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December 2012 Archives

December 3, 2012

Cattle Prices Correct but Bullish Outlook for 2013 Remains Intact

Monday, December 3, 2012

Long-liquidation selling by weak bulls is weighing on Live Cattle futures prices, as current anemic demand and high cattle weights is making it hard to justify the current premium in futures prices to the cash market. Longer-term prospects for beef prices are still bullish as traders expect tighter supplies of market-ready cattle into the 1st quarter of 2013.

Fundamentals

The recent rally in Live Cattle futures prices has hit a road block, as high cattle weights and weak packer margins have made bulls cautious. Market ready cattle weights are running way above average, which could be adding to current ample inventories in a market struggling to find adequate demand for beef products at current prices. Packer profit margins are weak or non-existent which may spur lower level of purchases by processors in the short-term. Concerns of the U.S. falling off the so called "Fiscal Cliff" are also weighing on futures prices, as the prospects for higher taxes in 2013 may push many consumers in the direction of "cheaper " protein, such as chicken. Longer term prospects are brighter for cattle bulls, as average market ready cattle weights are expected to decline going into the winter months with tighter supplies expected in 2013, which is fallout from the devastating drought that forced a large reduction in herd sizes.

Technical Notes

Looking at the daily chart for February Live Cattle, we notice what appeared to be a "bull flag" formation was discredited on Friday as prices posted a steep decline on very high trading volume. The 20-day moving average ("MA") has just crossed above the 200-day MA; this is considered a bullish technical indicator by many market technicians, though we would need to see a price rally soon or the technical signal may be viewed as a "bull trap". The 14-day RSI just touched overbought levels last week and have now turned neutral with a current reading of 55.79. The recent high of 132.925, made back on November 23rd looks to be near-term resistance for February Cattle. Support is found at the 200-day MA, currently near 130.100.

Mike Zarembski, Senior Commodity Analyst



December 4, 2012

Coffee Woes to Continue?

Tuesday, December 4, 2012

The Coffee market remains one of the more oversupplied commodity markets. After several years of shortages, the trend has certainly reversed for the soft commodity markets. Brazil is expected to produce 50.8 million bags of Coffee beans during the 2013 low crop season. Short-term, we have seen many producers selling heavily, which could continue for the foreseeable future. If growing conditions deteriorate, Coffee likely does have the possibility of stabilizing. Technically, there were signs that prices may be stabilizing or reversing. It could be viewed as troubling that funds did not really get behind the move.

Fundamentals

Coffee futures continue to decline due to the record Brazilian crop, which has hampered both the cash and futures markets. Brazilian producers have been selling heavily, fearing further price declines and a shift in currency exchange rates. This has opened the proverbial flood gates in an already oversaturated cash market. There are signs that the southeastern portion of the growing region could see production decline to the tune of 10% of estimated production, which was already slated to fall from last year. Adding to Coffee's woes are negative outside market forces. Other than signs that Chinese growth could be stabilizing, there is little positive economic news to make commodity bulls excited. It looks like the initial feel good rhetoric in Washington after the election has given way to partisan gridlock, or business as usual. The so called "Fiscal Cliff" talks are likely to go down to the wire. With both parties so far apart, some traders have little to work with as far as what a potential budget may look like.

Technical Notes

Turning to the chart, we see the March Coffee contact forming what appears to have been a key reversal last week. There was no follow-through to the pattern. Not only was there no follow-through to the reversal, but prices failed to maintain the 20-day moving average. Thus far,the market has held last week's lows, but new lows threaten to trigger further selling. It is interesting to note that the RSI has remained relatively flat, even as prices have declined in recent weeks. This positive difference could be seen as hinting at a reversal of trend. If and when the reversal actually occurs is difficult to gauge.

Rob Kurzatkowski, Senior Commodity Analyst


December 5, 2012

Bonds Steady as Fiscal Cliff and Non-farm Payrolls Loom

Wednesday, December 5, 2012

In addition to Friday's employment report, there is a slew of economic data out this week that could possibly influence the movement in the Treasury market. Among the most anticipated are private sector employment data from ADP (estimate +125K) to be released this morning, as well as data on factory orders for October (estimate -0.1%), and a reading of ISM Services Index for November (estimate 53.7 vs. 54.2 last month).

