SEC complaint against Goldman Sachs was likely the main catalyst for the drop in Oil prices. The panic selling sent prices briefly below the 20-day moving average before some light buying quickly halted the move lower. To really put Oil bulls on the defensive, we would need to see June oil fall below the 100-day moving average, currently near the 80.60 level. The 14-day RSI has moved to a more neutral reading of 51.60. Resistance for June Oil remains at the recent highs of 87.59, with near-term support found at 83.75.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Copper futures have followed the base metal sector higher this morning, after upbeat economic data from Germany. Base metals were sharply lower the previous two sessions, after Goldman Sachs was charged with fraud, which sent equities and commodities into a tailspin. The volcanic ash, which halted European flights for several days, now seems to be a lessening threat to the European recovery now that flights have resumed. Traders, though, may be the wiser by keeping tabs on the fallout from the Goldman case. If subprime problems begin to spread throughout the banking sector once again, it could stifle the global recovery. China continues to have a voracious appetite for the red metal. The upside potential of the metal could be limited, however, due to China's attempts to cool its own credit markets. Banks were told to stop issuing mortgages for the purchase of third homes by borrowers. This could result in a slowdown of the construction boom, which has been largely fueled by real estate investors hoping to cash in on the urbanization of rural peoples. The government plans on imposing a sales tax for home purchases, which also threatens the construction industry. The industrial use of Copper remains steady, but a slowdown in construction demand remains a major threat to China's demand.

Trading Ideas

Copper seems to be at a critical moment. China's demand for the metal has been extremely strong, but the new rules imposed on the banks in the nation threaten to derail the boom in the residential construction market. Because of the unclear fundamental outlook, some traders may wish to focus, instead, on the technicals. Some traders may wish to short the May Copper futures contract on several solid closes below 3.40. Conversely, if the contract is able to hold this level, some traders may wish to go long the futures contract.

Technicals

Turning to the chart, we see the daily May Copper chart showing signs that the market may be topping, at least in the near-term. There was a confirmation of a double-top pattern on Friday, suggesting the market may be turning lower. Prices did fail to close below minor support at the relative high of 3.4775. The close below the 20-day moving average signals that a near-term high may be in place. The 3.40 level on the downside will likely provide a true test for the market. If prices are unable to hold this level, we may see further corrections. If prices are able to hold 3.40, this could suggest that the pullback in prices is likely only a temporary phenomenon and the uptrend will probably continue.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

It appears that the 25-cent plus sell-off in Orange Juice futures may have finally run its course, as commodity fund buying has lifted July OJ to 2-week highs. Since the middle of March, OJ prices have fallen over 15%, as ideal weather conditions in the Florida citrus growing region are seen as beneficial to the Orange crop. Moisture conditions have been adequate, which is reducing the need for irrigation by producers. The Valencia harvest is progressing well, as just over 5.23 million boxes have been harvested as of this past Sunday. However, the steep sell-off in OJ futures this past month has left the market technically oversold, which may have sparked renewed interest by technical traders. Analysts noted buy stops were triggered once the July futures moved above Monday's highs of 136.00, as weak shorts took profits after the market failed to make new lows last week. Large-speculators, who are holding a net-long position in OJ, according to the most recent Commitment of Futures report, appear to be adding to their positions this week, now that it appears that the market is trying to forge a bottom. However, with little in the way of bullish fundamental news accounting for the recent price rally, OJ bulls will need to see additional fresh speculative buying entering the market as well as muted selling by commercial traders in order to mark a significant change of sentiment and really put juice bears on the defensive.

Trading Ideas

The OJ futures market appears to be in flux, as speculators attempt to push the market higher while commercials look to sell on any major rallies, as weather conditions look favorable for crop production. However, as we move into the summer and the start of the Atlantic hurricane season, some traders may begin to price a weather premium into the OJ market, with increasing volatility a real possibility. Traders looking for a potential increase in volatility who are unsure about market direction could choose to explore the purchase of strangles in OJ futures options. An example of this trade would be buying the September 160 calls and buying the September 120 puts. With September OJ futures trading at 139.20 as of this writing, this strangle could be purchased for about 6.50 points, or $975 per strangle, not including commissions. The premium paid would be the maximum risk on the trade, with the trade profitable at expiration in August if September OJ is trading above 166.50 or below 113.50.

