Tuesday, January 3, 2012

The daily chart for March Wheat is showing a major area of resistance starting at 650.00 and moving all the way toward 700.00. It may be difficult for March Wheat to move above the upper bounds of this resistance given its current fundamentals. Some traders who are expecting this resistance area to hold may perhaps wish to explore selling call options in Wheat futures with strike prices above the resistance area. For example, with March Wheat trading at 651.50 as of this writing, the February 700 calls could be sold for about 7 ½ cents, or $375 per option, not including commissions. The premium received would be the maximum potential gain on the trade, which would be realized at option expiration in late January should the March Wheat futures be trading below 700.00.

Fundamentals

After falling to yearly lows of 577.25 in the middle of December, March Wheat futures staged a nice comeback to end the year, rallying nearly 75 cents from the lows following a price recovery in both Corn and Soybeans due to concerns about South American crop production. Dry weather in both Brazil and Argentina have stoked fears of potential production losses for both Corn and Soybeans, which may force more export business to the US. Wheat prices may also benefit from a less than stellar South American crop, as higher prices for Corn or Soybeans could spark increased interest in Wheat for feed usage. However, any major rally in Wheat prices may be short-lived, as the global supply of Wheat remains ample. Since Wheat prices appear to be the follower in the grain complex, any signs of improving South American weather may hit Wheat the hardest, especially with its rather bearish supply fundamentals. Chicago Wheat futures currently have the largest net-short speculative position according to the Commitment of Traders Report. Much of the recent rally may be tied more to short-covering than actual fresh buying, which would make further price gains difficult, unless we see a major shift in the fundamentals for Wheat specifically, which outside of a major drought in the Central and Southern Plains of the U.S. this winter may be a difficult task for Wheat bulls to rely on.

Technical Notes

Looking at the daily chart for March Wheat, we notice the recent price rally occurred on lower than average trading volume. This is a hallmark trait of a market in the midst of short-covering. We are also seeing prices start to find some resistance near the 655.00 area, which has caused prices to begin to move sideways. The 14-day RSI still looks strong however, with a current reading of 64.85. The next major resistance level for March Wheat is seen at the October 28th high of 688.50, with support seen at the 20-day moving average currently near the 612.50 area.

Mike Zarembski, Senior Commodity Analyst

Wednesday, January 4, 2012

Given the bearish fundamentals facing the Sugar market in 2012, some traders may perhaps wish to take advantage of the recent rally to explore bearish trading strategies using Sugar futures options, such as a bear put debit spread. For example, with March Sugar trading at 24.34 as of this writing, the March 24.00 puts could be bought and the March 23 puts sold for a net debit of 0.38, or $425.60 per spread, not including commissions. The total investment in the spread would be the maximum potential risk on the trade and a potential profit of $1,120.00 minus the premium paid, which would be realized at option expiration in February should March Sugar be trading below 23.00.

Fundamentals

After a month-long consolidation period, Sugar futures moved sharply higher to start 2012, tied mostly to a resurgence in Oil futures and a pull back in the U.S. Dollar. Though the rally has moved prices toward 4-week highs, Sugar's fundamentals may short-circuit further gains. The spike in Sugar prices comes despite forecasts calling for a large Sugar surplus this season, with both India and Thailand expected to be active in the export market. India's Sugar output for the 4th quarter of 2011 rose by 17% from year ago levels, and the country's Sugar production is expected to total 26 million tons this season, which is up 1.7 million tons from last year. Commodity index funds are expected to be buyers in Sugar futures to start the year due to index rebalancing, and some traders may be buying Sugar futures in anticipation of index fund buying in the coming sessions. Many large speculators have been shedding their net-long positions in Sugar for some time, with the most recent Commitment of Traders report showing non-commercial traders net-long only 51,922 Sugar contracts as of December 27th. This was down over 3,000 contracts from the previous week's total and well below the record 216,497 contracts seen back in the spring of 2008. Given the potentially huge Sugar surplus this season, it may be difficult for many speculators to turn decidedly bullish on Sugar futures, despite the strong start this year. It would not be much of a surprise to see fresh selling emerge should the rally persist, as long as major resistance at the 200-day moving average continues to hold.

Technical Notes

Looking at the daily chart for March Sugar, we notice Tuesday's price surge broke above the upper range of the recent price consolidation pattern on sharply higher trading volume. Prices are now well above the 20-day moving average, but still need to break above the 200-day moving average to turn the technical momentum back to the bulls. The down-trendline drawn from the August 24th high also comes into play near the 200-day MA, currently near the 25.24 level, which should further enhance the importance of this resistance area. Support is seen at the December 15th low of 22.62.

Mike Zarembski, Senior Commodity Analyst

Thursday, January 5, 2012

Historically, weather "price spikes" in the agricultural futures markets rarely hold, unless the eventual damage is deemed to be severe. Some traders who are looking for OJ prices to fall once the damage is assessed may perhaps wish to explore selling March OJ futures on a stop, with a price below the former resistance level (and now the new support area) near the 175.00 level. The theory behind waiting to sell short OJ until support is broken is that if the rally has sustainability, prices should not fall below a key support level. This helps protect against trying to pick a top in the market and using bearish momentum to initiate a short position.

