« October 2012 | Main | December 2012 »

November 2012 Archives

November 1, 2012

Uncertainty Weighs on Stocks Early

Thursday, November 1, 2012

Stocks have had a rough few weeks, initiated by weak earnings and choppy economic data. Economic data released today and tomorrow could set the tone until the election. Given the candidates' economic positions, the old cliché of a Democratic win being bearish and a Republican win being bullish could hold true for a few sessions after the election. After that, economic fundamentals and earnings should take center stage once again.

Fundamentals

Index futures have been hanging around the 1400 level ,after falling from recent highs. The recent spate of bad earnings has planted seeds of doubt in the minds of many traders regarding the current state of the economy. Adding to this uncertainty was the major storm that hit the Northeast, which could account for billions of dollars of economic losses. Overnight news from China indicating manufacturing data there has picked up appears to have failed to inspire equity index traders in the US. Futures are lower ahead of today's economic data. Many traders are lacking confidence that today's employment, manufacturing and consumer confidence data will show much improvement. Consumer confidence may rise slightly,and there may be an uptick in construction spending. Tomorrow's economic data is highlighted by the Non-Farm Payroll ("NFP") report. Given the fact that this is the last NFP number ahead of the election, the conspiracy theorists out there may discount a good number as window dressing.

Technical Notes

Turning to the chart, we see the December E-mini S&P forming a textbook triple-top pattern. After confirming the pattern, the contract consolidated just above the 1400 mark. It is not at all unusual for a contract to consolidate after confirming a reversal pattern on the chart. In fact, it could be seen as the norm, with double/triple-tops/bottoms as well as head-and-shoulder formations. A downward breakout from the consolidation pattern could offer further bearish confirmation for the market. The downward cross of the 20 and 50-day moving averages can likely also be seen as bearish.

Rob Kurzatkowski, Senior Commodity Analyst


November 2, 2012

Have the Loonie's Wings been Clipped?

Friday, November 2, 2012

Though Bank of Canada Governor Mark Carney made a statement that an interest rate hike is likely "over time", there appears little to signal this will occur anytime soon, especially following a lowering of economic growth forecasts to only 1% in the third quarter. However, technical chart patterns seem to indicate that we may be close to a near-term bottom in the Loonie and a short-covering rally may not be out of the question.

Fundamentals

The value of the Canadian Dollar vs. its neighbors to the south has been in a steady decline since the middle of September, as traders' "risk" appetites have waned due to continued disappointing global growth prospects and uncertainly ahead of the US elections. Domestically, the Loonie is flying into some headwinds, with Canada's 2013 growth outlook being cut to 2% and prospects for a tightening of monetary policy being pushed further into the future. Front month Canadian Dollar futures are now trading below parity with the U.S. Dollar for the first time since August, as continued slow global economic growth has started to lower the price outlook for commodities, which is viewed as negative for the Canadian Dollar. Chart technicians will note the Loonie's value is now approaching the 50% Fibonacci retracement level of the rally from the June lows to the mid-September highs. In addition, the Loonie is also testing the 200-day moving average, and should new multi-month lows not be made in the near future, we may start to see a recovery and the Loonie may once again resume its flight back towards recent highs.

Technical Notes

Looking at the daily continuation chart for Canadian Dollar futures, we notice prices trading near strong support levels at the convergence of both the 50% Fibonacci retracement and the 200-day moving average. In addition, the 14-day RSI is approaching oversold levels, with a current reading of 38.63. Should current support at 0.9970 fail to hold, we see the next support level at the 61.8% Fibonacci retracement near 0.9874, with resistance found at the 20-day moving average, currently near 1.0119.

Mike Zarembski, Senior Commodity Analyst


November 5, 2012

Bear Market Ahead for the Yen?

Monday, November 5, 2012

Better than expected U.S. Non-Farm Payrolls figures for October (+171,000 jobs) have taken some of the flight to safety buying out of the Yen on Friday, sending the currency to lows not seen since late April. With the Yen starting to weaken, some analysts believe that the currency intervention to help weaken the Yen by Japanese officials could be more effective now that the trend seems to be favoring a weaker Yen.

Fundamentals

After months of unsuccessfully trying to pick a top in the value of the Japanese Yen vs. the U.S. Dollar, many speculators seem, once again, ready to test the short side of the market on the belief that the Bank of Japan ("BOJ") is serious in its statement to increase easing measures to help stimulate the economy. The BOJ may aggressively try to rekindle inflation by printing nearly unlimited amounts of Yen to help weaken the currency. A strong Japanese Yen has been the bane of Japanese manufacturers whose overseas earnings have been hit due to an overly strong currency. Global economic weakness has hampered past attempts by Japanese officials to weaken the Yen, as many speculators have looked towards the Yen, rightly or wrongly, as a "safe haven" investment during periods of economic uncertainly. Though trying to stay short the Yen has been a difficult endeavor for many traders, we are starting to see some technical indication that the Yen may finally be ready to fall. Prices are now below major moving averages and chart patterns are leaning towards the bear camp for the first time in nearly 10-months.