Fundamentals

Bond bulls and bears have reached a stalemate, as uncertainty surrounding an agreement in Washington to avert the so called "Fiscal Cliff" and upcoming jobs data have neither side confident in their positions. For Bond bulls, concerns that failure to reach an agreement on extending, in some fashion, soon to be expiring Bush Era tax cuts and planned spending cuts could rekindle a recessionary environment in the United States. This fear may be encouraging some investors to avoid "risk" assets and spur further inflows into "save haven" investments, such as U.S Treasuries. However, Bond bears will note that Bond prices could be vulnerable to a sell-off if a last minute agreement is reached, especially if any agreement involves more money for "stimulus" spending and fails to make any significant headway into dealing with the mounting U.S. deficit. On top of the looming "Fiscal Cliff", bond traders also have the November Non-farm Payrolls report to look forward to on Friday. Many analysts are not confident that we will see a repeat of the 171,000 jobs created in October. Current estimates are for a more subdued 80,000 to 90,000 job increase last month, with the unemployment rate expected to rise once again to 8%. The wild-card in any potential move in interest rates may be the action by the Federal Reserve, which has signaled a willingness to be a buyer of longer-dated Treasuries, as long as employment and economic conditions warrant an "accommodative" monetary policy. So unless we start to see a marked improvement in both the employment and economic environment, the near-term bias for Bond prices appears to favor the bull camp.

Technical Notes

Looking at the daily chart for the March 10-year Note futures, we notice prices trading near the upper end of the 1-point price range we have been in the past month. Prices are above the 20-day moving average, giving some support to bullish short-term momentum traders. The 14-day RSI is turning strong, with a current reading of 60.36. The November 16th high of 133-27.5 looks to be the next major resistance level, with support found at 132-25.

Mike Zarembski, Senior Commodity Analyst


December 6, 2012

Weight of Fiscal Cliff Too Much for Gold Bulls

Thursday, December 6, 2012

The Gold market has been held hostage by Congress, as the inability of some legislators to come to an amicable agreement on a budget has wreaked havoc on prices. If partisan bickering continues instead of compromise, economic growth could be harmed. With news that Chinese growth could be improving, the market should be upbeat, but the black cloud of the Fiscal Cliff talks could be what garners attention. Technically, Gold is at a fairly significant point. Prices are trading below a major, long-term moving average, which could put technical pressure on the market in addition to the fundamental concerns. The market is nearing oversold levels, which may soften the downside for Gold.

Fundamentals

Many Gold traders have been discouraged by the Fiscal Cliff talks, which have pushed prices lower in recent sessions. Given how far apart the two sides appear to be, the likelihood of reaching an accord is likely not very good. This could lead to a government shutdown. Given how much the public sector has grown in recent years and the trickle-down effect to states, a shutdown could have a significant impact on economic growth, lessening Gold's appeal as an inflation hedge. On the positive side, Chinese growth seems to have at least held steady around 7.5%. There have also been rumors that the recent sell-off has spurred buyers of Gold in India, who likely believe this may be a temporary dip in prices.

Technical Notes

Turning to the chart, we see the February Gold contract now trading below the 100-day moving average for the third consecutive session. This can be construed as a negative signal for the Gold market. Prices are also nearing the spike low from early November, which can be seen as a minor support level. Further support can be found in the 1635-1650 area. Yesterday's spinning-top candlestick hints at a possible reversal, but prices did not cooperate in overnight trading. If Gold is able to right the ship and close higher, it would offer confirmation of a possible near-term reversal. Otherwise, the momentum may rest with the bears.

Rob Kurzatkowski, Senior Commodity Analyst


December 7, 2012

Drivers Get Early Christmas Present

Friday, December 7, 2012

Two consecutive large builds in Gasoline inventories have set a near-term bearish tone for the RBOB Gasoline futures, as a formerly tight inventory situation is being remedied. Though U.S. Gasoline supplies are nearly 3 million barrels below last year's totals, increased refinery rates and slack consumer demand have allowed inventories to move above the 5-year average.

Fundamentals

U.S. Gasoline inventories posted their largest increase in 11 years last week, sending RBOB futures to 3-week lows. The Energy Information Administration ("EIA") reported in the weekly energy stocks report that U.S. Gasoline inventories increased by a whopping 7.86 million barrels, as refinery utilization topped 90% last week. This was the second consecutive build in inventories and comes at a time when demand is slack. The EIA is not anticipating any major increase in Gasoline demand in 2013, with motor consumption expected to remain flat, despite projections of lower pump prices next year. Follow-through selling tied to long liquidation is quite possible; especially with some speculators currently net-long the market. The most recent Commitment of Traders report shows non-commercial and non-reportable traders holding a combined net-long position totaling just over 84,500 contracts as of November 27th. Commercial buyers may hesitate at current price levels, especially given the increased potential for lower prices heading into 2013 as weak longs head for the exits.