Technicals

Looking at the daily chart for July Orange Juice futures, we notice the market trying to make a "V-shaped" bottom, as prices rebounded sharply the day after the July futures put in a significant low at 128.40 on April 8th. The July contract has made a near perfect 38.2% Fibonacci retracement so far and now sets up a test of the 50% retracement level, which ironically is also near the 100-day moving average near the 142.00 area. The 14-day RSI has moved higher and is now in neutral territory with a current reading of 49.34. 128.40 is seen as significant support for the July contract, with strong resistance at 142.00.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Canadian Dollar futures are once again above parity with the US Dollar, fueled by higher commodity prices and expectations that the Bank of Canada will raise interest rates. The IMF expected the country's economy to grow at a faster rate than the other seven nations that make up the G8. The robust outlook for the Canadian economy has led many traders to believe that the BOC will be aggressive in its interest rate policy to prevent the economy from overheating and stoking inflation. Some traders wishing to diversify away from greenbacks have found the Loonie an attractive alternative. Many traders had expected that the aid package for Greece might put that nation's troubles on the back burner for the time being, but that seems to be wishful thinking. The possible inability of Greece to contain its spending enough to prevent a default has once again caused the Euro to fall against other major currencies. Crude Oil prices have remained extremely strong, which has aided the Canadian Dollar. Crude is Canada's top export. The movement of the Canadian Dollar relative to Oil does, however, make the currency susceptible to corrections if the price of black gold drops. For the time being, the potential for favorable interest rates and the commodity-based nature of the economy could support the currency from the north.

Trading Ideas

The fundamentals do seem to favor a strong Canadian Dollar. The market seems to be pricing in a series of positive events, including expectations that economic growth will top prior forecasts and the nation's central bank will raise interest rates. That being said, the market is not without its risks. Like Crude Oil, the market may have advanced too far, much too quickly for some traders' liking. The chart also shows a strong market that may have some chinks in its armor. For these reasons, some traders with a very long-sighted view of the market may possibly wish to maintain bullish positions. Some short-sighted traders, on the other hand, may be looking to benefit from a potential correction. These traders may wish to consider being short the June Canadian Dollar on a close below 0.9850, with a downside target of 0.9600 and a stop at 0.9925. This trade risks roughly $750 for a potential profit in the neighborhood of $1,500.

Technicals

Turning to the chart, we see the June Canadian Dollar contract making new intra-day highs versus the greenback. The market, however, was unable to hold intra-day highs and closed below Tuesday's settlement. This inability to hold Tuesday's close could be a troubling sign for some traders, as it may hint at a toppy market. A close below 0.9850 could be a signal that the market may have peaked in the near-term and suggests a correction may be in order. Ideally, traders would like to see several closes above parity to swing the bias to the bull camp.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

Bulls are attempting to reestablish control of the Cotton futures market, as prices surged above an 8-week consolidation phase. The main catalyst for the fresh buying was an April 19th announcement out of India that it will cut-off Cotton exports for the time being to help control rising domestic prices. India is the world's second leading Cotton exporter as well as producer, and its absence from the export market may shift even more export business to the U.S., which is already the world's largest exporter of Cotton. World Cotton stocks are already becoming tight this marketing year, as a less than stellar Cotton harvest this past season is expected to keep production levels well short of expected consumption demand. On Thursday, the USDA announced that U.S. Cotton sales totaled 352,600 running bales for the week ending April 15th. This was over 70,000 bales above the previous week's totals, with the largest buyers being China and Turkey. There is still some uncertainly on how strong Cotton demand will be from China, the world's largest Cotton importer, especially given recent attempts by the Chinese government to cool-off their surging economy. In the past forty years, there have only been five price moves above 90 per pound, and as Cotton prices begin to approach this psychologically important level, the market may find willing sellers, as weak longs and commercial traders try to lock-in relatively high historic Cotton prices. The most recent Commitment of Traders report shows commercial traders increasing their net-short Cotton position by nearly 11,500 contracts as of April 13th. This was before the India announcement on the export ban, as well as before prices moved above Cotton's consolidation range. It will be interesting to see the data on next week's report to see if commercials continued to sell into the rally, or if speculative accounts, mainly trend following funds, were adding to their long positions on the chart breakout. One thing that appears evident is that the Cotton traders should have an interesting trading environment in 2010.