Fundamentals

"Below freezing temperatures in Florida?!?" That is the lament of some travelers who booked their winter Florida vacations, only to run into a cold front in the Sunshine State. Bad news for vacationers was good news for OJ bulls, as futures prices rose sharply as traders tried to assess any damage from temperatures falling into the low to mid- twenties. The most active March futures contract rose as high as 181.70 on panic buying by OJ shorts, triggering buy-stops above resistance at 175.00. Early reports show some leaf damage on the trees, but there is optimism that any damage will be on the light side, as the freezing temperatures were not long lasting. In addition, longer-term forecasts are calling for warmer temperatures for the Florida Citrus Belt, which if accurate, could make the recent price-spike a short-term affair. However, OJ traders should prepare for a heightened bout of price volatility in the coming weeks until the end of winter is near and traders can get a better grasp of any detrimental effects on the orange crop from this recent cold snap.

Technical Notes

Looking at the daily chart for March OJ, we notice prices shooting higher through previous resistance at 175.00, as panic buying and buy-stop triggering moved prices briefly through 180.00, until fresh selling emerged as hedgers took advantage of the rally to lock-in attractive prices. The price surge sent the 14-day RSI into overbought territory, with a current reading of 70.59. Wednesday's high of 181.70 will be the new resistance point for March OJ, with support seen at 175.00.

Mike Zarembski, Senior Commodity Analyst

Friday, January 6, 2012

The start of the New Year and an important employment report might be the catalyst needed to break the bond market out of its consolidation pattern. Some traders who are expecting a large move in Bond futures prices in the near-term may wish to consider exploring the purchase of an out-of-the-money strangle in Bond futures options. For example, with the March Bond futures (USH12) trading at 142-18 as of this writing, the February 146 calls and the February 139 puts could both be bought for a net debit of 1-14 64th, or $1,218.75 per spread, not including commissions. The total investment in the strangle would be the maximum potential risk on this trade. Traders would want to see a large price move occur soon after the trade is established. To help offset some of the risk associated with time decay on this trade, some traders may wish to exit the trade prior to expiration should it show a loss of 50% of the premium paid.

Fundamentals

The Treasury Bond futures market has been rather quiet since November, as prices have been contained in a relatively narrow 6-point price range. The lack of movement in prices has much to do with the mixed psychology of market participants. On one hand, continued fears of an expanding European debt crisis has sent fresh buying into US Treasuries, as traders still consider US government debt as a "safe haven" investment. On the other hand, a slew of improving US economic data, especially on the employment front, has taken some of the luster from Treasuries, as a sign of an improving economic outlook should draw funds into more "risky" assets and away from Treasuries, especially at current low yields. The jobs picture got some additional good news on Thursday, as the ADP private sector jobs report for December showed that 325,000 private sector jobs were created last month. This was the largest gain reported in 2011, and was well above the 180,000 jobs increase that many analysts were expecting. The improving jobs picture received further confirmation by the 15,000 decrease in jobless claims last week, according to the Labor Department. Jobless claims fell to a seasonally adjusted 372,000 last week, and the 4-week average fell to 373,250, which is the lowest level in nearly 2 ½ years. This good news on the jobs front may force traders to raise their estimates for this morning's release of the December Non-farm Payrolls Report. The current consensus estimate is for a gain of 150,000 jobs in December, with the private sector adding 170,000 jobs. The public sector is expected to have shed an additional 20,000 jobs last month, as both state and local governments are forced to cut jobs due to increasing budget deficits. The unemployment rate is expected to tick up 0.1% to 8.7% following the surprising drop of 0.4% last month, although the drop was mostly due to a reduction in the size of the workforce and not new job creation. Any major deviations from the consensus estimates may finally awaken Bond market traders from their 2-month slumber, and prices may finally move out of rather narrow price band.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice that the price consolidation that has occurred since November took place on much lower than average trading volume. Prices have recently closed below the 20-day moving average, perhaps giving bearish short-term traders a slight edge. The 14-day RSI is neutral, with a current reading of 47.65. Support for March T-bonds is seen at the November 4th low of 139-20, with resistance found at the December 19th high of 146-11.

Mike Zarembski, Senior Commodity Analyst

Monday, January 9, 2012

There appear to be enough events looming, both economic and political, to keep the equity markets quiet for the time being. Key support and resistance levels on the E-mini S&P futures have moved to a narrow range, and any price movement beyond these borders has the potential to trigger a large price move. Some aggressive traders may perhaps wish to explore buying just-out-of-the-money strangles in anticipation of a large price move or a spike in volatility in the next several trading sessions. For example, with the March E-mini S&P 500 trading at 1274.00 as of this writing, the January 1285 calls and the January 1265 puts could be bought simultaneously for a net debit of 23.25, or $1,162.50, not including commissions. The total investment in the strangle would be the maximum potential risk on the trade. Given the short period of time to option expiration, some traders may wish to exit the trade prior to expiration should the strangle trade at either 50% or 150% of the premium originally paid.