Technical Notes

Looking at the daily chart for January RBOB Gasoline, we notice prices have now fallen below both the 20 and 200-day moving averages, putting both long and short-term Gasoline bears in command. The 14-day RSI is also turning lower, with a current reading of 41.67, and there appears to be some good support all the way to around 2.5500 should prices fall below 2.6000. This may lead to some price consolidation at lower levels prior to the market making its next major move. Resistance is found around recent highs in the 2.7500 to 2.7600 price range.

Mike Zarembski, Senior Commodity Analyst



December 10, 2012

It's all About the Details

Monday, December 10, 2012

The sharp rally in the Dollar Index futures was short-lived, as data for the November Non-Farm Payrolls report failed to live up to positive headline figures. Dollar bears may become enthused on what appears to be a technical price reversal on the daily chart.

Fundamentals

"Trade first, ask questions later!" seems to be the mantra of many currency traders, as better than anticipated U.S. payrolls figures for November sparked a rally in the U.S. Dollar. The Labor Department reported U.S Non-Farm Payrolls rose by a better than expected 146,000 jobs last month, which was well above some analysts' estimates for a gain of 85,000. The unemployment rate fell by 0.2% to 7.7%; which is the lowest reading in nearly 4 years. Some analysts expected the November jobs figures to be skewed by Superstorm Sandy, but Labor Department officials saw little impact on the labor data. Private sector jobs accounted for the entire gain, rising by 147,000, with retailers adding 53,000 jobs. However, looking at the details of the report, the employment picture still remains tepid. First, employment figures for October were revised lower by 33,000, and September's figures were initially overstated by 16,000 jobs. Job losses were reported in both construction and manufacturing sectors, shedding 20,000 and 7,000 jobs respectively. Many traders initially rallied the December Dollar Index futures to 2½- week highs after the headline futures were released; however, gains were pared once the details were released. The slow growth of U.S. jobs combined with concerns of economic turmoil should political leaders fail to reach an agreement on averting the so called "Fiscal Cliff" could result in the U.S. heading back into a recession. Slow employment growth could also encourage the Federal Reserve to increase its accommodative stance by continuing or expanding its purchases of long-term government debt. This action by the Fed would likely be viewed by some traders and some economists as potentially inflationary and bearish for the value of the U.S. Dollar.

Technical Notes

Looking at the daily chart for December Dollar Index, we notice the short-lived price spike after the November Non-Farm Payrolls report was released. This sent prices above the 20-day moving average, but failed to find any short-term momentum buying follow-through, as the headline figures were masking more subdued data in the employment report. The 14-day RSI has rebounded from near oversold levels and is now reading a more neutral 49.81. Friday's high of 80.975 looks to be resistance for the December futures, with support found at 79.565.

Mike Zarembski, Senior Commodity Analyst


December 11, 2012

FOMC Turning the Presses Back On?

Tuesday, December 11, 2012

Political squabbling and expectations that the Federal Reserve will increase Treasury purchases have driven Bond prices higher in recent weeks. The sharp down day the market saw on Friday could be seen as technically driven and may not necessarily represent the views of the market. Both political parties are far apart, but the fact that the White House and the Senate are controlled by the Democrats suggests that the likelihood of spending increasing is greater than the chance of a decrease. This has led to some supply increase fears, which should be alleviated by the Federal Open Market Committee ("FOMC").

Fundamentals

Bond futures are up ahead of the FOMC announcement regarding its interest rate policy. While there is no expectation of any change to interest rates, it is widely believed the Fed will increase their Bond buyback program. In essence, the Fed is turning on the printing presses once again by increasing money supply. The central bank seems dead set on giving the Federal Government a blank check to spend freely and, at the same time, making treasuries unattractive to investors. This forces many investors into riskier assets, like stocks and commodities. The Fed essentially strong-arming investors into stocks can be seen as a major reason equity prices are as inflated as they currently are at the moment. In addition to expectations of increases to the Bond buyback program, Treasuries have gotten a boost from safe haven buying due to the government's inability to reach any sort of agreement. The pig-headedness of both parties has left them far apart on the Fiscal Cliff talks.

Technical Notes

Turning to the chart, we see the March Bond contract pulling back after failing to test recent highs above the 151 level. This suggests Bonds may be mired in more range-bound trading. Prices have been tracking the 20-day moving average closely in recent sessions. If prices break through minor support near the 148-16 level, prices likely could attack the 146 level on the downside.