Trading Ideas

Although current Cotton fundamentals seem to point to higher Cotton prices, the market may currently be overbought -- especially if the credit situation in Greece causes speculators to lighten-up on risk. Some traders looking to take a bullish position in Cotton who would like to be able to quantify their risk may wish to investigate the purchase of bull call spreads in Cotton options. An example of this trade would be buying the July Cotton 85 calls and selling the July Cotton 95 calls. With July Cotton trading at 85.02 as of this writing, this spread could be purchased for about 300 points, or $1,500 per spread, not including commissions. The premium paid is the maximum loss on the trade, with a potential profit of $5,000 minus the premium paid should July Cotton be trading above 95.00 at option expiration in June.

Technicals

Looking at the daily chart for July Cotton, we notice prices gapped higher on Wednesday after Tuesday's limit-up move following the India export announcement. This move higher took prices above the 5-cent wide trading range July Cotton had been stuck in since the beginning of March. With first notice day for the May contract coming up soon, spread trading may have taken some of the bullish focus away from the market, as traders focus on trading the roll from May to the July contract. The 14-day RSI has not yet reached overbought territory (a reading >70 is considered overbought), with a current reading of 62.80. Even if prices try to trade back below the top of the recent price range, the short-term trend will still likely favor the bulls as long as the July contract does not close below the 20-day moving average -- currently near the 82.00 area. 90.00 is seen as the next major resistance area for July Cotton, with major support seen at the bottom of the recent price range at 79.25.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Commodity funds have certainly jumped back on the bullish Soybean bandwagon, as fresh buying by these large speculative accounts has moved July Soybean futures to their highest levels since the middle of January. US Soybean exports remain surprisingly strong, as China continues to be a buyer of US beans. Planting weather in China remains poor, as drought conditions continue to be a concern in the southwest growing areas of the country. US old-crop Soybean supplies remain tight, as buyers continue to come to the US for their purchases -- at least until the South American harvest is complete. US Soybean exports are ahead of the USDA's projection for the 2009-10 marketing year, running at 94.2% vs. the five year average, which is closer to 90%. Although the near-term fundamentals appear bullish, the longer term outlook is decidedly bearish, as traders expect ample supplies of Soybeans coming out of South America to put a serious dent in US exports later this year, as buyers turn to Brazil and Argentina to meet their needs. In addition, US producers in the south have already been actively planting Soybeans this season, with analysts looking for about 5% of the Soybean crop to have been planted when the USDA releases their crop progress report later today. After holding short positions in Soybeans earlier this year, large non-speculative traders have made an about-face and are now aggressively turning net-long Soybean futures. The Commitment of Traders report for the week ending April 13th shows large non-commercial traders adding almost 29,000 new net-long positions in Soybeans, bringing their total net-long position to 39,435 contracts. Although this was a large weekly increase, the net-long position is not even close to the over 150,000 plus net long positions held back in November of 2007 and allows for even further buying by commodity funds for as long as demand remains robust. However, with the potential for a sizable Soybean harvest in the fall, Soybean bulls should enjoy the run while they can.

Trading Ideas

Given the current strong demand for US Soybeans and the potential for a large increase in supplies later this year, some traders may wish to explore initiating bull spreads in Soybean futures. An example of this trade would be buying old-crop July Soybeans and selling new-crop November Soybeans. As of this writing, July Soybeans were trading at a 31.50 cent premium to the November futures. A buyer of this spread would want to see the price differential continue to widen. This spread can be quite volatile, and traders should have an exit strategy in place should the position move against them. It is not uncommon to see one leg of the spread trade higher while the other leg of the spread trades lower on the session.

