Fundamentals

If trading stock index futures were compared to riding in a boat, participants would be reporting choppy seas ahead, as the market struggles to find calming economic data to restore smooth sailing higher. Since the last half of May, the S&P 500 has treaded water, with the index trading within about a 100-point range, finding support near the 1000 level and running into stormy seas above the 1100 area. Few could blame corporate earnings for the S&P's struggles, as the majority of companies reporting earnings beat analysts' expectations. However, the improvement in the corporate bottom line has yet to trickle down to the employment sector, which has kept the unemployment rate stubbornly high despite signs of an economic recovery. The so-called "jobless recovery" has consumers feeling a bit timid about spending or borrowing, which has sparked a savings boom, with the paying-down of debt taking precedence over new spending. If one were to look at the possible bright side to the new-found frugality from both corporate and individual consumers, it is the potentially huge amount of cash being built-up that is currently being held in low yielding investments such as money markets. Not even government bonds look that attractive, with 10-year note yields hovering below 3%. This scenario could lead to a potentially large influx into the equities markets once both corporate and individuals feel more secure about their financial situations and begin looking for a place to invest that will hopefully provide much higher returns than they are now receiving in their "safe haven" investments. What is needed now to restore investors' confidence is some sense of clarity from government officials on issues such as taxes, health care and financial regulation, so both businesses and consumers can make sound investment plans for the future, without the fear that new regulations will emerge that could alter current investment decisions and prevent the economic recovery from leaving the dock until calming seas are in the forecast.

Trading Ideas

With the September E-mini S&P 500 futures currently hovering right around the 200-day moving average and the psychologically important 1100.00 area, it appears that either bulls or bears should eventually break the recent stalemate, trigging a potentially large move in prices once the losing side capitulates. Some traders looking for a potentially big move in the S&P futures but who are not sure of the direction of the move may wish to explore the purchase of a strangle in the E-mini S&P futures options. One example of this trade would be buying the August E-mini S&P 1120 calls and at the same time buying the August 1080 puts. With the September E-mini's trading around the 1098 area as of this writing, this strangle could be purchased for about 25.00 points, or $1250 per spread, not including commissions. The premium paid would be the maximum potential risk on the trade, with the trade profitable at option expiration in August should the September futures be trading above 1145.00 or below 1055.00.

Technicals

Looking at the daily chart for the September E-mini S&P 500 futures, we notice bulls holding a bit of an upper hand, as prices have moved over 100 points higher since recent lows were made back in early July. However, before one gets too optimistic, we should note that the market has struggled to hold above the 200-day moving average. In addition, the July highs of 1118.75 failed to come even close to the June highs of 1129.50, giving some technicians reason to see a potential double-top formation playing out. The 14-day RSI remains in neutral territory, with a current reading of 55.26. Support is now seen at the 20-day moving average, currently near the 1082.00 area. Resistance is seen at the July 27th highs of 1118.75.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The scorching temperatures across Russia's growing region have Wheat buyers scrambling to lock-up supplies of the grain. Russia's exports are expected to be cut in half, which could make a major dent in the global surplus. The country had downplayed the severity of the crop problems, so when news broke about the true extent of the damage, it caught many traders off guard. With the shrinking supply becoming more and more evident, many Middle Eastern nations have been looking south to Australia to satisfy their needs, while other nations are likely to turn to the US for their Wheat. The bad news for Russian farmers has been extremely good news for US farmers, who are enjoying favorable growing conditions. Fund and speculative buying has been extremely heavy, as evidenced by the Commitment of Traders report showing the net long position for CBOT, MGEX and KCBOT Wheat jumping by 16,102 contracts from 7/20 to 7/27. In addition to the extremely bullish market fundamentals, outside forces have been favorable for the grain complex. The Dollar Index has fallen to its lowest level since April, bolstering demand for commodities. The GDP report on Friday had an inflationary chain deflator number, which could influence more traders to go long commodities. While the fundamental news is extremely bullish, prices may have risen too quickly over too short a period of time. CBOT Wheat has risen over three dollars since mid-June, which may trigger some profit-taking. Time will tell whether the panic buying will be able to hold or if prices reverse course.

Trading Ideas

The fundamental and technical outlooks for the Wheat market are extremely bullish at the moment, however prices may have risen too quickly. Traders may wish to watch how the market behaves in the coming days. If prices are able to hold the breakout above the 677 level, this could possibly be a sign that the market is truly breaking out, and some traders may wish to enter into a bullish strategy. Conversely, failure to hold 677.00 could possibly be seen as a setback, signaling that the market may fall back into the wide sideways range it has been in since the fall of 2008. In this case, some traders may wish to consider entering into a bearish strategy.

Technicals

Turning to the chart, we see the December Wheat contract rallying beyond the June 2009 high of 677.00. If prices are able to hold here, the Wheat market may finally be able to break out of the 20-month funk that it's experienced. The market has not had a discernable trend since 2008. Failure to hold above the 677 level could be a major letdown for Wheat bulls that have been chomping at the bit for prices to finally break out of its sideways channel. The RSI indicator is giving overbought readings at 86.64.

Robert Kurzatkowski, Trading Specialist

Fundamentals

With much of the Midwest Corn crop "as high as an elephant's eye" and the USDA rating 71% of the crop good to excellent, it is a wonder to some traders why new-crop Corn futures have rallied during the past few weeks. The most-active December contract has climbed above $4 per bushel, not due to its own fundamentals (which on the surface appear bearish), but rather mainly due to the activity in the near-by Wheat market. Severe drought conditions in Russia, Ukraine, and the other Baltic states have sent Wheat futures soaring. Some of this bullish sentiment has spilled over to the Corn pit, where large non-commercial traders (large speculators, such as commodity and hedge funds) have accumulated a large net-long position. Ironically, as the Baltic region heats up, the weather conditions here in the U.S. have been rather ideal for the development of the Corn crop this year, with many analysts looking for a possible record U.S. Corn harvest the year. U.S. Corn export inspections totaled 31.5 million bushels this week, down from 42.8 million bushels last week. It appears that buyers, such as China and Japan, may be waiting for lower Corn prices before booking their purchases, but they could end up chasing prices higher should Russia be forced to suspend grain exports this year. Hedge selling could start to accelerate -- especially if Corn prices start to stabilize, as producers attempt to lock-in good prices, especially given the potential size of the U.S. harvest this year.