Technical Notes

Looking at the daily continuation chart for the Japanese Yen, we notice prices trading below both the 20 and 200-day moving averages. In addition, the formation of a "bear flag" technical pattern seems to have been confirmed, as prices are now trading at a 6-month low. The 14-day RSI is weak, with a current reading of 31.08. The April 20th lows of 1.2233 look to be the next support level for the December futures with resistance found at the October 30th highs of 1.2640.

Mike Zarembski, Senior Commodity Analyst



November 6, 2012

Gold Traders Eye Presidential Election

Tuesday, November 6, 2012

Gold traders are anxiously awaiting the results of today's election. An Obama wins could be viewed as positive for Gold prices, as it could pave the way for more government spending and looser fiscal policy. A Romney win could bring Gold sellers out in force, as this could be an indication that government spending and stimulus could decrease. Beyond the election, there is an overall sense of negativity among metal traders, who have a grim economic outlook regardless of who occupies the Oval Office. Technically, it looks as though the oversold conditions could help prop-up the Gold market in the near-term, but there are major downside risks.

Fundamentals

Gold futures are up modestly for the second consecutive session ahead of today's election. Futures have taken a sharp turn down in recent weeks, as economic fears have mounted. Hurricane Sandy,and the devastation left by the storm have certainly not helped the economy. Last week's jobs data was better than expected, helping to alleviate some fears that the US is ready to head off the fiscal cliff. News on the physical Gold front has been very quiet, leaving traders to focus on the economy and the election. The recent wave of selling suggests that the market has become a bit oversold, leaving the possibility of short-covering out there.

Technical Notes

Turning to the chart, we see the December Gold chart dropping well over $100 from recent highs. The failure of the Gold contract to break through the 1800 level helped spur on this rally by triggering long liquidation. Friday's sell-off marked a downside breakout from the consolidation pattern. Prices sold off to the 100-day moving average, which prices have held. Failure to hold this pivotal average suggests prices could continue to drop sharply, possibly testing 1600 on the downside. The RSI remains oversold, which could be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst



November 7, 2012

Corn Price Consolidation Continues

Wednesday, November 7, 2012

With the U.S. Corn harvest 95% complete, we are starting to see producer selling begin to slow. This has caused cash basis levels to strengthen as buyers attempt to draw supplies out of storage, though weak U.S. Corn exports are keeping the extent of the basis increases in check.

Fundamentals

Corn price volatility has become subdued the past few weeks, after the historic bull market this summer sent prices to record highs. Weak U.S. exports, lower Ethanol production, and long liquidation by many speculators have offset the price gains triggered by lower U.S. Corn production. The most recent Commitment of Traders report demonstrates the extent of the long liquidation by large speculators, with over 46,000 contracts closed out during the week ending October 30th. Though the current price momentum is neutral to bearish, some analysts are starting to see evidence of price support. Rising Wheat prices due to drought conditions potentially affecting Winter Wheat production in the central Plains, would remove Wheat as an attractive alternative to Corn for use as livestock feed. In addition, Corn futures prices have remained relatively stable, especially considering recent long liquidation selling that has occurred. This may be a sign that commercial buyers are emerging as prices move lower, which may act as a floor on prices. We may see trade become choppy this week, as traders square their positions ahead of the USDA November Crop Report scheduled to be released this Friday. Current estimates are for average Corn yields of 122 bushels per acre, with production expected to be + or - 50 million bushels from the previous USDA estimate of 10.706 billion bushels.

Technical Notes

Looking at the daily chart for March Corn futures, we notice prices trading on both sides of the 20-day moving average since early October, as prices moved into a relatively narrow 40-cent price range. Ironically, trading volume has been robust the past few weeks, though much of this may be due to rolling of positions from the December futures to the March contract. Even though prices are trading nearly $1 below yearly highs, we are still over $1 above the 200-day moving average, which many technicians use to determine if a market is bullish or bearish. The 14-day RIS is neutral, with a current reading of 45.46. The September 28th low of 708.75 looks to be support for March Corn, with resistance found at the October 11th high of 775.75.