Technicals

Looking at the daily chart for July Soybeans, we notice prices got a nice pop to the upside once resistance at 990.00 was taken-out earlier this week. Prices are now above both the 20 and 100-day moving averages, and momentum as measured by the 14-day RSI is strong, with a current reading of 66.71. There looks to be some minor resistance in July Soybeans at the 1025.00 level, but more formidable resistance is not found until the 1050.00 to 1075.00 area. Support is seen at the 20-day moving average, currently near the 975.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Bond futures have found support recently due to the stock market being a bit shaky recently and a continuation of the Greek financial turmoil. Many traders and analysts would like to get the turmoil in Greece past them, but unfortunately, the EU resolution has failed to calm fears of a default. There is a growing contingent that believes that the scenario that the nation finds itself in is not the exception, but rather the rule. Traders have even questioned whether the debt structure of so-called economic superpowers will result in similar crises on a larger scale. Despite the huge amout of debt the US has written, many investors still view US treasuries as a defensive instrument and the last line of hope if the world suffers a severe setback. There is also some doubt creeping in whether inflation will be a major force, as previously expected, the logic being that the world economy is so fragile at the moment that a sharp rise in the price of raw materials may curb growth enough to quell demand. Bonds have found buyers just when it appears the market is on the verge of breaking down due to these outside factors. The treasury market fundamentals do seem to support lower prices, if for no other reason than the sheer size of the current supply. The grade of US debt has been questioned by many overseas investors, but despite these concerns, these same investors seem to be the ones that flock to US Bonds during periods of duress. The Bond market figures to continue finding support until the Greece situation is finally put to bed and the US Dollar falters. Its upside potential also seems limited, barring the unforeseen, due to expectations that the Fed may begin tightening soon.

Trading Ideas

Given tomorrow's FOMC rate decision, some traders may wish to sit on the sidelines and wait for the chaos following the announcement to settle down before entering into a strategy. The Bond market may continue to be choppy for the foreseeable future, given the tug of war between poor fundamentals and defensive plays. Some traders may look for a shorter term trade, such as buying the June futures contract on a solid close above resistance at 118-00, with an upside objective of 120-00 and a stop at 117-00. The trade risks roughly $1,000 for a potential profit of $2,000.

Technicals

Turning to the chart, we see the June Bond contract briefly trading below critical support near the 115-00 level, only to turn around and bounce back to near-term resitance near 118-00. There is fairly stout resistance between 118 and 121, with relative highs at each full point. Prices have closed above the 50-day moving average for the last four sessions and are testing the 100-day average. Several closes above the 100-day moving average suggests prices could test the upper end of the resistance band. Failure to hold the average suggests the rebound may only be temporary and that the June contract may come back down to test support at 115-00.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

Speculators have gone "Hog Wild" as Lean Hog futures continue their bull run. Since major lows were made back in August of last year at just under $44.00 per hundredweight, front month Lean Hog futures prices have nearly doubled in price. This is likely due to the fact that the Hog industry is feeling the effects of the economic crisis which occurred last year when lower protein demand caused producers to liquidate breeding herds, which in turn is causing market-ready hog supplies to remain tight. Meatpacker's pork profit margins remain strong, which is encouraging producers to bring hogs to market even though average hog weights are lighter than normal, which is keeping production totals light. Pork cut-out values have moved above $90.00 for only the second time in history and are the highest since the peak of the great commodity bull market back in the late summer of 2008. High retail pork prices are making some traders nervous that consumer demand for pork will start to decline, as buyers look for alternatives and cheaper cuts of meat for their protein needs. However, large speculative accounts seem to have little concern about futures retail demand, as their net-long position in Lean Hog futures is just below record levels. The most recent Commitment of Traders report shows large non-commercial traders holding a net-long position of 52,654 contracts as of April 20th. Although is this just over 5,000 contracts below the record levels set the previous week, Tuesday's sharp rally may encourage fresh speculative buying back into the market, as last Friday's sharp reversal day may have put a short-term bottom in place. Improvement in consumer confidence readings is also viewed as a positive for pork demand, as a brighter economic outlook by consumers may assure that there will be plenty of pork on the barbecue as we move closer to the Memorial Day holiday in the U.S and the unofficial start of the summer grilling season.