Fundamentals

The highly anticipated December Non-farm Payrolls report drew a muted response by stock index futures traders, despite signs of an improving employment picture. The headline figures were positive, with the Labor Department reporting that December Non-farm payrolls rose by 200,000 last month, which is better than the 150,000 jobs gain that was the consensus estimate. Private sector employment rose by 212,000 jobs, but public sector jobs fell once again, this time by only 12,000. The monthly revisions were a mixed bag, with November payrolls revised lower by 20,000 jobs. However, this was mostly offset by a positive 12,000 jobs revision for the month of October. The unemployment rate, which is calculated by a separate of survey of households, continued its decline, falling by 0.1% to 8.5%, but well short of the surprising 0.4% decline In November. Though this was the 15th straight month of job increases, it is the pace of jobs creation that concerns many traders, as it is estimated that a minimum of 125,000 jobs need to be created each month just to keep up with the increasing US population -- not to mention making up for the nearly 9 million jobs that were lost beginning with the economic crisis in 2008. In addition, wage growth continues to lag the inflation rate, which may be keeping many US. workers from feeling confident about their economic situation. The equity markets have been rather subdued this past week, after spiking higher to start 2012, as traders are hesitant to take large positions ahead of the start of the earnings season and are also still wary of the economic situation in Europe. Given the uncertainty surrounding the outcome of these events, not to mention any effects on the global economy due to potentially rising energy prices if the sanctions against oil purchased from Iran take place, we can expect to see choppy trading activity in the stock indices, as traders react to the latest headlines regarding these global issues.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice prices holding just above the symmetrical triangle chart pattern, after breaking out to the upside after the New Year's holiday. Prices are now above both the 20 and, more importantly, the 200-day moving averages, which is a bullish indicator. However, trading volume has been very light, even after the upside breakout, which may be a concern that the recent rally may prove to be a false breakout. The 14-RSI has been holding at a relatively strong reading of 61.15. The October 27th high of 1289.25 looks to be a key resistance point, with the 200-day moving average, currently near 1255.25, acting as support.

Mike Zarembski, Senior Commodity Analyst

Tuesday, January 10, 2012

Gold futures have been on the upswing since the New Year, supported by value buying and a more positive investor sentiment on Europe. There are risks in the near-term, as the success of the Gold market appears to hinge on outside markets due to a very tame inflationary outlook. Technically, Gold is consolidating after crossing the 1600 level. The near-term direction of the market is unknown, but sentiment is more positive given the preceding up-move. Some traders may perhaps wish to consider trading a neutral to positive play such as a bull put spread, like selling the Feb Gold 1575 put and buying the Feb 1550 put for a credit of 5.00, or $500. The maximum profit would be the initial credit and the trade risks $2,000.

Fundamentals

Gold futures have rebounded from recent lows on value buying and short-covering, but is the metal set to rebound or is this simply an upward correction? Gold has found some strength in improved investor confidence in the Eurozone, as well as stronger US equity prices. What has stopped some metal bulls from entering the market is that prices are dependent on these outside markets, meaning that a pullback in equities could drag precious metals along with it in the near-term. However, as a means of preserving wealth during times of uncertainty, few investment options are as attractive as Gold. Prices between 1500 and 1600 are extremely attractive for the long-term buyer, which should keep the physical market relatively tight and may limit the downside for the metal. The spark that precious metals need has to come from the speculator. Many speculators appear to have focused on other products like Crude Oil and treasuries during the past several months, so declines in those markets could bring life back into the Gold market.

Technical Notes

Turning to the Feb Gold chart, we see prices making a sharp reversal after testing the mid-1500's. The sharp sell-off came on the heels of a downward breakout from a wedge formation on the daily chart. The point at which Gold reversed was near the measure of the expected move, which suggests that both short-covering and fresh longs contributed to the sharp bounce in prices. Since crossing through 1600, prices have begun to move sluggishly, consolidating in a sideways pattern. Bulls would like to see prices cross through the 1700 level, which contains the October relative highs and November relative lows, in order for the market to gain further traction. It is interesting to note that although prices and the RSI indicator have moved sharply higher, the momentum indicator has only slightly tilted to the upside. This suggests that the market may see weakness or choppy trading in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

Wednesday, January 11, 2012

Though the major trend appears to favor Euro bears, in the short-term the market appears oversold, and a short-covering rally is not out of the question. On any rally attempt back towards near-term resistance near the 1.3085 area, some traders may perhaps wish to explore selling a March mini-Euro futures contract, with an objective of the March futures trading below the recent low of 1.2673. Some traders may wish to close out the position should the March futures close above near-term resistance at 1.3237.

Fundamentals

The Eurocurrency continues its downward spiral; with the lead month March futures trading at the lowest levels since September of 2010, as traders continue to flee the united currency due to concerns that the debt crisis will not be contained. German Chancellor Angela Merkel and French President Nicolas Sarkozy meet on Monday to discuss plans for closer fiscal union and regarding tougher sanctions for member nations who fail to control their fiscal deficits. Continued concerns that the Greek bailout plan was running into difficulties was a topic of discussion, with the IMF warning that even with private sector investors accepting a 50% haircut on the value of Greek debt, the country has an increasing risk of default, as even reduced debt levels may not be enough for the country to be able to service the debt. Speculators have become extremely negative on the Euro's prospects, as the most recent Commitment of Traders report shows the combined speculative short positions have reached record levels. This increases the risks of those looking to go short the Euro at current price levels, as any "positive" news out of the Euro- zone may trigger a huge bout of short-covering buying, forcing prices higher despite the overall negative fundamentals.