Mike Zarembski, Senior Commodity Analyst


November 8, 2012

Election Results Pound Oil Market

Thursday, November 8, 2012

Thus far, the election results have not been kind to the Crude Oil market. While there was a conciliatory tone among polls from both sides, it could simply be back-slapping and empty promises to try and work together before we return to partisan bickering, as usual. Fundamentally, the Crude Oil market remains well supplied. Refineries were able to begin operating shortly after the floodwaters from Sandy subsided, which could help work down some excess inventories, but the impact could be minimal. Technically, Crude Oil could see a bounce off support near 85.00. However, there could be significant downside risk if the 85.00 and 80.00 levels are broken.

Fundamentals

Crude Oil futures are slightly higher this morning, after dropping $3.50 yesterday. Yesterday's sharp pullback took its cue from stocks in disapproval of election results. Prices gave back Monday's gains, which were largely due to short-covering ahead of the election, and then some. Many Oil traders are now left looking to the equity markets and the greenback for guidance. Logic would dictate that a victory from the left would bring with it higher taxes and a tougher climate for corporate earnings. Even the Speaker of the House, a fiscal conservative, made mention of a more "responsible" tax code in his congratulatory statement, indicating both parties may reach a compromise resulting in higher taxes. While this could be construed as negative for Crude Oil, there is also the question of government spending. With the President winning a second term, Obamacare in some form is here to stay. Given his history of using liberal stimulus spending, the US Dollar could find itself coming under assault.

Technical Notes

Turning to the chart, we see the December Crude Oil contract trading near the 85.00 level, which could be viewed as support. While support between 84.50 and 85.00 is important, critical support can be found near 80.00. Failure to hold the $80 level could be viewed as a major setback for Oil and could lead to steep declines.

Rob Kurzatkowski, Senior Commodity Analyst



November 9, 2012

Weather Concerns Supporting Wheat Prices

Friday, November 9, 2012

Weather forecasts will likely be a key factor in the next direction for Wheat prices, as several major exporters, including the U.S., Australia and Europe, are facing less than ideal conditions for their Wheat crop.

Fundamentals

One of the few commodity markets that traded higher after the U.S Presidential election results were announced was the Grain Complex, particularly the Wheat market where a weaker U.S. Dollar, tighter global supplies and drought conditions overtook the negative tone for commodities. Global Wheat ending stocks are anticipated to have decreased by 3 to 5 million metric tons since October's estimate when the USDA Supply/Demand Report is released this morning. Lower production estimates out of South America and Australia are expected to be behind the lower inventories estimate, though there are also some concerns over China's official production totals. Wheat prices in Europe have soared, which is typically viewed as supportive for U.S. Wheat exports, as it may bring additional business back to the U.S. Drought conditions in the central and southern plains have triggered fears that the recently planted new-crop will get off to a poor start as we move into dormancy this winter. Any lack of snow cover exposes the crop to potential winter kill, especially if we are experiencing below normal temperatures this season. Large and small speculators have been on opposite sides of the Wheat market, with large non-commercial traders net-long Wheat futures and small speculators and commercial traders holding net-short positions. Should we see a technical break-out to the upside, we could see a slew of buy stops being triggered as small speculators run to the exits and large trend following traders add to existing long positions.

Technical Notes

Looking at the daily chart for March Wheat, we notice prices trying to break out to the upside, out of the sideways movement seen since July. Prices are now moving above the 20-day moving average and momentum is turning up, with a current reading of 62.36. 943.25 is seen as the next resistance level for March Wheat, with support found at 867.75.

Mike Zarembski, Senior Commodity Analyst



November 12, 2012

Bulls Sour on Sugar Prices

Monday, November 12, 2012

Fresh bearish fundamental news out of Brazil and a stronger U.S. Dollar are two factors keeping bears in control of the Sugar market. Sugar demand has not picked up even with prices at 2-year lows, which may be a signal that prices need to trend even lower to draw commercial buyers back into the market.

Fundamentals

Sugar prices continue to slump, falling to lows not seen since late 2010, as ample Brazilian supplies and better output from India have kept rallies in check. Brazil's Sugar production is expected to total 2.5 million tons, which is nearly 1 million tons larger than last year's total. Much improved harvest weather in September and October and a large cane crush is helping to keep supplies ample. On Thursday, Brazilian Sugar trade group UNICA reported that Center-South Sugar production rose by 73% in October vs. last year's output. Weaker Ethanol demand has allowed more Sugar Cane to be processed for food, which also a factor weighing on prices. World Sugar production should meet last year's record levels once again, and with consumption stagnant in industrial countries, we will need to see a sharp increase in demand from developing nations next year to help whittle away at the global Sugar surplus, which is expected to last into the 2013/2014 season. The Commitment of Traders report shows large non-commercial traders shedding over 14,000 contracts from their net-long positions the week ending October 30th; leaving their net-long position at 56,238 contracts. This also leaves room for further long liquidation selling, as prices move lower.