Trading Ideas

Although December Corn is currently in a bullish trend, the prospects of a 13 billion plus U.S. Corn harvest this year could ultimately put pressure on futures prices, especially once the harvest begins. Traders looking for Corn prices to peak could choose to explore the purchase of a bear put spread. An example of this trade would be buying a December Corn 400 put and selling a December Corn 350 put. With December Corn trading at 404.00 as of this writing, this spread could be purchased for about 19 cents, or $950 per spread, not including commissions. The premium paid would be the maximum potential risk on the trade, with a potential profit of $2500 minus the premium paid at option expiration in November should December Corn be trading below 350.00.

Technicals

Looking at the daily chart for December Corn, we notice the market trying to hold above the 400.00 level. Although prices remain above the 200-day moving average, Monday's spike reversal could spark long liquidation selling, especially if prices close below 400.00. Major support for December Corn is seen at the recent low of 376.00, with Monday's spike high of 418.00 acting as resistance.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Coffee futures have pulled back from the highest levels seen since the Clinton administration due to concerns that the market may be overbought. Coffee roasters have been reluctant to buy at current market levels in light of the fact that the Brazilian bumper crop is expected to be relatively large. However, despite the large crop, many traders are concerned about the scarce availability of quality beans. The cash market in many countries is still trading at or above the current futures price. This indicates that, while the buying frenzy may have subsided, the concern over quality may continue to support prices and could prevent a fire sale. The high price of Coffee has yet to be passed to the consumer in many cases. A sharp rise in retail prices could stifle demand. It does look like the emotional buying has cooled off for the time being in the futures market, but the fundamental concerns could result in range-bound trading if the cash market remains healthy. In addition to keeping an eye on the size of the Brazilian crop, many traders' focus will likely remain on the cash market. Roasters have already shown that they are hesitant to buy at current levels. If demand continues to deteriorate, there is a possibility of a crash in cash prices that would likely spread to the futures market.

Trading Ideas

While supply and demand fundamentals remain supportive for prices, the stalling of cash prices could be seen as a cause for concern among traders. Technically, the key reversal on the daily chart has not yet seen follow-through, but the rebound in prices has hardly been inspiring. Some traders may wish to enter into a limited risk strategy, such as a bear put spread. An example of such a trade would be purchasing the October 165 puts (KCV0165P) and selling the October 155 puts (KCV0155P) for a debit of 3.25, or $1181.25. The trade risks the initial premium for a potential profit of $2531.25 if the Dec future closes below 155 at expiration.

Technicals

Turning to the chart, we see the December Coffee chart forming a key reversal on Friday and Monday. After a sharp rise in prices, the reversal signal could be seen as especially significant. There has been no follow-through to the signal yet, as prices did manage to hold above relative highs at 167.00. If prices manage to close below the 167.00 level, it could trigger a wave of profit-taking. There are probably quite a few stops below the 167.00 level, suggesting a sell-off could be swift and brutal.

Robert Kurzatkowski, Trading Specialist

Fundamentals

The first Friday of each month is usually eagerly awaited by traders hoping to successfully trade the release of the non-farm payrolls report. Volatile trading conditions can erupt as soon as the headline payrolls figures are released, even before analysts can dig into the components that make up the report. This morning's release of the July employment picture may be one of those times where traders may be better off delving into the details. Analysts are expecting a decline of around 60,000 jobs last month as the data is expected to be skewed by the elimination of temporary jobs related to the census. What should likely be most important to traders is how private sector jobs fared last month. Here the employment picture may overshadow the headlines, as optimistic forecasters are calling for a gain of over 100,000 jobs, as supportive data from this week's ISM data as well as a better than expected private sector jobs forecast from ADP are among the key reasons behind the rather positive estimates. Traders may also wish to dig deeper into the report to see the totals of average hours worked. Any increase in this figure may signal employers will need to add workers in the near future, as existing workers hours are stretched to the maximum. If the report holds true to expectations, casual observers may be surprised to see the market's reaction to such a negative "headline;" but those traders who "delve into the details" may find themselves on the right side of the trade from those who only focus on the headlines.

Trading Ideas

Among the markets that can make large price moves after the non-farm payroll figures are released are the stock index futures. The E-mini NASDAQ 100 futures can be quite volatile right after the figures are released, and then move sharply in one direction once the entire report is digested. Those traders looking for a positive reaction for equities may wish to investigate selling puts in the NASDAQ 100 futures options. An example of such as trade would be selling the August NASDAQ 1800 put. With the September futures trading at 1901.50 and with 14 days remaining until expiration as of this writing, the 1800 put could be sold for about 7.00 points, or $140 per contract, not including commissions. The premium received would be the maximum potential gain and would be realized if the September NASDAQ is trading above 1800 at expiration. Given the risk involved in selling naked options, traders should have an exit strategy should the trade move against them. Once such risk management strategy to consider might be buying back the option before expiration if the option premium trades at 2.5 times the initial premium received for selling the option initially.