Technical Notes

Looking at the daily continuation chart for the Eurocurrency futures, we notice prices rebounding as the market trades near the low end of the downward channel drawn from the May 2011 highs. The 14-day RSI has moved back above oversold levels, with a current reading of 32.62. Though the market appears ready for a short-covering bounce, prices have a way to go to test even the 20-day moving average (currently near the 1.2978 area). The next major resistance level is found at the December 13th high of 1.3237, with major support found at the recent low of 1.2673.

Mike Zarembski, Senior Commodity Analyst

Thursday, January 12, 2012

Crude Oil futures got a jolt from the Iranian and Nigerian situations, as many traders put European debt concerns on the back burner for the time being. While the market is well supplied at the moment, the geopolitical situation may take precedence in the near-term. Technically, it looks as though Oil may be in store for more range-bound trading. Some traders might possibly wish to consider initiating a short futures options position in the Crude Oil, like selling a Feb Crude Oil 97.5 put for a credit of 0.50, or $500. The maximum profit would be the initial premium received and the trade carries unlimited risk, so traders may wish to exit the position should the underlying futures contract dip below 98.00.

Fundamentals

Crude Oil futures have bounced due to mounting tensions over Iran's nuclear program and a possible strike in Nigeria that could significantly cut production. There has been much posturing over the Iranian nuclear program in recent years, and the situation seems to be coming to a head now, with possible sanctions looming, Iran's war games, and the US moving a carrier into the region. This is not the first time the situation has heated-up, and previous contentious situations have eventually cooled off. Oil traders, nonetheless, have been concerned about a supply disruption from the Oil-rich nation. In Nigeria, Oil workers' unions have begun taking workers out of Oil fields and shutting down platforms in protest to the government eliminating fuel subsidies. This tension in Nigeria could ease, however, if the government bows to the demands of workers. Crude Oil also got a boost from rising stock prices. Equities have been on the rise due to reduced fears over Europe and a modest improvement in the US economic outlook.

Technical Notes

Turning to the chart, we see the February Crude Oil contract looking as though it was set to break-out to the upside, after trading into the 103's for several sessions to start off the year. Subsequently, prices pulled back and stabilized near 100. This indicates that prices may be locked into a range once again, albeit a tighter one between 100 and 104. The direction of the market over the near to medium-term will likely be determined by where prices are able to snap out of this range. The oscillators are giving neutral readings, also suggesting range-bound trading in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

Friday, January 13, 2012

The bearish January USDA report has sparked a sell-off in the old crop/new crop Corn spread, lowering the old crop price premium by nearly 20 cents on Thursday alone. A look at the daily spread chart for the May/December 2012 Corn spread shows the May futures trading at a 59-cent premium to the December futures. The major support area for this spread is not found until the 44-cent area, and major support is not seen until just below a 30-cent May premium. Some traders who are looking for a potential test of the support levels in this spread may perhaps wish to explore buying December 2012 Corn and selling May 2012 Corn. Traders initialing this bear spread would wish to see the May price premium narrow.

Fundamentals

The USDA January Crop Production report has become notorious for being the catalyst for volatile price moves in the grain futures market, and this year's report was no exception, as bearish data sent prices plummeting. Corn futures were particularly hard hit -- especially old crop futures -- with prices declining by the daily 40-cent limit. The USDA raised its final estimate of the 2011-12 Corn crop to 12.358 billion bushels, which is up 48-million bushels from the December estimate and sharply higher than the average analyst estimate of 12.310 billion bushels. The USDA revised higher the average yield estimate by ½ a bushel to 147.2 bushels per acre. Traders who were expecting a nearly 100 million bushel cut in the 2011-12 Corn carryout estimate were met instead with a very modest 2 million bushel decline, to stand at 846 million bushels. Global Corn carryout estimates were raised as well to 128.1 million metric tons. The sell-off in Corn futures prices was more severe than the numbers may have dictated due to the recent 10% rally in prices the past month, as dry weather in Argentina and Brazil had many traders estimating much lower Corn production out of South America. However, recent rains in the South American growing regions may have taken some of the "risk" premium out of Corn prices, and the bearish USDA data just added fuel to the downward price slide seen since the highs were made back in August of 2011. New-crop Corn futures posted more moderate price declines, as many traders seem to be viewing potentially lower cash Corn prices in 2012 as a deterrent for producers who were considering expanding the planted acreage for Corn production this spring. Traders will get the first official estimate for this year's Corn planting estimates on March 30th when the USDA releases its prospective planting report. Until then, we may see continued price weakness until this fresh data is released.