Looking at the daily chart for March Sugar, we notice psychological support at 19.00 failed to hold, which sent prices as low as 18.66 before some profit-taking buying by weak shorts emerged sending prices higher to end the week. The 14-day RSI is weak with a current reading of 36.55. One bright spot, for those bargain hunter buyers, is a bullish divergence forming in the 14-day RSI, which may signal a short-covering rally is overdue. 18.50 is seen as the next support level for March Sugar, with resistance found at the November 6th highs of 19.77.

Mike Zarembski, Senior Commodity Analyst


November 13, 2012

Cocoa Demand Expected to Heat Up

Tuesday, November 13, 2012

Cocoa futures have been held back by the negative market sentiment in equities and commodities. West African production of Cocoa beans has started to dwindle a bit, but demand is increasing at a good pace. Technically, Cocoa does remain vulnerable, especially if the 2300 level is breached on the downside.

Fundamentals

Cocoa prices have been sliding, despite record demand for chocolate and a supply shortfall. This marketing year is expected to produce the first supply shortfall in three seasons. Processing of Cocoa beans is expected to rise by nearly5%, while chocolate consumption is expected to climb by 5.7%. A major drag on the Cocoa market comes from outside markets. Outside of Cocoa, the softs markets have extremely weak fundamentals due to large supply excesses, especially in Coffee and Sugar. This has led to lower investment in the commodity grouping by funds. Weaker economic data has many traders less optimistic on commodities as a whole. Eventually, market efficiencies could result in Cocoa prices rising.

Technical Notes

Turning to the chart, we see the March Cocoa contract steadily sliding since early September. Prices are now below the 20, 50 and 100-day moving averages, which can be seen as negative. The next significant area of support comes in near the 2300 level. In order to gain some traction, prices may need to cross back above the 2500 level.

Rob Kurzatkowski, Senior Commodity Analyst


November 14, 2012

Soybean Prices Fall on Bearish USDA Report

Wednesday, November 14, 2012

The USDA did raise its estimates for Chinese Soybean imports to 63 million tons, up 2 million tons from the October report. However, Chinese import totals fell by nearly 19% in October vs. September, which may show that current needs have been met and imports may start to decline, as China awaits lower prices once the South American harvest begins.

Fundamentals

Soybean futures have moved into bear market territory for the first time since June, after the USDA raised U.S. Bean production estimates last week. In Friday's crop production report, the USDA raised its estimate for 2012 Soybean production to 2.971 billion bushels vs. 2.860 billion bushels in the October report. The increase in production was tied to an increase in the average yield estimate of 39.3 bushels per acre. Ending stocks were increased by 10 million bushels to 140 million bushels, which added to the bearish tone. Soybean prices have been supported by solid U.S. exports, especially to China. However, many analysts are beginning to question whether the torrid export pace can continue, especially with South America expected to produce a record Soybean crop this season. This may cause some buyers to wait to purchase "cheaper" South American Soybeans, which could cause U.S. Exports to slow. However, lower prices for domestic Soybeans may spur increased purchases by Soybean crushers, as Soybean Meal supplies are tight. The recent sell-off in Soybeans has caused some large speculators to begin to lighten-up on their net-long positions, with the most recent Commitment of Traders report showing large non-commercial traders shedding over 6,000 contracts for the week ending November 6th. This was before the "bearish" USDA report, and now that prices have fallen below the 200-day moving average, it is likely that the pace of long-liquidation selling may accelerate.

Technical Notes

Looking at the daily chart for January Soybeans, we notice prices falling sharply once the USDA report was released. It appears that stop-loss selling was triggered once prices broke below the widely watched 200-day moving average once prices broke below 1450.00. The 14-day RSI has moved into oversold territory, with a current reading of 26.00. We see some near-term support around the 1390.00 to 1392.00 price area for January Soybeans; major support is not found until the 1250.00 area. Resistance is seen at the October 15th low of 1484.00.

Mike Zarembski, Senior Commodity Analyst


November 15, 2012

Wheat Tighter, But Will Prices Be Bogged Down?

Thursday, November 15, 2012

Wheat fundamentals have tightened significantly in recent weeks. After being the forgotten grain for much of 2012, Wheat has the potential to shine in the coming crop year. The major problem that Wheat bulls face is outside markets. Traders' appetites for risk assets has been curbed, which may make an upside breakout difficult to come by. The chart currently looks like a healthy EKG, which indicates sideways trading may persist.