Technicals

Looking at the daily chart for the September E-mini NASDAQ, we notice prices holding well above both the widely watched 20 and 100-day moving averages -- a bullish signal. More visual technical traders may even see a potential head and shoulders bottom forming! The 14-day RSI is in positive territory, with a current reading of 60.31. Although bulls seem to be holding the upper hand, traders should note that trading volume has been rather light during the recent rally. Additionally, there appears to be rather heavy areas of resistance between 1925.00 and 2000.00. Support is seen around the 200-day moving average currently near the 1845.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

With Wheat futures grabbing all the headlines this summer, as the severe drought in eastern Europe and Russia have severely lowered the potential output from this year's Wheat harvest, another member of the grains complex, Soybeans, is also participating in a bull market run. New-crop November Soybeans are hovering near their highest levels of the year, somewhat on the back of Wheat's rapid climb, but also due to their own bullish fundamentals. Well above normal temperatures in the southern sections of the Soybean growing regions of the U.S. have arrived during the key pod setting stage. Too much heat during this stage can ultimately affect yields and force traders to lower production estimates. Even a slight decline in average yields could greatly affect the upcoming season's carryout totals, which is especially important given the current tight old crop Soybean inventories in the U.S. Soybean exports have remained solid, with a weaker Dollar and strong Chinese demand keeping bean exporters busy. Increases in demand for soy products such as meal and oil could also lend support to Soybean prices, with production issues for the oil seed crop in Eastern Europe and Canada potentially increasing U.S. bean oil exports. Soybean meal futures have been trading in a backwardation term structure, where nearby futures are trading at a premium to the more deferred futures all the way out to the May 2011 contract, which is viewed as a bullish signal to many long-time grain traders who follow the adage " to never sell short a market that moves into a backwardation". Grain traders will eagerly await this Thursday's upcoming release of the USDA's August Crop report, which is the first report of the season taken from actual field surveys. Many traders are looking for average yield estimates around 43 bushels per acre, which should be sufficient to help replenish U.S. carryout totals, assuming conditions remain the same. However, should the high heat in the southern growing areas cause average yield estimates to fall even 1 or 2 bushels per acre, we could see another season of tight Soybean supplies, which could be the fuel to keep the Soybean bull market going into 2011.

Trading Ideas

Some traders looking for the rally in Soybean futures to continue but who wish to limit their risk should prices decline could choose to investigate the purchase of a bull call spread in Soybean futures options. An example of this trade would be buying the November Soybean 1050 calls and selling the November Soybean 1100 calls. With the November futures trading at 1033.50 as of this writing, this spread could be purchased for about 15 cents, or about $750 per spread, not including commissions. The premium paid would be the maximum potential loss on the trade, with a potential profit of $2500 minus the premium paid realized at option expiration in October should November Soybeans be trading above 1100.00.

Technicals

Looking at the daily chart for November Soybeans, we notice prices holding well above both the 20 and 200-day moving averages. The bullish signal has not gone unnoticed by large non-commercial traders. According to the most recent Commitment of Traders report, non-commercial traders, normally large commodity and hedge funds, were net-long 113, 662 contracts as of August 3rd. This was a gain of a whopping 22,867 contracts for the week. Ironically, non-reportable traders, normally small speculators, were net-short 38,768 contracts. This could set the stage for a significant short-covering rally, as the small specs rush to cover their short positions should major resistance at 1049.00 give way. The 14-day RSI is in overbought territory, however, with a current reading of 77.37. Support for November Soybeans is seen at the 20-day moving average near the 990.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Sugar prices continue to tumble from recent highs, on indications that India may become an exporter of the sweetener once again. The upcoming crop seems to be very healthy at the moment, and is estimated to yield 27% more than last crop year. Various projections put the export total in the neighborhood of 1 million metric tons. Brazil is also expected to have a bountiful harvest, which when coupled with the positive Indian crop projections suggests the world may be reversing the trend of evaporating supplies. The Russian wildfires could, however, provide some support for prices. Many analysts' projections factored in production of about 4 million tons of Russian Sugar. This number is now seen coming in around 3.5 million tons. Even with the lower Russian production, the world is expected to see more than ample Sugar supplies, which could make further gains in price difficult to come by.

Trading Ideas

The fundamental outlook for the Sugar market has become much less supportive for prices, but Russia remains a wildcard. Technically, it seems as though the recent uptrend is ready to turn lower, but the chart does not confirm this yet. Some traders may wish to wait and see how the market behaves around the 18.00 level. If we see follow-through selling, some traders may wish to consider entering into a short futures contract, with a downside objective of 16.10 and a stop at 18.40.

Technicals

Turning to the chart, we see the price of October Sugar closing below previous resistance/new support at 18.02. Sugar traders may want to pay close attention to how prices behave for the next few days, as price action could help determine the near-term direction of the market. Follow-through selling could be an indication that prices may come down to test 17.00, or even 16.00. A reversal back above 18.02 could be a sign that the market may stabilize around current levels and hints at a resumption of the uptrend. The moving averages are giving mixed signals. The October contract closed below the 20-day moving average, suggesting that a near-term top may be in place, while the upward crossover of the 50 and 100-day averages can be seen as bullish.

Robert Kurzatkowski, Trading Specialist

Fundamentals

A tweak here and there is music to the ears of bond futures bulls, as the lead month September 30-yr bond futures prices continue to climb, aided by the Federal Reserve's announcement that it would purchase longer-term U.S. Treasuries. The announcement of the purchase came in the statement released after the one-day FOMC meeting concluded on Tuesday. Here the Fed did acknowledge that the economic recovery in the U.S. was losing some momentum, with the jobless rate remaining stubbornly high, despite improving corporate earnings. To help keep interest rates low, especially mortgage rates, the Fed announced that it would reinvest the proceeds from maturing mortgage backed securities into longer-term treasuries. Bond traders initially reacted to this announcement by buying bond futures, which sent the September futures up over a full point to price levels not seen since March of 2009, during the height of the recession. However, prices retreated after traders noted that the Fed would only be purchasing maturities up to 10-years, and not in the longer end of the yield curve. Even so, it now appears that the Fed is serious about doing everything it takes to avoid "Japanese style" deflation in the U.S., and traders are realizing that any increase in interest rates by the Fed could be a long way off, with some analysts now not expecting the first Fed rate hike to occur until the fall of 2011!

Trading Ideas

Traders looking for bond futures to keep the rally going may wish to explore an option selling strategy using puts on bond futures. Technical traders will note strong support on the daily chart for December bond futures at the 125-00 area, so some bullish traders may wish to explore the sale of a bond put with a strike price below this chart support area. For example, a trader could consider selling an October Bond 124 put. With the December futures trading at 128-17 as of this writing, the 124 put could be sold for 30/64ths, or $468.75 per option, not including commissions. The premium received would be the maximum potential profit on the trade and would be realized if December bonds are trading above 124-00 at option expiration in September. Given the risk involved in selling naked options, traders should have a risk management procedure in place should the trade move against them. An example of such a strategy would be to buy back the short option before expiration should the December bond futures close below support at 125-00.