Technical Notes

Looking at the daily chart for March Corn, we notice the limit-down price move on Thursday caused a nearly perfect 61.8% retracement of the 4-week rally started at the December 15th low of 576.25. Prices are now below both the 20 and 200-day moving averages, and the 14-day RSI has plunged to a 41.75 reading. Notice that the recent high of 664.25 just failed to reach the 200-day moving average. This rejected test of this key moving average drew in fresh sellers, capping any further gains as the market moved sideways until Thursday's limit-down move. The 664.25 high should now act as stiff resistance for the March futures, with support found at the recent low of 576.25.

Mike Zarembski, Senior Commodity Analyst

Tuesday, January 17, 2012

Copper futures have seen support from both strong electronic sales and the expectation that China will begin easing interest rates. European concerns are slowly losing their place in the forefront of traders' minds and inflation is once again a hot topic of discussion due to the sheer volume of cash thrown at economic problems. Turning to the chart, we see the March Copper contract breaking out of a wedge formation to the upside, suggesting that an upside breakout has taken place. The Copper market can be an extremely difficult market to trade due to its violent swings and illiquid options market. Traders can use Copper as a gauge to make trading decisions in more liquid markets. For those bold enough to test the waters of the Copper market, a possible strategy is to buy the March future on a close above 3.75 with an upside objective of 4.15 and a stop at 3.38.

Fundamentals

Copper futures are higher on the expectation that China will loosen its interest rates amid growth concerns. The metal is often seen as a barometer for the commodity market as a whole, which suggests that inflationary concerns may once again trump growth concerns over the longer term. This could be a positive boost for precious metals as an inflation play. Chinese growth forecasts remain robust, albeit much lower than previously projected. Consumer electronic sales continue to weather the economic storm much better than other sectors, which could provide good demand for industrial metals. This can be seen as a positive force for Copper, as well as outside markets, such as Silver, that have been plagued by worries over growth. Interest rates are very likely to remain extremely low across the globe as long as Europe is mired in its current mess and the US and other nations are unable to grow at a reasonable pace organically, suggesting consumers will have cheap financing to continue buying electronics and, also, inflation could be difficult to stop once it starts.

Technical Notes

Turning to the March Copper chart, we see prices breaking out of the wedge formation that has been forming for several months. The measure of the wedge suggests prices may come up to test the 4.50 level over the long-term. Prices are above the major moving averages, which can be seen as positive for prices. The RSI indicator is nearing overbought levels, suggesting prices may face a bit of near-term resistance.

Rob Kurzatkowski, Senior Commodity Analyst

Wednesday, January 18, 2012

Since the 2011 lows were made back in October, Crude Oil futures have made a series of higher highs and higher lows which is supportive of bullish leaning trades in Crude Oil futures. Until this trend changes, traders may wish to explore bullish trading strategies using Crude Oil futures options. One such strategy is selling out of the money puts. For example, looking at the daily chart for March Crude Oil, we see chart support points near 92.50, 90.00, and 85.00. Traders may wish to explore selling puts with strike prices below these support levels with more aggressive traders looking to sell puts below the higher support levels. For example, with March Crude Oil trading at 100.13 as of this writing, a trader could sell the March 87.50 puts for 0.50 or $500 per option, not including commissions. The premium received is the maximum potential gain on the trade, which would be realized at option expiration in mid-February, should March Crude Oil be trading above 87.50.

Fundamentals

A "soft landing" for the Chinese economy may be the key to determine the direction for Crude Oil prices in 2012 as any signs of higher demand from the world's most populous country looks to be supportive for prices. Chinese gross domestic product for the 4th quarter rose by 8.9%, which was the slowest rate of growth in 10 quarters, but ahead of analysts' expectations. The slowing rate of Chinese economic growth is expected to allow for a more accommodative monetary policy in the coming months. This outlook has shifted some of the concerns of a "hard landing" for the Chinese economy and improves the outlook for commodity demand including Crude Oil. Oil prices have remained at elevated levels of late, mainly on geopolitical concerns running from a potential Iranian threat to block the Straits of Hormuz, to a potential strike in Nigeria that could shut down the country's oil industry. Though both these issues have not yet come to fruition, even the fear of possible oil export disruptions has put a "risk premium" into oil futures prices. Speculators continue to add to existing long positions in Crude Oil futures, with the most recent Commitment of Traders report showing an increase in long positions by both non-commercial and non-reportable traders, totaling a combined 28,238 contracts as of January 10th. Bullish comments from Saudi Arabia's oil minister stating that $100 barrel oil was "desirable" took some of the speculation away from the market that Saudi Arabia was prepared to raise its oil output sharply should economic sanctions be put in place against Iran.

Technical Notes

Looking at the daily chart for March Crude Oil, we notice prices holding near the short-term 20-day moving average(MA) and are over $3 above the longer-term 200 day MA. Since mid-November, prices have been holding within a relatively narrow $11 price range though recently we have started to see prices having some difficulty holding below $100 per barrel for any length of time. The 14-day RSI is neutral with a current reading of 51.14. Strong support is seen at the recent lows made back on December 16th at 92.95. Resistance is seen at the recent highs of 103.90 made on January 4th.