Mike Zarembski, Senior Commodity Analyst


December 12, 2012

Bearish USDA Report for Wheat, Leads Grain Market Slump

Wednesday, December 12, 2012

Weak U.S. Wheat exports continue to weigh on Wheat futures prices, despite concerns of drought conditions in the central and southern plains. These weather issues may turn many Wheat traders' focus to the inter-commodity spreads, as growing conditions for Soft Red Winter Wheat (traded in Chicago) are much improved over that for Hard Red Winter Wheat (traded in Kansas City).

Fundamentals

Neutral carry-out data from the USDA for Corn and Soybeans was overshadowed by bearish export estimates for Wheat, putting bears in control of grain prices on Tuesday, as a sea of red overwhelmed many grain traders' quote screens. The USDA crop production and supply/demand report for December was released on Tuesday, and contained only a few surprises.. The biggest change seen was for the Wheat complex, where the USDA lowered its forecast for U.S. exports by 50-million bushels to 1.05 billion bushels, as high domestic prices and strong export competition appear to be hurting U.S. sales. Many traders were anticipating that the U.S. would start to see some increased Wheat export business, as inventories from Russia and Europe start to get tight. However, the U.S. was shut out of a recent tender for Wheat from Iraq, as Australian and European Wheat was purchased. This may signal that U.S. prices may need to fall further to attract buyers. Corn traders saw little change in U.S inventories, with the USDA keeping its estimate for 2012-13 Corn carryout at 647 million bushels, as it made no changes to its estimates for Corn exports or Ethanol usage. Soybean figures were a bit more positive for grain bulls, as continued strong demand for Soybean Meal had the USDA increase its Soybean crush estimate by 10 million bushels, which lowered the 2012-13 carry-over by the same amount to 130 million bushels. Many traders were disappointed that U.S. Soybean exports were left unchanged, despite strong demand from China.

Technical Notes

Looking at the daily chart for March Wheat, we notice prices trading below the lows of the recent price consolidation, which appears to have triggered some sell-stops below previous support levels. Prices are now moving towards long-term support at the 200-day moving average, which is currently near the 807.00 price area. The 14-day RSI has now just moved into oversold territory, with a current reading of 29.48. The next resistance level is seen at the 20-day moving average, currently near the 862.25 price area.

Mike Zarembski, Senior Commodity Analyst



December 13, 2012

FOMC Turning the Presses Back On?

Thursday, December 13, 2012

The Crude Oil market has been mired in range-bound trading in recent weeks. Initially, this was due to weak economic data and less than spectacular demand. It seems as though demand may be poised to increase in 2013, but the Oil market is being held hostage by the Fiscal Cliff talks. If the two sides are unable to reach an accord by the deadline, the rosy forecast for petroleum demand could sour quickly. Technically, the chart suggests some traders may be tempted to continue to trade the 85-90 range.

Fundamentals

Crude Oil futures continue to trade in a relatively tight range, as opposing market forces play tug-of-war. On one hand, the physical market remains well supplied, as evidenced by yesterday's inventory data, and OPEC has not changed their official output targets. Also, there are economic doubts, which have been amplified by the Fiscal Cliff talks. On the other hand, the US economy has performed relatively well in the face of adversity. The Federal Open Market Committee ("FOMC"), has pledged to keep interest rates near zero until the unemployment rate hits 6.5%. Given the lackluster job creation rate, it may be some time before unemployment reaches that target. The International Energy Administration ("IEA") raised its forecast for Oil consumption during the last three months of this year by 435,000 barrels a day to 90.5 million barrels a day. The IEA also raised its forecast for 2013, forecasting daily goal demand to remain at the 90.5 million barrel a day pace, which is 865,000 barrels a day more than 2012, and 110,000 barrels more than their prior forecast.

Technical Notes

Turning to the chart, we see the January Crude Oil contract bouncing off the 85.00 level once again. Prices have been trapped in the 85-90 range for the past two months. Until a breakout is confirmed, it is difficult to judge where the market will move over the longer-term. The oscillators offer an equally murky picture, as the RSI and momentum indicators are sitting at neutral levels. The chart suggests some technical traders may look for the market to remain in range-bound trading unless an upside breakout above 90 or a downside breakout below 85 is confirmed.