Technicals

Looking at the daily continuation chart for September 30-yr bonds, we notice the market running to new highs for the move, but closing well off the day's highs. This could be a sign that a potential price correction might be near. Also notice that the 14-day RSI failed to make a new high reading during the recent bullish run. Although near-term support is seen near the uptrend line around the 127-16 area, major support is seen closer to the July lows of 125-07. Resistance is found at Tuesday's highs of 130-23.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Gold futures have been in a choppy, sideways range this past week, as traders try to decipher the myriad of recent economic data. The Gold market has been in a state of flux, and we have seen the market disassociate itself from the normal inverse relationship with the US Dollar. The FOMC policy statement could be seen as a positive for the metal. While the Fed does suggest that inflation is tame, the statement also suggests that the central bank could keep rates low longer than previously expected. The recent jump in food commodity prices because of the Russian wildfires and poor growing conditions in other nations combined with low interest rates and the fading US Dollar all point toward the possibility of a sharp jump in inflationary pressure. Gold market fundamentals have been strong for some time, and buying by long-term investors has remained strong. What the market has been missing is buying by short to intermediate-term speculators. These traders have been focused on newsworthy and fast-moving commodities, such as energies and food commodities that are or could be experiencing shortages. While everyone needs to eat, the increasing concerns over the state of the global economy could cause the energy complex to lose some of its luster. If traders exit the petroleum and base metal sectors over economic concerns, they may choose the Gold market as their defensive play.

Trading Ideas

The Gold market's fundamentals have remained solid, due to an uncertain economic future and a continuation of the low interest rate environment in the West. The Gold chart has improved, and we could be at a make or break level as far as the near-term direction. Some traders may wish to consider putting on a bull call spread by buying the December Gold 1275 calls (GCZ01275C) and selling the December 1300 calls (GCZ01300C) for a debit of 5.00, or $500. The trade risks the initial premium for a potential profit of $2,000.

Technicals

The December Gold chart shows prices bouncing off support at the 50% retracement, measured from February lows to June highs. The 50-day moving average has acted as resistance for the past week. Prices have also crept up toward chart resistance near 1215. A close above these levels could trigger further buying, and could result in a test of contract highs. Failure to break through here could be seen as a letdown, and prices could come back to test the 38.2 Fibonacci retracement at 1181.70.

Robert Kurzatkowski, Trading Specialist

Fundamentals

That is most likely the mood of Natural Gas bulls, as neither a hot spell in the northeastern portions of the U.S. nor a below average injection into storage last week could keep prices from testing recent lows. Yesterday's weekly EIA gas storage report showed that only 37 billion cubic feet (bcf) of gas was put into storage last week, which is well below the 63 bcf put into storage this time last year and also below the 5-year average of 39 bcf, as demand for cooling has increased sharply given the hot weather seen in the Midwest. Gas in storage now stands at 2.985 trillion cubic feet, or nearly 5% below levels this time last year. However, gas prices sold off after the report, as traders continue to fear a slowing economic recovery, which could lead to even less industrial demand in the coming months. Some private weather forecasters are predicting a return to more seasonal temperatures in the Midwest next week, which if true, could help to lower electricity demand from the highs seen this past week. With September fast approaching, which is the peak month for tropical storm activity in the Atlantic, many gas bulls are hoping for a "weather premium" to be built into Natural Gas futures prices, as any major interruptions in gas and oil production in the Gulf of Mexico has the potential to send prices sharply higher. However, there is little fear among gas bears, especially large speculative accounts, which are holding a net-short position of nearly 84,000 contracts according to the most recent Commitment of Traders report. Small speculators are net-long Natural Gas, and many of these so called "weak hands" are beginning to liquidate their positions as prices have once again failed to sustain a rally. Although the trend is definitely favoring shorts in Natural Gas, this bearishness could set the stage for a sharp rally should a production disruption occur.

Trading Ideas

Trend-following traders who are short Natural Gas futures must feel pretty confident in their positions, as prices are trading near the lows seen back in May of this year. However, the memory of 2005 and the massive run-up in prices following Hurricane Katrina likely should remain embedded in traders' minds as to the potential violent price swings capable in Natural Gas. Some traders looking to protect a short position in Natural Gas futures may wish to investigate the purchase of out-of-the-money calls in Natural Gas options to help mitigate potential losses, or even profit should Natural Gas spike higher due to weather disruptions in the Gulf. With October Natural Gas trading at 4.311 as of this writing, the October 5 calls could be purchased for about 0.089, or $890 per option, not including commissions. If Natural Gas futures were to surge above 5.000 before expiration in late September, a trader holding a short position in October Natural Gas would be able to exercise the call and cap his potential loss to the strike price plus the premium paid. More aggressive traders may wish to purchase additional out-of-the-money calls which could, potentially, lead to a profitable trade should gas prices skyrocket.

Technicals

Looking at the daily chart for October Natural Gas, we notice the market making its 4th attempt to break below 4.250 since March of this year. Prices remain well below both the 20 and 200-day moving averages, and the 14-day RSI is weak, with a current reading of 37.76. Should 4.250 give way, the next major support is seen at 4.000. If prices once again hold, a run to the 20-day moving average near the 4.600 area would not be out of the question.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Neither bulls nor bears seems to want to take control of the crude oil futures market as prices have once again returned to the middle of the 70 to 80 dollar trading range the market has been stuck in since May. The recent rally attempt has failed once again to take hold as trader fear a slowdown in the economic recovery. The US, Japan, and even China has seen weaker than expected economic data released recently, which has provided fuel for thought that energy demand will falter given slower growth forecasts. In addition, the recovery in the U.S. Dollar especially vs. the Euro is also weighing on crude prices as a stronger dollar makes crude prices less attractive non U.S buyers. Large speculative accounts have been caught on the wrong side of the recent sell-off, with the most recent Commitment of Traders report showing non-commercial traders, holding a net-long position of 153,696 contracts as of August 10th. This position was before the steep sell-off that saw September oil fall by over $6 per barrel in 1-weeks time, which appears to have been aided by long liquidation selling by commodity funds. With oil supplies currently ample and the end of the peak summer driving season only a few weeks away, it would seem that oil prices could continue to slide. However, past attempts to move prices below $70 have failed previously and unless we start to see a major contraction in the world economy, oil prices may continue to trade in a range bound fashion till the end of the year.