Mike Zarembski, Senior Commodity Analyst

Thursday, January 19, 2012

The current Sugar surpluses may be on the way out, replaced with a supply shortage in the future. Growing conditions remain an unknown, but food and ethanol demand is on the rise, suggesting conditions would have to be ideal to meet 2012/2013 demand. Technically, the March Sugar contract appears to have found a bottom, but the market has yet to catch upward momentum. Traders may look to enter into a bullish to neutral trade, such as a short March 22.50 put position at a premium of 0.30, or $336. The trade's max profit is the initial credit and it has unlimited loss potential, so the position will need to be managed.

Fundamentals

Sugar futures seem to have found a base just above the 22.50 level, after selling off from the 30.00 mark. The supply shortage of several years ago has had farmers planting Sugar cane at a brisk pace, leading to a supply glut in the near-term. The supply surplus was also aided by favorable growing conditions, which is something that growers cannot control. Traders' focus now lies on whether or not growing conditions will once again cooperate in India and Brazil. Sugar food usage continues to increase at an impressive rate. Brazil continues to import a significant amount of ethanol, suggesting that, when the current crop comes to harvest, a large portion could be diverted to ethanol use.

Technical Notes

Turning to the chart, we see the March Sugar contract forming a bottom near the 22.50 level. The 20 and 50 day moving averages appear to be on the verge of crossing over to the upside, which can be seen as bullish in the near-term. The market may be able to gain upward momentum in the event that prices are able to breach the 25.00 level and the 100 day average just above this level.

Rob Kurzatkowski, Senior Commodity Analyst

Friday, January 20, 2012

Though Sugar futures have turned positive on a technical basis, the still large surplus expected this year combined with the potential for larger export quantities from India, may weigh heavily on prices, especially if the European debt situation continues to linger and much of Europe falls into a recession. Traders looking for the Sugar rally to stall may wish to explore selling out of the money call options in Sugar futures options. For example, with March Sugar trading at 24.84 as of this writing, a possible trade idea would be to sell the March 26.50 calls for about 0.23 or $257.60 per contract, not including commissions. The premium received is the maximum potential gain on the trade which would be realized at option expiration in mid-March should the March futures be trading below 26.50.

Fundamentals

Sugar futures prices have awoken from their nearly 2-month long slumber, as the lead month March contract approaches the 25-cent level for the first time since November. Weakness in U.S. dollar, and signs of an improvement in the global economic environment, are among the reasons given for higher Sugar prices of late, despite a global surplus this year. Another more offbeat catalyst may be coming from Brazil, which has become the leading importer of U.S. ethanol. This is important as Brazil is the largest producer of Sugar Cane which can be used more efficiently for ethanol production than U.S. produced Corn ethanol. So the fact that Brazil is coming to the U.S. for ethanol may be a sign that more cane will be dedicated towards fuel usage in the coming months, which will limit the amount of Sugar available for export. Larger Sugar exports out of the Philippines have been met by eager Asian buyers such as Japan, South Korea, and most importantly China, which has been seen restocking several commodities in the past weeks. For the rally to really take hold we will need to see continued strong demand as countries that are holding large Sugar surpluses, such as India, will be eager to allow higher quotas for Sugar exports which will increase supplies available to the market and potentially cap further price rallies.

Technical Notes

Looking at the daily chart for March Sugar, we notice prices breaking out of the 2-month long consolidation phase as well as closing above the downtrend line drawn from the 2011 highs. The 14-day RSI has turned positive with a current reading of 61.38. Two technical barriers remain for Sugar bulls, with psychological resistance found at 25.00 and more importantly the 200-day moving average, currently near the 25.24 level. Support is seen at the 20-day moving average, currently near the 23.64 area.

Mike Zarembski, Senior Commodity Analyst

Monday, January 23, 2012

Improving economic data out of the U.S. and more refinery closings may make Gasoline inventories tight going into the summer, especially on the east coast. This is important as the delivery point for NYMEX RBOB futures is the New York Harbor. Traders expecting U.S. Gasoline prices to rise going into the summer may wish to explore bull spreads in RBOB futures with the buy leg of the spread beginning in the summer delivery months. One possible trade would be to buy the July 2012 RBOB futures and sell the September RBOB futures for a 0.0725 July premium. Traders holding this bull spread would wish to see the July premium widen over the September futures.

Fundamentals

U.S. drivers have certainly capped their gasoline usage of late as refining output has begun to overwhelm demand causing supplies to surge to 10-month highs. According to the Energy Information Administration (EIA), in their weekly energy stocks report, U.S. Gasoline inventories rose by 3.717 million barrels last week to stand at 227.5 million barrels, which is the highest inventory level seen in 10 months. In addition to higher production, the U.S. Gasoline imports were higher last week as European refiners are exporting Gasoline due to slow demand on the "Continent." Globally, the refining industry is in the midst of a shakeout, with refineries in Europe closing due to poor profit margins tied to high input costs and lower domestic demand and competition from state run oil companies in developing countries. In the U.S., east coast refineries have been closing at an alarming rate because of a lack of access to cheaper WTI grade Oil which has benefited refineries that have access to Oil in Cushing, Oklahoma. Stricter pollution standards have made turning a profit a difficult proposition. Just recently, Hovensa LLC announced it will shut its St. Croix refinery, one of the largest in the western hemisphere, due to continued losses. Though current U.S. Gasoline supplies remain ample, especially given the current lackluster demand, one has to wonder what will occur in the Gasoline market once the global economy begins to rebound, or a major U.S. refinery has production issues, or a bottleneck occurs in a pipeline that ships Gasoline from the Gulf Coast to the Mid Atlantic and East Coast states? Any of these scenarios has the potential to send Gasoline prices sharply higher in the coming year, and this concern should remain on traders' minds as we move towards the summer driving season.