Fundamentals

Wheat futures have been the quietest of the grain markets, with prices in the front month December contact deviating very little from the 900 area in recent months. Can prices heat up? That is a question many traders have been asking themselves lately. Australia and Argentina, the southern hemisphere's two largest growers, have been facing issues with their current crops. Winter Wheat here in the US has seen worsening conditions. The percentage of Winter Wheat rated good/excellent has fallen to 38%, which is down 1% from the 39% figure the week prior and 20% below the 10-year average of 58%. Poor/very poor conditions also jumped 3% to 22%. The cash market, especially in the Black Sea region, has seen much tighter supplies. This indicates shipments out of Russia and the Ukraine have slowed to a trickle.

Technical Notes

Turning to the chart, we see the December Wheat contract has been trading in a sideways channel for months now, with a very slight descending angle. This gives some traders very little to work with technically, other than swing trading ranges. Likewise, the oscillators are giving neutral readings. Technical traders have been waiting for a breakout in either direction, which has not arrived, so they must continue waiting.

Rob Kurzatkowski, Senior Commodity Analyst



November 16, 2012

Yen falls on Call for Early Elections

Friday, November 16, 2012

Comments by high level Japanese Government officials regarding a potential change in leadership, as well as higher inflation targets, have sparked aggressive selling in the Yen, which has fallen by over 350-pips the past two sessions. Prices are now hovering near the key 61.8% Fibonacci retracement level drawn from the March 2012 lows to the recent highs made in September. Should this support level fail, a longer-term test of those March lows just above 1.1900 would not be out of the question.

Fundamentals

Yen futures fell sharply earlier this week, as Japanese Prime Minister Yoshihiko Noda offered to hold elections in mid-December if opposition leaders would agree to legislation that could aid the struggling Japanese economy. Some analysts expect the leading opposition Liberal Democratic Party to win the upcoming elections, which would most likely make Party President Shinzo Abe the new Prime Minister. Mr. Abe has already called on the Bank of Japan ("BOJ") to implement stronger easing measures to help stimulate the economy. Among the possible actions the BOJ may take include the unlimited printing of money to help weaken the value of the Yen. This is similar to the policy of the Swiss National Bank ("SNB") which has vowed to defend a rate of 1.20 for the Swiss Franc vs. the Euro. Mr. Abe has also called on the BOJ to triple the targeted inflation rate to 3% to help break the country out of its deflationary spiral. This news sparked a sell-off in the Yen futures, which fell by over 150-pips on Wednesday and nearly 200-pips on Thursday once support at 1.2400 was taken out. So, unless we see more "risk-off" buying of the Yen in the next several weeks, this potential policy shift could trigger fresh trend-following selling if near-term support near 1.2250 fails to hold.

Technical Notes

Looking at the daily continuation chart for Japanese Yen futures, we notice Wednesday's sell-off took the value of the Yen below both the 20 and 200-day moving averages. The 14-day RSI has moved into oversold territory, with a current reading of 29.53. 1.2250 is the next "line in the sand" for Yen bulls, with resistance found at the November 9th highs of 1.2650.

Mike Zarembski, Senior Commodity Analyst


November 19, 2012

Natural Gas Prices Choppy on Warmer 10-day Forecast

Monday, November 19, 2012

Bulls still seem to have the upper hand in Natural Gas futures, with price holding above both the 20 and 200-day moving averages. However, any further rally attempts may be hampered by the higher than average inventory of Gas in storage going into the winter heating season.

Fundamentals

The recent rally in Natural Gas futures has run into some headwinds despite posting the first withdrawal from storage this season. The Energy Information Administration ("EIA") reported an 18 billion cubic feet ("bcf") withdrawal from storage last week, which was in line with analysts' estimates. However, prices fell after the report was released, as some traders seemed to "sell the facts" after prices already rallied 40 cents since the start of the week. Despite the draw from storage, U.S. gas inventories appear to be more than ample, currently 5.6% above the 5-year average for this time of year. In addition, the 6 to 10-day weather forecast is calling for above normal temperatures in the central U.S., which is the biggest market for gas heating usage. Large speculators are still holding a net-short position in Natural Gas futures, with the most recent Commitment of Traders reports showing non-commercial traders net short 61,896 contracts, as of November 6th. This was prior to last week's steep rally, as exchange data seems to indicate that the rally was mostly short-covering and not new-longs entering the market.

Technical Notes

Looking at the daily chart for January Natural Gas, we notice prices valiantly trying to hold above the 20-day moving average. We may have what appears to be a rather large "bull flag" forming on the daily chart. To confirm the chart pattern, we would like to see a strong close, with prices over 4.000, preferably on above average trading volume. The 14-day RSI is in neutral territory with a current reading of 53.73. 3.945 is seen as the next resistance level for the January Futures, with support found at the November 12th lows of 3.598.