Trading Ideas

With no clear sign that the crude oil market is ready to breakout of is recent trading range, Traders may wish to explore trading strategies that should benefit from a range bound market. Once such strategy is selling strangles in crude oil options using strike prices outside the recent price range. For example a trader could sell the October oil 85 calls as well as the October oil 70 puts. With October crude trading at 75.90 as of this writing, this strange could be sold for about 1.65 point or $1650 per spread not including commissions. The premium received is the maximum potential gain on this trade as would be realized if October crude is trading below 85.00 and above 70.00 at option expiration in September. Given the risks involved in selling naked options, traders should have a exit strategy in place should the trade move against them. For example a trader may wish to close out the trade before expiration should October oil close above 85.00 or below 70.00.

Technicals

Looking at the daily chart for October oil, we notice that since the recent highs were made on August 4th, the market has made a perfect 61.2% Fibonacci retracement. Oil bulls would need to see the recent lows hold in order to remain somewhat positive that the recent selloff was nothing more than a long liquidation correction. However oil bears will note that prices are now below both the 20 and 200-day moving averages which sends a bearish signal to trend following systems. The 14-day RSI has also turned weak with a current reading of 39.66. 72.15 is seen as the next major support area for October crude, with resistance found at the 20-day moving average near the 79.30 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Someone apparently forgot to tell the Copper market about the economic jitters engulfing the equity and commodity markets. The more pessimistic sentiment from central banks and concerns that China's real estate market may be softening have done little to slow down the price of the red metal in recent weeks. Copper did retreat last week after the FOMC policy statement, but traders have shifted their focus on the destocking of COMEX and LME inventories this week. Orders to take from the stockpiles on the two exchanges jumped to two-month highs, indicating that demand may remain resilient. Even if demand subsides, the supply side of the equation is becoming a question mark. It could take some time for stocks of the metal to be replenished, even if demand cools. Chinese economic growth is expected to fall to 9.2% annually, which is a sharp drop from the blistering 11.9% pace in the first quarter of the year. The industrial giant is still growing at three to four times the rate of most western nations, indicating there may not be a huge drop in demand. The residential housing market has not fallen as sharply as many had expected after the new restrictions on real estate speculation, which has been a pleasant surprise. The long-term impact of the real estate reforms has yet to be determined. The Copper market does, however, still have downside risk. It is difficult to discount the negative economic data in the US, Europe, and Japan in respect to how deteriorating conditions could adversely impact the growth of emerging markets. The US Dollar has been on the decline recently, which has aided the Copper market. A shift toward risk aversion could result in traders once again seeking the relative safety of the greenback.

Trading Ideas

It appears as though the supply and demand outlook for Copper has not yet succumbed to the deteriorating economic conditions gripping much of the world, mainly due to tight supplies. The chart shows near-term support being held, but not a new breakout. Some traders who maintain a bullish opinion on the market may wish to consider buying a December Copper future at the 3.30 or better, with an upside objective of 3.40 and a stop at 3.20. At these levels, the trade risks roughly $2,500 for a potential profit of $2,500.

Technicals

Turning to the chart, we see the December Copper contract giving back some of the July gains. Prices did manage to hold support at the 3.2195 level, and prices also failed to close below the 20-day moving average. These can both be seen as positive in the near-term. Traders may wish to keep a close eye on these levels, as regression below the 20-day and support at 3.2195 could trigger further selling, which could possibly send prices into the low $3.00's or lower. For the market to pick-up steam once again, prices may have to cross above the 3.42 level. Momentum is outpacing the RSI and prices, perhaps indicating the market may see some near-term support.

Robert Kurzatkowski, Trading Specialist

Fundamentals

Ever since the volatile trading days of early May, Silver futures prices have been in a consolidation mode, with the market now seemingly comfortable trading around the 18.50 area in the December futures. Unlike its more popular cousin Gold, Silver has not really gained widespread favor from investors seeking an inflation hedge or even as a store of safety, which is keeping prices well below historic highs. Part of the reason for Silver's lackluster performance might be due to its use as an industrial metal. Given the mixed economic signals being sent from recent economic reports here in the U.S., it is little wonder that many traders are not excited about the industrial demand prospects for Silver. However Copper prices, which many analysts use as a proxy to determine the strength of the economy, have shown some strength the past few weeks, and if the price rally continues, Silver bulls may once again find confidence in their beliefs and put a bid back in Silver prices. The most recent Commitment of Traders report shows both large and small speculators are holding a net-long position in Silver, totaling a combined 53,410 contracts as of August 10th. Although it seems that the overall long position being held by speculators is large, it is only a little over half the size of the record combined speculative long position of 97,635 contracts seen in March of 2004. This leaves plenty of room for further speculative buying to emerge should prices finally break out to the upside.

Trading Ideas

Traders looking for Silver prices to breakout to the upside in the next few weeks but who do not want the potential risk involved in buying a Silver futures contract outright may wish to explore the purchase of a bull call spread in Silver futures options. An example of such a trade would be buying the October Silver 19.00 calls and selling the October Silver 20.00 calls. With December Silver trading at 18.615 as of this writing, this spread could be purchased for about 0.280, or $1,400 per spread, not including commissions. The premium paid would be the maximum potential loss on the trade, with a potential profit of $5,000 minus the premium paid which would be realized should December Silver trade above 20.000 at option expiration in late September.