Trading Ideas

June Lean Hog futures prices may be at a crossroads -- a large speculative net-long position could cause fresh buying by trend-following systems as prices move closer to the $90.00 per hundredweight level, or it could spark a round of long liquidation selling if recent support at $84.00 fails to hold. Traders looking for a big move in hog futures who are unsure of the direction of the move may wish to investigate the purchase of strangles in Lean Hog futures options. An example of this trade would be buying the June Lean Hog 90 calls and buying the June Lean Hog 82 puts. With the June futures trading at 84.675 as of this writing, this strangle could be purchased for about 2.30 points, or $920 per strangle not including commissions. The premium paid would be the maximum potential loss on the trade, with the trade profitable at option expiration in June should the futures settle above 92.30 or below 79.70.

Technicals

Looking at the daily chart for June Lean Hogs, we notice last Friday's major price reversal as hog bulls failed to move prices above the recent highs of 87.80. Traders rallied hog futures on Tuesday, but the news that S&P downgraded the credit ratings of Portugal and Greece triggered a "flight from risk" by speculators, which triggered selling across the commodity sector and pushed June hog futures to settle well below the day's highs. Since Friday's "reversal", prices seem to be hovering right around the 20-day moving average, as short-term bulls and bears battle it out for control. Contract highs at 87.00 remain strong resistance for the June contract, and a close above this key chart point could trigger a test of major psychological resistance at 90.00. Friday's low of 84.00 looks to be near-term resistance, and a failure of this price level could send prices tumbling towards the 100-day moving average just above 80.00.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Just as it seemed that Corn futures prices were headed for fresh lows, along came the announcement that China had purchased 115,000 tons of U.S. Corn, causing a mad scramble by Corn bears to cover their short positions and sending old-crop futures prices soaring. The purchase was significant, as China had been a net-exporter of Corn, with its last U.S. purchase occurring nearly 4 years ago. However, Corn prices in China have soared, causing the government to use domestic reserves to help curtail the rapid price rise. Poor growing conditions in Southwestern China have some analysts looking for additional Chinese purchases later this season. Here in the U.S., Corn producers have taken advantage of ideal weather conditions to get this year's crop into the ground. The USDA announced that 50% of the U.S. Corn crop has been planted to date, which is well above the 20% planted at this time last year. The quick start to the planting and adequate moisture levels throughout the Corn Belt have analysts looking for a near-record Corn crop this season. It was the prospects for another large U.S. Corn harvest that had sent Corn prices to lows not seen since last October. However, if this is just a start of Corn purchases out of China this year, even a record Corn harvest may not be enough to keep U.S. Corn carryout from becoming tight -- especially as an economic recovery increases the demand for Corn for both livestock feed and for ethanol production.

Trading Ideas

The news of China buying U.S. Corn may have changed the momentum in the Corn market from bearish to bullish -- at least for the near term. Technical traders will note the rapid rise in July Corn futures after a test of 350.00 on the downside was thwarted. Some traders who believe that the Corn market will not fall below the recent lows at 351.50 may wish to investigate selling near-term puts in Corn futures with a strike price below this support level. An example of this trade would be selling the June Corn 350 puts. With July Corn trading at 369.50 as of this writing, the June 350 puts could be sold for 3 ½ cents, or $175 per contract, not including commissions. The premium received would be the maximum potential gain on this trade and would be realized if July Corn is trading above 350.00 at option expiration in late May. Given the potential risk in selling naked options, traders should have an exit plan in place should the trade move against them -- such as closing out the trade before expiration should July Corn trade below support at 351.50.

Technicals

Looking at the daily chart for July Corn, we notice that during the last 6 months, Corn prices traded in a pattern of several weeks of a consolidation phase before moving to lower prices. The recent surge due to the China news threatens to break this pattern and send prices higher. However, chart technicians would want to see July Corn close above the 100-day moving average, currently near the 389.00 area, to put Corn bulls back in charge. The 14-day RSI has moved into neutral territory with a current reading of 51.39. This past Tuesday's lows of 351.50 should act as significant support for July Corn, with the March 18th highs of 387.50 looking to be the next resistance level.

Mike Zarembski, Senior Commodity Analyst