Mike Zarembski, Senior Commodity Analyst


November 20, 2012

Gold Benefiting from Risk On, Gaza

Tuesday, November 20, 2012

Gold futures have regained their appeal with some traders. ETFs, which never lost their luster with many retail traders, are now holding record quantities of the yellow metal. Some traders have been taking on riskier assets in the past several sessions, which could help Gold. Gold could get a boost from some defensive traders as well, due to the situation in Gaza. Technically, Gold is running-up to a minor resistance level near the 1740 mark. The Gold market could gain some technical momentum if the 1740 mark is broken.

Fundamentals

Gold futures are higher once again this morning, boosted by physical demands for the metal. ETF demand for the precious metal rose to a record for the third consecutive session. Many traders also have been encouraged that leaders from both parties have begun Fiscal Cliff talks. The last time the government found itself in this position, both parties had procrastinated. The fact that leaders are meeting is encouraging, even if both sides are far apart. The conflict in the Gaza Strip also brought about fears that tensions could spill outside its borders. Demand for physical Gold in the Middle East as an alternative investment has also risen due to currency uncertainty.

Technical Notes

Turning to the chart, we see the December Gold contract rallying after having a false downside breakout. Prices are approaching relative highs near the 1740 level, which could act as near-term resistance. This level also coincides with the 50-day moving average, so a move above 1740 could result in further bullish momentum. The RSI is still neutral, despite the rally, suggesting the market can move higher before reaching technically overbought levels.

Rob Kurzatkowski, Senior Commodity Analyst



November 21, 2012

Sugar Soars on Short Covering Buying

Wednesday, November 21, 2012

Sugar's fundamentals and technicals are now in disagreement, as an improving technical outlook, including an upside chart "gap", is at least temporally overshadowing bearish fundamentals, including a large surplus this coming season.

Fundamentals

Sugar futures have traded at their highest levels in nearly a month, as many bearish speculative accounts rush to the exits. Commodity funds have been aggressively adding to their net-short positions this past week and are now controlling the largest net-short position in 5 years. However, market sentiment seems to have changed over the weekend, with a significant rally in equities spilling over to the commodity sector, as many traders seem to be embracing "risk" assets once again. Fundamentally, there is little bullish news in the market to support higher prices, especially with the International Sugar Organization ("ISO") expecting the 2012-13 global Sugar surplus to increase to 6.2 million tons. Though any significant rally in prices is expected to meet some strong hedge selling, commercial traders may wait to see how far short-covering buying may move prices before selling, especially given the size of the speculative short position. Though there is some resistance seen at the 20 cent level basis the March future, prices have the potential to move even higher before some short-hedgers begin any significant selling.

Technical Notes

Looking at the daily chart for March Sugar, we notice prices posting a chart "gap" between 19.20 and 19.25. In addition, the rally above the 20-day moving average seems to have triggered some buying from short-term momentum traders, in addition to triggering buy stops above 19.75. Volume was very heavy on Monday, which added to the validity of the sharp up-move. The 14-day RSI has turned up, with a current reading of 55.20. The high made on October 22nd of 20.50 looks to be the next resistance level for March Sugar, with support seen at the start of the chart "gap" at 19.20.

Mike Zarembski, Senior Commodity Analyst


November 23, 2012

Coffee Prices Grind Lower

Friday, November 23, 2012

Coffee futures appear to be firmly in the bear camp, as some private forecasters are expecting next year's production to be larger than initially expected. Much of this optimism is due to beneficial weather conditions in Brazil, which may portend to a much larger "off year" harvest of Arabica Coffee.

Fundamentals

Coffee Futures prices keep moving lower, as traders have started to concentrate on next year's crop, which by early appearances looks to be off to a good start. Though this coming season is the "off" year for the Arabica crop in Brazil, the world's leading Coffee producer, the market is still reeling from a record Brazilian harvest this past season. Current old crop estimates are for production to have totaled nearly 56 million bags, or nearly 7 million bags above last year's totals. Previous government estimates were for only 50.5 million bags produced. Though it is expected that this year's harvest will be between 5 and 6 million bags lower, the potential for higher production in Columbia should help to offset any potential shortfalls. Analysts are awaiting the bi-annual USDA World Trade and Markets Reports for Coffee, which will update the global forecast for this past season and next. Large speculators are currently net-short Coffee futures, with the most recent Commitment of Traders report showing a short position totaling just over 24,000 contracts as of November 13th. This could be the catalyst for a potential short-covering rally should we see a commodity-wide rebound, or of weather conditions take a turn for the worse in Central and South America in the coming weeks.

Technical Notes

Looking at the daily chart for March Coffee, we notice prices hovering within a relatively narrow 10-cent range between 150.00 and 160.00. The 20-day moving average is currently keeping any rally attempts in check, which has been the case since the steep sell-off began back in early October. The 14-day RSI is neutral to weak, with a current reading of 41.01. The November 2nd high of 160.10 looks to be the next resistance level for March Coffee, with support found at the recent low of 149.45.