Technicals

Looking at the daily chart for December Silver, we notice Silver volatility has subsided since the wild price action seen in May, when Silver prices moved up and down nearly three dollars in less than a month's time. Although prices are now in a consolidation phase, bulls seem to hold the upper hand, as the market is trading above both the 20 and 100-day moving averages. The 14-day RSI has turned positive, with a current reading 57.30. The next resistance point is seen at the 19.000 area, with support found at the 200-day moving average currently near the 17.830 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Bond prices have taken a break the past two sessions, after rallying well into the 130's. Yields have continued to move lower and lower due to surprisingly strong demand for treasuries. One would think that the recent weakness in the US Dollar and unattractive yields would cool buy buying, but that has not been the case. The Fed has indicated that it would step-up its purchases of US debt, amid speculation that economic growth will slow. The central bank has not given traders the faintest idea of when it would begin tightening rates. Many market observers speculate that the Fed could keep rates at extremely low levels for two years. The fact that the stock market has failed to string together several strong sessions in a row has done little to instill investor confidence. Safe haven instruments such as treasuries and Gold have performed extremely well lately, which is a clear sign that investors remain uneasy. Traders are now left guessing how flat the yield curve will get before demand dissipates. Given the sharp rise in prices (drop in yields), some traders may begin to favor other defensive instruments such as Gold over Bonds, to capitalize on the low lease rates. The drop in yields coupled with the decline of the greenback may also make Bonds unappealing for foreign investors. If overseas demand does drop, it will be interesting to see if Fed buying will be able to fill the void created.

Trading Ideas

The Bond market fundamentals remain relatively unclear at the moment. Fed buying could be seen as supportive for the market, but the low yields and weak Dollar could work against Bond prices. Technically, the market can be seen as overstretched in the near-term, which may favor flat to lower trading. Some traders may wish to consider putting on a short-term bearish strategy, such as a bear put spread; e.g., buying the Sep Bond 133 puts (USU0133P) and selling the Sep 131 puts (USU0131P) for a debit of 0-40, or $625. This bear put spread risks the initial premium for a potential profit of 1-24, or $1,375.

Technicals

The Bond chart shows prices reaching levels not seen since the panic buying of late 2008 to early 2009. Prices did run into run into resistance just under the 134-00 level, which is where prices have stalled, at least temporarily. The next areas of resistance would come in around the 135-00 and 137-00 levels. Near-term support can be seen centering around the 130-00 level. The sharp rise in prices has caused the RSI to cross over into overbought territory, which could help cool buying.

Robert Kurzatkowski, Trading Specialist

Fundamentals

It was only about 3 weeks ago that some traders were beginning to tout the "end" of the bull market in Gold, as prices looked poised to break below major support at the 1150.00 area. However, this "bull" apparently still has some fight left, as prices have since rallied over $80 per ounce and it appears that investors are confused regarding whether the global economy, particularly here in the U.S., has slowed. Gold appears to have found buyers looking for a "flight to safety" investment, as well as those fearing rising inflation down the road due to mounting government debt. Choppy trading in equities has also brought renewed interest into Gold, as traders look to establish positions in a "trending" market. Physical traders are also noting that Gold buying out of India is beginning to increase as the country moves toward the traditional wedding season. What is really unusual is the seeming disconnect in Gold prices form the action of the U.S. Dollar. Looking at a chart of the Dollar Index and comparing it with Gold, we notice that the rally in gold prices accelerated after the Dollar Index recovered off its recent lows! This action is contrary to the previous thought that a weaker Dollar would benefit gold prices. Also of note is the strong rally in U.S. treasuries occurring in tandem with Gold the past few weeks, which may be confirming the belief by some analysts that investors are looking for alternatives to equities for investing. The most recent Commitment of Traders report shows both large and small speculators adding to their combined net-long position, with an additional 10,104 contracts added as of August 10th. Gold prices have rallied an additional $40 per ounce since the report was released, and we should see additional buying by speculators in today's report. Although the combined net long position in Gold futures now totals nearly 250,000 contracts, it is still well below the record 328,344 contracts seen in October of 2009. This leaves further room for additional buying to emerge before the market really appears to be overbought.

Trading Ideas

With support at 1150.00 in the October Gold futures surviving its test, some traders may wish to investigate trading strategies that could benefit if prices hold above this key chart point. One example of such a trade would be selling puts with a strike price below the 1150.00 support area, such as selling the October Gold 1145 puts. With October Gold trading at 1233.50 as of this writing, the 1145 puts could be sold for about 3.30, or $330 per option, not including commissions. The premium received for selling these puts would be the maximum potential profit and would be realized if October Gold is trading above 1145.00 at option expiration in late September. Given the risks involved in selling naked options, traders should have an exit strategy in place should the position move against them. One such exit strategy might be to buy back the short puts before expiration if October Gold closes below the recent lows of 1157.50.

Technicals

Looking at the daily chart for December Gold we notice that prices are now well above both the 20 and 200-day moving averages. Notice how the sell-off ended quickly once prices failed to move below the 200-day moving average. The 14-day RSI is strong, with a current reading of 65.70. If there is one negative seen in the recent bull run it's that volume has started to decline as the rally has unfolded. One reason for this could be the number of traders on holiday, especially in Europe, as the month of August is famous for lower trading activity on "the Continent". 1250.00 is now seen as the next resistance point for December Gold, with support found at the 20-day moving average near the 1200.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

This statement is clearly the mantra of bond bulls, who have been served well as 30-year treasury futures are trading at their highest levels since the panic buying seen in early 2009. Weaker than expected economic data last week sparked the latest buying spree, with rising initial jobless claims and a weak Philadelphia Fed survey acting as the fuel for higher bond prices. It appears that the increased saving rate by consumers may also be playing a role in the bond market rally, especially as it appears that smaller investors are becoming more risk averse and are moving funds out of stock mutual funds and into the bond market. Given recent talk by some Fed Governors that the Federal Reserve may need to expand its bond repurchase program if the economy continues to slow and the text from the recent FOMC meeting declaring that interest rates will remain at low levels for some time to come, it appears that the Fed is sending signals that it will do what it takes to keep interest rates low until we see real growth in the economy, which in turn supports even higher bond prices. A look at the most recent Commitment of Traders report may surprise many analysts, as only non-reportable traders (small speculators) are net-long 30-year bond futures, while both non-commercial (large commodity and hedge funds) and commercial (hedgers) are net-short the long end of the curve. Large speculative accounts are normally known as trend followers, so being short the rising bond futures market seems unusual. However, this group is net-long the 10-year note futures and may represent a spread trade involving the steepness of the yield curve, which is actually supportive of lower yields for treasuries. Although it seems that treasury yields will need to rise in the future, particularly given the size of the U.S. deficit, it may be months or even years away -- especially if the Fed continues to intervene in the bond market. While picking the exact top in a market is every trader's dream, sometimes it is better to trade with the trend until both fundamentals and technicals signal an end to the bullish stampede.