Technical Notes

Looking at the daily chart for the daily continuation chart for RBOB Gasoline futures, we notice prices have broken decisively above the downtrend line drawn from the 2011 highs made back in late April. Though this is a bullish technical indicator, prices have failed a test of the 200-day moving average and in the near-term a price correction may be in the cards. The 14-day RSI has started to turn down with a current reading of 57.43. Resistance is seen at the January 18th highs of 2.8529, with support seen at the January 12th lows of 2.7178.

Mike Zarembski, Senior Commodity Analyst

Tuesday, January 24, 2012

Crude Oil traders have once again proven to be a fickle bunch, resulting in the wind coming out of the sails of the most recent rally. Investor confidence has eroded to an extent on the failure of Greece to come to a debt arrangement and also on economic concerns from China. Technically, signs are pointing to possible consolidation. Some traders may perhaps with to consider entering into a bear call spread, such as buying a March Crude Oil 107 call and selling a March 105 call for a credit of 0.35, or $350.

Fundamentals

Crude Oil futures have been drifting lower during recent sessions, unable to sustain any upward momentum. The news of the European embargo on Iranian goods, including Oil, has done little to shake Crude bulls out of hiding. In their response statement, Iran took a much less threatening tone, notably omitting any mention of a possible shutdown of the Strait of Hormuz. The Greek debt impasse has weighed on the commodity and equity markets overnight, demonstrating that nothing is certain with the embattled nation and further shrinking investor confidence, if that is even possible. The renewed concerns about Greece and assurances from Saudi Arabia that they will keep Oil flowing have largely neutralized any bullish sentiment that may have arisen from the Iranian embargo. The deciding factor in the near-term direction of the Oil market could come from economic and supply data, although more aggressive posturing from Iran could be a wild card.

Technical Notes

Technically, the March Crude Oil has once again failed to have a meaningful breakout above the 104 level, reversing and drifting lower. The 50-day moving average has acted as support recently, suggesting that some traders may wish to keep a close eye on prices near the average. Successive closes below the average could be a signal that prices may move lower in the near-term. The 95.00 mark may be an important level near-term, as closes below the price could suggest prices may test the low 90's.

Rob Kurzatkowski, Senior Commodity Analyst

Thursday, January 26, 2012

The appeal of Gold futures as a hedge against inflation rose with the FOMC's confirmation that interest rates will be kept low over the next 2-3 years. The Fed's focus on growth versus inflation may be a bit misguided, as inflation data has been skewed by the financial crisis in Europe and lower raw material prices in China. Inflation may be an uncontrollable beast once it is let out of its cage. Technically, the April Gold chart shows a breakout above congestion at the 1680 level and prices have crossed into the psychologically important 1700's. However, prices seem to be nearing overbought levels, which could affect prices in the near-term. Some traders may perhaps wish to consider entering into a bull call spread, such as buying the April Gold 1750 calls and selling the April 1800 calls for a debit of 15.00, or $1,500. The trade risks the initial cost and has a maximum profit of $3,500 if the underlying April futures close above 1800 at expiration.

Fundamentals

Federal Reserve Chairman Ben Bernanke further fueled the recent Gold rally by forecasting that interest rates will remain low through 2014. The central bank noted that inflation risks are presently low, and that economic growth is a primary concern. This is good news for Gold bulls, many of whom understand that inflation is often difficult to control once it does rear its ugly head. The statement also did not rule out further large-scale Bond purchases, which may temper some of the bullish enthusiasm for Gold as a safe haven asset. If the Fed backtracks from this statement in the future, Gold's appeal to flight to quality investors could be further bolstered. Outside of the friendly FOMC statement, the debt-swap stalemate in Greece has fueled some new concerns that a soft landing may not happen after all.

Technical Notes

Turning to the April Gold chart, we see prices breaking out above the 1680 level at the upper end of recent consolidation. The next areas of resistance may be found near 1735 and 1800. Prices are now trading above the major moving averages, with prices closing just above the 100-day simple moving average yesterday. This can be seen as further technical validation of the recent uptrend and breakout. Tempering some of this recent bullish enthusiasm is the fact that the RSI indicator is nearing overbought levels, which may cool buying in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

Friday, January 27, 2012

Some traders who are looking for the recent rally in Soybean futures to falter may perhaps wish to explore buying just-out-of-the-money puts in Soybean futures options. For example, with the March futures trading at 1225.25 as of this writing, the March 1200 puts could be bought for 20 cents, or $1,000 per option, not including commissions. The total investment in the option would be the maximum risk on the trade, with a potential price objective on the futures of the recent low of 1150.00.