Rob Kurzatkowski, Senior Commodity Analyst



December 17, 2012

Bearish Traders are Warming up to Natural Gas Futures

Monday, December 17, 2012

According to the National Oceanic and Atmospheric Administration (NOAA), 2012 will go down as the warmest year on record in the U.S., at least since official records were kept starting in 1895. While the temperature outlook for 2013 remains uncertain, Natural Gas bulls may find rally attempts difficult to come by going into winter with abundant supplies of gas in storage and forecasts for increased production in the coming year.

Fundamentals

Natural Gas futures continue to slide with unseasonably warm temperatures for most of the U.S. in the forecast throughout the rest of 2012. Front month futures prices are at their lowest levels since September, as traders continue to digest a surprising late season storage injection last week. The Energy Information Administration (EIA) reported in its weekly gas storage report that 2-billion cubic feet (bcf) of gas was placed in storage last week: a rather rare occurrence for the month of December, when increased demand for heating usually results in gas being pulled out of storage. To highlight the significance of this storage injection, the 5-year average for this time of year is a draw of 113 bcf. Gas storage levels are more than ample going into winter with over 3.8 trillion cubic feet available. Despite the current relatively low price level for Natural Gas, U.S. gas production is expected to increase in 2013 with the EIA expecting a production gain of 0.5% to 69.59 bcf per day. So unless we see much colder temperatures this coming winter, it may be difficult for Natural Gas prices to post any sustained price rally in the coming months.

Technical Notes

Looking at the daily chart for January Natural Gas, we notice prices falling for the second consecutive session and nearing chart support in the 3.200 to 3.250 price area. The 14-day RSI is approaching oversold conditions, with a current reading of 31.20. Ironically, large speculative traders who are net-short Natural Gas (according to the Commitment of Traders report), were covering short positions the previous week but may have begun to re-establish these short positions as prices traded below the widely watched 200-day moving average (MA). 3.200 is seen s the next major support level for January Nat Gas, with resistance found at the 200-day MA, currently near the 3.514 price level.

Mike Zarembski, Senior Commodity Analyst

Gold Prices Decline Despite Continued Fed Easing

Friday, December 14, 2012

The old trader's saying that "a market that does not move higher on bullish news is not really bullish" may apply to the Gold market as of late, as an expansion of "accommodative" monetary policy of the Federal Reserve not only failed to rally prices, but triggered a nearly $30 price decline hours after the announcement.

Fundamentals

Gold bulls may be getting nervous, as futures prices moved sharply lower despite an announcement by the Federal Reserve that a new bond buying program would be implemented. The program calls for the purchase of $45 billion of Treasuries each month, which would further expand the Fed's balance sheet and is likely viewed as inflationary for the U.S. economy. Normally, Gold prices would rally on such news, but the nearly $30 price decline during Asian market hours surprised some traders and may signal that further price weakness may be ahead. Some analysts believe many traders may have taken advantage of a brief rally right after the Fed announcement to liquidate some long Gold holdings ahead of year end, as market liquidity is expected to decrease, as traders take time off for the holidays. In addition, concerns that no agreement will be in place by year-end to forestall the so called "Fiscal Cliff" may have some traders trimming positions in "risk" assets, such as commodities. With spot prices now trading below 1700.00, we may start to see some renewed buying interest from India and China, who are the two largest buyers of physical Gold. However, should significant cash market buying fail to materialize at current price levels, we may see Gold extend its price weakness going into the 1st quarter of 2013.

Technical Notes

Looking at the daily chart for February Gold, we notice the steep sell-off on Thursday, as prices failed to rally after the Fed announcement of further bond purchases. It appears that the failure of prices to hold the rally above the 20-day moving average triggered some short-term momentum selling pressure. The 14-day RSI has started to move lower, with a current reading of 43.20. The next major support point for February Gold is seen at the 200-day moving average, currently near 1668.60, with resistance found at the December 12th high of 1725.00

Mike Zarembski, Senior Commodity Analyst


December 18, 2012

Demand Finally Cooling for Beans?

Tuesday, December 18, 2012

Soybeans have been one of the better performing commodity markets since mid-November, fueled by strong export demand. Yesterday's export inspections figures suggest that demand could be cooling. Despite much talk over the weekend that both parties were nearing a compromise in Fiscal Cliff talks, it appears that both sides could still be a ways apart. In addition to demand cooling, Soybeans could also find outside pressure from a weaker Corn market. Technically, it appears that the chart is hinting at a possible near-term reversal. However, there has been no confirmation of a reversal pattern.