Trading Ideas

Given the strong upward trend in 30-year bond futures, some bullish traders may wish to investigate strategies that will benefit from a continued upward move in bond prices. One such trade would be selling puts on bond futures options. A look at the daily continuation chart for bonds shows good support around the 125-00 area. With December bonds trading at 132-19 as of this writing, a trader could sell an October bond 125 put for about 17/64, or $265.62, not including commissions. The premium received would be the maximum potential profit on the trade and would be realized should December bonds be trading above 125-00 at option expiration in September. Given the risks involved in selling naked options, traders should have an exit strategy in place should the position move against them. One such strategy would be buying back the short put should the option premium trade at 3 times the amount received for originally selling the option.

Technicals

Looking at the daily continuation chart for 30-year bond futures, we notice that despite the strong rally we have experienced during the past several weeks, prices are still well below the all-time highs seen back in early 2009. Back then, bond prices moved "parabolic" before a top was in place. In the current move, the rally has been more orderly, which is encouraging for a sustained move. With the 200-day moving average currently near the 121-00 level, even a significant correction would not negate the market's bullish bias. The next resistance level is seen near the 138-00, with support found at 125-00.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Crude Oil futures have suffered losses recently, due to demand concerns and stockpiling in the US. The slowing economic recovery has caused many market observers to cut their demand outlook for the foreseeable future. The question of whether the US and global economies are heading for a double-dip recession remains unanswered at the moment. While the recovery has really lost quite a bit of steam recently, there are no signs that the economy will be contracting. This could limit the downside potential of the Crude Oil market in the near-term. The US supply of petroleum has been on the incline lately, which could be troublesome for Oil bulls with Labor Day just around the corner, marking the unofficial end of the driving season. The buildup of supplies heading into what has historically been the low demand stretch of the year may limit the upside potential for the Oil market. This could result in range-bound trading for the Crude Oil market.

Trading Ideas

The fundamental outlook for the Crude Oil market has become bleaker due to the worsening economic conditions. However, the consensus opinion seems to favor slow growth rather than a double-dip recession, which may prevent a freefall in prices. The chart shows oversold conditions, which could trigger short-covering and attract some short-term buyers. Traders looking for a near-term bounce in prices may wish to go long an October Mini Crude Oil futures contract at 71.50 or better, with an upside objective of 77.00 and a stop at 68.50. The trade risks roughly $1,500 for a potential gain of $2,750.

Technicals

Turning to the chart, we see the price of October Crude Oil dropping from 82.50 to the low 70's very quickly, resulting in oversold conditions on the RSI indicator. The next area of minor support for the October contract comes in at 71.20, with more significant support coming in at 68.75. The combination of oversold conditions and chart support could result in the market finding some traction. Also, the momentum indicator is showing bullish divergence from both price and RSI, hinting at the possibility of a near-term bounce. Failure to hold support at 68.75 could be seen as a significant breakdown for the Oil Market.

Robert Kurzatkowski, Trading Specialist

Fundamentals

The surprising bull market in Coffee futures might be starting to cool, as the anticipation of large new-crop supplies and fears of weakening world economic conditions have nervous Coffee bulls stampeding to the exits. Just this past Monday, lead month December Coffee nearly reached 13-year highs, as current tight supplies of Arabica Coffee spurred further commodity fund buying, as trend-following traders added to their net-long positions when new contract highs were made. However, the rally was short-lived as commercial selling began to emerge, which capped the rally attempt. Weak longs then started to exit positions once prices moved below the day's lows, which some technical traders interpreted as a "reversal" signal. Selling really accelerated yesterday and commodity positions in general were liquidated in a bout of "flight to quality" buying, as traders feared continued economic weakness would hurt world demand for commodities in general. Although high quality Coffee stocks remain tight, it appears that Coffee production out of Columbia is expected to rebound later this year, which if true, should help to alleviate the current supply situation. A quick look at the most recent Commitment of Traders report shows both large and small speculators are holding net-long positions in Coffee futures totaling a combined 49,910 contracts as of August 17th. This relatively large net-long position may trigger additional weakness in Coffee prices as protective sell-stops are triggered should prices move toward key support points.

Trading Ideas

The old trading adage "never buy a market in liquidation mode" may ring true in Coffee futures in the near-term, as long liquidation selling pressures prices. Some traders expecting a correction in Coffee prices but who wish to limit the potential risk should the market rebound may wish to explore the purchase of a bear put spread in Coffee futures options. An example of this trade would be buying the October Coffee 170 puts and selling the October Coffee 160 puts. With December Coffee trading at 173.35 as of this writing, the October 170/160 put spread could be purchased for about 3.50 points, or $1,312.50 per spread, not including commissions. The premium paid would be the maximum potential risk on the trade, with a potential profit of $3,750 minus the premium paid which would be realized if December Coffee is trading below 160.00 at option expiration in September.