Fundamentals

Soybean futures have rallied over $1 per bushel the past 4 weeks, as dry weather in Argentina and Brazil sparked concerns over the size of the South American harvest. With only a brief lapse due to a "bearish" USDA crop production report, it appeared that bean bulls were regaining the upper hand. However, there now appears to be some signs that the recent price gains may be in jeopardy. First, we are starting to see some signs of improved crop conditions in South America, as much needed rains reached the parched growing regions this past weekend. Additionally, weather forecasts are now calling for another rain event in early February. US Soybean export demand is expected to be light this week, as Chinese buyers are on holiday for the Lunar New Year. US export demand was already in question, as a relatively strong US Dollar made US Soybeans more expensive -- especially when compared to Brazilian and Argentinean competitors. Should the South American Soybean harvest turn out better than anticipated, we could see Soybean futures prices turn weak as concerns of tight global supplies are diminished.

Technical Notes

Looking at the daily chart for March Soybeans, we notice prices holding above the 20-day moving average (MA), but still remaining well below the longer-term 200-day MA. Trading volume has started to decline as the rally has progressed, leading some to believe that the up-move is starting to lose some strength. The 14-day RSI is still relatively strong, with a current reading of 57.91. Resistance in March Soybeans is seen at the January 3rd high of 1244.75, with support seen at the 20-day moving average, which is currently near the 1205.50 area.

Mike Zarembski, Senior Commodity Analyst

Monday, January 30, 2012

Some traders who are expecting Coffee futures prices to decline may perhaps wish to explore buying bear put spreads in Coffee futures options. For example, with May Coffee trading at 221.15 as of this writing, the May 215 puts could be bought and the May 200 puts sold for a net debit of 5.50, or $2,062.50 per spread, not including commissions. The total investment in buying the put spread would be the maximum potential risk on the trade, with a potential profit of $5,625 minus the premium paid, which would be realized at option expiration in April should May Coffee be trading below 200.00.

Fundamentals

Coffee futures have been rather quiet recently, with range-bound trade being the norm ahead of 2012-13 output estimates. The most widely watched estimate from CONAB, the Brazilian government agency, is estimating this coming season's Brazilian crop between 49 and 52 million bags, which is well above the 43.48 million bag estimate this past season. The size of the estimate is more surprising given CONAB's history of underestimating the size of the harvest. Among the reasons for the higher estimate are improving weather conditions and better care of Coffee trees, as relatively high Coffee prices have encouraged producers to spend more on their production investments. If the numbers are correct, Brazilian output should be ample to make up for any production shortfalls from Columbia this season, as the second leading South American producer suffered its second consecutive production shortfall due to heavy rains. Many traders will also keep an eye on events in Europe, as any set-back in dealing with the European debt crisis could spark a further sell-off in commodities, with the Coffee market being particularly vulnerable should global supplies rebound this coming season.

Technical Notes

Looking at the daily chart for March Coffee, we notice prices have been rangebound during the past several weeks, with the market currently trading near the low end of the recent price range. Bears seem to have the upper-hand, as prices are below both the 20 and 200-day moving averages and momentum as measured by the 14-day RSI has started to weaken, with a current reading of 43.19. Major support for March Coffee is found at the recent low made back on December 19th at 212.35, with resistance found at the January 12th high of 238.50.

Mike Zarembski, Senior Commodity Analyst

Tuesday, January 31, 2012

The Silver market may be in the best position to post solid gains in 2012 due to its poor showing in 2011 and strong demand for the metal. Industrial demand continues to outpace supply, making the already tight market even tighter. Technically, the March Silver contract has made significant progress, but prices need to sustain rallies above 35.00 to keep the rally going. Some traders may perhaps wish to consider entering into a bull call spread -- for example, buying the March Silver 34 calls and selling the 35 calls for a debit of 0.30, or $1,500. The trade risks the initial cost and has a maximum profit of $3,500 if the underlying futures close above 35.00 at expiration.

Fundamentals

Silver has been one of the brightest commodities during the month of January, rallying over $7.50. Oversold conditions and increased demand from industrial users of the metal have contributed to the rebound. Investors have also become a bit numb to the financial crisis gripping Europe, and they appear to be less convinced that the worst case scenario is a real possibility. Silver has also ridden the coattails of the Gold market, which has performed well as an inflation play. Silver traders also got a boost from the FOMC, which forecast interest rates to remain at extremely low levels for the next 2-3 years, stoking some inflation fears. Chinese economic growth is expected to slow significantly in 2012, but raw material prices have fallen in 2011. The People's Bank of China is expected to lower interest rates and shift toward a more expansionary approach, which suggests that manufacturers could use cheap financing to buy raw materials, including base metals and Silver, at attractive prices in 2012.

Technical Notes

Turning to the chart, we see the March Silver contract crossing the 100-day moving average. This gives further technical confirmation of the recent breakout above the 33.00 level. The next area of resistance comes in near the 35.00 mark, near November highs. The overbought conditions on the RSI indicator have led to the recent consolidation. Prices may continue to consolidate, or possibly correct in the near-term before the market tests the 35.00 resistance level. A breakout above 35.00 while overbought on the RSI could result in an explosive move.

Rob Kurzatkowski, Senior Commodity Analyst