Mike Zarembski, Senior Commodity Analyst


November 26, 2012

Crude Traders in a Buying Mood on "Black Friday"

Monday, November 26, 2012

Oil's rally on Friday despite a temporary halt to hostilities in the Middle East may be signaling that bulls could be regaining the upper hand, despite ample U.S. Crude inventories and lower demand by E.U countries due to continued economic uncertainties.

Fundamentals

Some Crude Oil traders were in a buying mood on "Black Friday" despite a ceasefire now in place between Israel and Hamas in Gaza. It appears that market participants may be focusing on outside fundamentals like a weaker U.S. Dollar and a move towards re-establishing "risk" trades, such as long positions in commodities that could be buoying Crude Oil prices. A moderately bullish EIA Energy Stocks report on Wednesday appeared to have also influenced the bullish bias to end the holiday-shortened week. Though U.S. Crude Inventories are over 42 million barrels above the 5-year average, Crude product inventories, especially Distillates, are becoming increasingly tight. This likely should be reflected in increased refining output, as refineries take advantage of attractive profit margins, which would entail higher demand for Oil in the coming months.

Technical Notes

Looking at the daily chart for January Crude Oil, we notice what appears to be a "rounded-bottom" pattern being formed. It would take a close above the recent high of 89.80 to confirm this technical pattern. Prices are now trading above the 20-day moving average ("MA"), though the longer-term 200-day MA is still more than $7 higher. The 14-day RSI is neutral, with a current reading of 51.15. The November 19th high of 89.80 is the next resistance level for January Crude, with support found at 84.53.

Mike Zarembski, Senior Commodity Analyst


November 27, 2012

Slow Plantings, China in Focus for Beans

Tuesday, November 27, 2012

Soybean futures have been battered since the beginning of September, but prices have found some strength in recent sessions. It remains to be seen if this bounce can last. Strong Chinese demand and slow planting progress in South America have been on the forefront of fundamental news. Also, the grain complex has ridden the coattails of firmer equity prices. Chinese demand and South American plantings are likely to move in lockstep. China has been shrewd in terms of timing of commodity purchases, and if they fear South American production beginning to wane, the rate of purchases of US grain could pick up. Technically, January Beans must stay above the 1385 level to avoid a potential collapse. Failure to hold this support, coupled with the head-and-shoulders top, could result in heavy selling pressure.

Fundamentals

Soybean futures have been strong in recent sessions, buoyed by strong Chinese demand and weather conditions in South America. South American plantings are behind last year's pace. In Brazil, 74% of the crop was in the ground, versus 81% last year. Argentina's crop is 10% behind last year's pace, with 37% of plantings done, versus 47% last year. While showing is behind pace, near-term weather conditions across much of the South American growing region have improved. This could limit the upside of the Bean market in the near-term. Chinese demand has been solid and a key driver of the market. Some traders may want to keep an eye on export sales figures to see if the trend continues.

Technical Notes

Turning to the chart, we see the January Soybean contract bouncing off support at the 1385 level. In addition to testing support at 1385, the RSI was indicating technical conditions were oversold. Beans have not really been tested since bouncing, meaning that no meaningful resistance level or moving average has been tested. The RSI is still showing oversold conditions, which suggests the market may favor the bulls in the near-term. Prices are approaching the 20-day moving average. If prices manage to trade above the average, the market could capture additional upside momentum in the near-term. Longer-term, the bias favors the bear camp, as a head-and-shoulders top was recently confirmed. However, a strong near-term up-move could invalidate the pattern.

Rob Kurzatkowski, Senior Commodity Analyst


November 28, 2012

Will Copper Shine Bright in 2013?

Wednesday, November 28, 2012

Copper's next price direction looks to be hinged on the economic growth prospects of the major global economies. So far we are seeing some positive developments out of China and continued negative sentiment from Europe, so it may come down to how the U.S. economy will fare in 2013.

Fundamentals

Copper futures prices are starting to show some signs of life after trading in a relatively narrow price range during the past 4 weeks. Some of the optimism for prices going forward is tied to data that Chinese manufacturing activity is improving. The HSBC manufacturing index turned positive for growth in the manufacturing sector in November, which may signal that Copper demand should improve. China accounts for about 40% of global Copper demand, making its economic environment widely watched by many traders. Outside of China, the demand picture for base metals is muted, especially in Europe, with many members of the EU currently mired in recession. Despite the mixed global signals for Copper demand, Copper production is not expected to keep pace with demand , with the International Copper Study Group ("ICSG") anticipating a 400,000 ton Copper deficit for 2012. Speculators, both large and small, are currently net-short Copper futures, with the most recent Commitment of Traders report showing a combined short position of 7,763 contracts as of November 20th. This short position could be the catalyst for a rally in prices, should we start to see much better than expected economic data in the coming weeks.