Technicals

Looking at the daily chart for December Coffee, we notice the sharp correction that occurred yesterday after prices collapsed from new highs. The steep sell-off moved prices through the 20-day moving average, triggering sell signals for many short-term momentum trading systems. The move to contract highs on Monday occurred on below average volume, leading some analysts to question whether it was fresh buying or more likely short-covering that sent prices to contract highs before falling later in the session. The next support level for December Coffee is seen around the 164.00 level. Resistance is found at Monday's high of 188.65.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The Euro has given back about half of the gains made from early June to early August, due to economic fears. In early June, some traders had begun to believe that the worst may be over for EU banks and the global economy, causing prices to rise. The dismal economic data that had begun to trickle in earlier this month has caused traders to rethink their analysis. The US Dollar has found a bit of strength recently, due to a bit of defensive posturing and demand for US government debt. Economic data coming from the Eurozone has not been as weak as recent US data, especially housing reports. However, the downward shift in sentiment may eventually make its way across the Atlantic. The Dollar remains the defensive play of choice for many traders, which does not bode well for the Euro. If the European economy is able to weather the storm and avoid economic fallout from the US, the pan-European currency could significantly strengthen.

Trading Ideas

The Eurozone's relatively strong economic showing has been overshadowed by the dismal US housing and consumer confidence data. This could result in the greenback actually trading higher as a defensive play. The chart shows the Euro entering an area with several support areas, which suggests this may be an area of importance. Given the extremely "flaky" nature of the currency markets, some traders may wish to hold off until the Euro decides on an intermediate-term direction before entering the market.

Technicals

Turning to the chart, we see the September Euro currency futures trading near the 50% Fibonacci retracement level. This also coincides with minor chart support near 1.2600. Failure to hold this level could result in prices testing the critical 61.8% retracement level and chart support near 1.2430. Yesterday's close marks three consecutive sessions that the September contract closed below the 50-day moving average, which can be seen as a negative. The 50-day is on the verge of crossing the 100-day average, but this can be seen as inconsequential due to the weakness of the market. The RSI indicator has crossed over into oversold territory, suggesting prices may find near-term strength or stability.

Rob Kurzatkowski. Trading Specialist

Fundamentals

Since the end of 2006, Cocoa futures have been in bullish hands, with prices more than doubling during the past 4 years, due to increasing global demand and lower than expected production especially the past 2 years. However, there are some signs this historic bull trend might be starting to wane. For starters, production is expected to increase this year due to improved growing conditions seen on the Ivory Coast, which is the world's largest Cocoa producer. Higher production combined with an expected decline in demand, particularly from Europe, is expected to move the market into a surplus this year, with some estimates calling for a nearly 100,000 ton surplus for the 2010-11 season. While fundamentals seem to be pointing to potentially lower cocoa prices this year, it is the technical picture where Cocoa bears are starting to flex their muscles. Lead month December Cocoa is now trading well below the key 200-day moving average; a barometer used by many technical analysts to determine whether a market is in a bullish or bearish phase. In addition, prices have fallen below the key 2800 level in the December contract, which was the bottom of a 400-point consolidation range formed since mid-May. Speculators have been in a long liquidation mode in Cocoa recently, with the most recent Commitment of Traders report showing that large non-commercials (large commodity and hedge funds) liquidated nearly 6,000 contracts the week ending August 24th. This lowered their net-long position to only 4,925 contracts. Commercial traders, on the other hand, added to their net short positions, as short-hedgers attempted to lock in current prices ahead of the start of the main harvest in September. So until we start to see real improvement in the world economy or end users need to enter the market to meet their needs, Cocoa prices may continue to slump, as "liquidation" mentality remains in speculators' minds.

Trading Ideas

Some traders looking for continued weakness in the Cocoa market who wish to collect income by selling options may wish to investigate selling a bear call spread in Cocoa options. An example of this trade would be selling the December Cocoa 3000 calls and buying the December Cocoa 3200 calls. With December Cocoa trading at 2762 as of this writing, this spread could be sold for about 30 points, or $300 per spread, not including commissions. The premium received would be the maximum potential gain on the trade, which would be realized if December Cocoa is trading below 3000 at option expiration in November. Given the potential risk in this trade, some traders may wish to close out the trade before expiration should December Cocoa close above 3000.

Technicals

Looking at the daily continuation chart for Cocoa going back 5 years, we notice prices have fallen below the 200-day moving average and are now trading at 13-month lows for the lead-month contract. The 14-day RSI looks weak, with a current reading of 27.20. Longer-term, there is an area of support that comes in around the 2250 area, but that is still over 500 points lower than current price levels. Resistance is found at the 200-day moving average currently near the 3050 area.

Mike Zarembski. Senior Commodity Analyst

Fundamentals

Gold futures continue to move higher, but at a slower, grinding pace. The metal has attracted attention recently due to the faltering economic data. However, rallies have been reined-in by the rebound in the US Dollar, which acts as the world's reserve currency. Inflation has also been much tamer than expected because of demand for commodities outside of foodstuffs drying up. Therein lies the problem traders have been grappling with. The state of the economy suggests Gold may be attractive as a defensive instrument, but on the other hand, Gold's other driving forces have been moving in the opposite direction. We are heading into a very important time of the year for Indian Gold demand, the wedding and festival season, which stretches from September to December. If demand for Gold becomes more elastic, demand could suffer. It is unclear whether the high price of Gold will have a major impact on demand, as personal incomes and savings have also risen, which could act as a counter-balance.

Trading Ideas

We are in a period of uncertainty as far as the economy is concerned, which seems to favor Gold. However, weakness in commodities and a stronger greenback are currently working against the metal. The wildcard may be physical demand from India. Some traders may wish to take a more conservative approach and enter into a debit spread toward their bias, given the fact that the market may be approaching a level of high volatility.

Technicals

Turning to the chart, we see prices continuing to move higher after breaking-out above the 1210 resistance area. The pace of the rally, however, has slowed. The December contract was unable to break through the 1245 level, which is the nearest resistance area on the chart. If the market is about to cross 1245, we could see a test of highs at 1265. If the market is unable to maintain its upward momentum in the near-term, we could see the December contract come down and test the 1225, or possibly the 1200 level. The RSI has been in overbought territory for the past two weeks, but it looks as though the indicator may drift back into neutral levels.

Robert Kurzatkowski. Trading Specialist