Technical Notes

Looking at the daily chart for March Copper, we notice a potential "rounded-bottom" formation, which would be confirmed should the March futures trade above 3.6000. The 14-day RSI has moved from near oversold levels to a more neutral stance, with a current reading of 50.77. Volume has been increasing during the recent upward move in prices, though that may be due to the rolling of positions out of the December 2012 contract, which is nearing first notice day. The 200-day moving average, currently near 3.6145, looks to be the next major resistance level for March Copper, with support found at 3.4145.

Mike Zarembski, Senior Commodity Analyst



November 29, 2012

More Choppiness Ahead for Crude?

Thursday, November 29, 2012

With the cease-fire in Gaza holding up for the time being and the market well supplied, Crude Oil has been trading based on outside markets. Yesterday's EIA figures offered little market noise for some traders, but, bigger picture, the market is extremely well supplied. The Fiscal Cliff talks between legislators could have a much more meaningful impact on the Oil market than API and EIA data. Technically, the chart and other indicators hint at further choppy trading. Some traders may be tempted to swing trade the 85-90 range, but this could be a risky proposition if the market does break out.

Fundamentals

Crude Oil prices have been extremely choppy in recent sessions; unable to find a direction. The market is higher this morning on a surprise drop in inventory levels and hopes that a budget deal can get worked out. President Obama took to social media, using his Twitter account to call GOP lawmakers out to work on a bipartisan plan. The larger than expected drawdown in distillate inventories gave bulls something to hang their hat on. Despite the distillate drawdown being larger than expected, gasoline inventories jumped 3.87 million barrels versus a forecast rise of 900,000 barrels, which could rain on the bulls' parade. OPEC sees the Oil market as balanced, so there is little chance of targets being changed when the Oil cartel meets next month. All signs point toward a very well supplied Crude Oil market, so trading will likely follow outside markets.

Technical Notes

Turning to the chart, the January Crude Oil contract has been mired in range bound trading between 85.00 and 90.00 over the past month and a half. A convincing breakout out of either end of this range will likely determine the intermediate direction of the market. The oscillators are giving neutral readings, which gives some traders little to work with.

Rob Kurzatkowski, Senior Commodity Analyst


November 30, 2012

Corn Market Rally May Depend on Exports

Friday, November 30, 2012

Corn prices may become volatile, as we head into 2013, as some traders attempt to evaluate the actual size of the 2012 Corn crop in the coming months. New-crop Corn futures prices may need to move higher to ensure U.S. producers dedicate ample acreage to Corn plantings this upcoming spring to ensure that U.S. Corn inventories are adequately restocked.

Fundamentals

After failing to test psychological support at 700.00, March Corn futures have staged a minor rally as concerns of tight supplies after the recent harvest have boosted prices. Cash market buyers are willingly to pay a premium to front month futures in many areas in order to pry supplies out of producer's hands. Lower production totals this season, due to the Midwest drought, has limited the available supplies after harvest, with many producers willing to store the recently harvested grain in hopes of realizing higher prices in the coming months. In addition to tight supplies, some traders are also looking to the Winter Wheat market, where drought conditions continues in the central and southern portions of the Great Plains, the heart of the Hard Red Winter Wheat growing area. With the newly planted Wheat crop off to a difficult start, we may see Wheat prices become unattractive for feed usage, which may spur further demand for Corn by livestock producers. The big question for the direction of Corn prices lies in how much Corn will the U.S. export, this marketing year. Currently, U.S. Corn exports are lagging behind USDA estimates as some buyers have looked to "cheaper" feed grain out of South America and Russia. However, commercial traders note that South American exportable supplies are starting to dwindle ahead of the start of this season's crop year and market participants may be pricing in the belief that U.S. Corn exports could increase as we go into the first quarter of 2013. Should this anticipated boost in U.S. Corn sales fail to materialize, we could see prices come under pressure, especially if it appears that both Argentina and Brazil will produce bumper crops.

Technical Notes

Looking at the daily chart for March Corn, we notice prices trading near 6-week highs. Prices are also starting to pull away from the 20-day moving average, which is giving some cushion to bullish short-term momentum traders. The 14-day RSI is beginning to strengthen, with a current reading of 57.16. The highs made on October 11th of 775.75 look to be the next resistance level for March Corn, with support found at the 20-day moving average, currently near the 743.25 price level.

Mike Zarembski, Senior Commodity Analyst