Fundamentals

Soybean demand remains robust in recent weeks, which has fueled the rise in prices. Last week's shipments were 46.6 million bushels, leading many to believe that yesterday's export inspections would come in between 45 and 55 million bushels. However, inspections came in at a disappointing 36.99 million bushels. This may be a sign that demand could be cooling, which may put pressure on supplies. Argentina and Brazil are expected to see healthy rain over the next two weeks, especially the southern Brazilian growing region. Many traders were also a bit disappointed that the improved economic conditions resulted in Chinese policymakers declining to add a new round of stimulus.

Technical Notes

Turning to the chart, we see the January Soybean contract trading just below resistance at the 1500 level. If prices manage to break through the 1500 mark, the market may find resistance at the 1550 and 1575 levels. Prices did touch the 100-day exponential moving average yesterday, but prices quickly backed off. Yesterday's price action did result in what could be interpreted as a gravestone doji. However, confirmation would be needed to confirm a short-term reversal. The RSI is giving overbought readings.

Rob Kurzatkowski, Senior Commodity Analyst



December 19, 2012

Will Sugar's Price Outlook Sweeten in 2013?

Wednesday, December 19, 2012

Psychologically, Sugar prices have turned bullish for the near-term, as prices rallied off recent lows after a rather bearish surplus estimate failed to draw in short-sellers. Though current momentum is now favoring Sugar bulls, we may not see any major fresh buying by large speculators unless we can see a strong close through the 20-cent per pound level.

Fundamentals

After trading at 28-month lows, Sugar futures prices are beginning to rebound, as some traders start to exit bearish trades going into the new year. Sugar futures were one of the worst performing commodities in 2012, as a large supply surplus and average demand sent prices to lows not seen in over 2 years. The International Sugar Organization ("ISO") raised its estimate for the world Sugar surplus to 6.16 million tons this season. This upward revision initially sent prices to multi-year lows, though prices have since rebounded sharply, which may be signaling that near-term lows are in place. Despite the prospects of another large Sugar surplus, the outlook for Sugar prices may be starting to brighten going into 2013. Improvements in the global economy could help spur increased demand for commodities, especially if Chinese growth prospects rebound. In addition, a large short position being held by small speculators has many market technicians looking for a short-covering bounce for prices, especially if it appears that recent lows are holding.

Technical Notes

Looking at the daily chart for March Sugar, we notice a "reversal" on the daily chart, as prices failed to follow-through to the downside after Thursday's move to 28-month lows. Prices have since rebounded above 19-cents per pound, as weak bears run for the exits. The 14-day RSI has rebounded from near oversold conditions and is now reading a neutral 50.11. The next resistance level for March Sugar is seen at the 20-cent price level, with this past Thursday's low of 18.31 acting as strong support.

Mike Zarembski, Senior Commodity Analyst


December 20, 2012

Copper Losing Its Luster?

Thursday, December 20, 2012

Copper has gone from a high flying market to one of the largest percentage losers in a short period of time. The inability of the government to put together a budget continues to plague the markets. House Speaker Boehner continues to try to push his Plan B through, but there is virtually no hope of the budget plan passing. Many Copper traders essentially shrugged off positive economic data from China, as the government there offered no further stimulus. Even with improved economic conditions, many traders likely will remain only cautiously optimistic about potential demand.

Fundamentals

Copper futures continue to fall due to the government's budget impasse and rising stockpiles of the metal. Many Copper traders were also expecting some sort of stimulus from the Chinese government but were left disappointed, despite better growth from the Asian giant. LME stockpiles expanded for the 11th consecutive session to just less than 312,000 tons, which is the longest streak in almost 2 years. By no means is the Copper market as oversupplied as, say the Crude Oil market, but supplies going into the new year are much tighter than they were expected to be just several weeks ago. Some traders are expecting something the Copper market has rarely seen in recent years -- a surplus. The surplus is only expected to be 100,000-125,000 metric tons, which amounts to roughly half a percent of total output. With uncertain demand from China, a surplus could have a negative impact on prices.

Technical Notes

Turning to the chart, we see the March Copper contract pulling back sharply since testing resistance near the 3.75 level. The market moved higher for almost a month straight, so a pullback on overbought conditions was not unexpected, but the pace at which the market has dropped may have caught some traders off guard. Yesterday's close below the 20-day moving average may indicate that a near-term high is in place. On the downside, a close in the vicinity of 3.45 could be viewed as significant, as closes below that level could signal a downside breakout.



December 21, 2012

Bears Getting Cocoa for Christmas

Friday, December 21, 2012

Cocoa prices are trading near the lows of a $200/ton trading range the market has been in since early October. Commercial selling has started to increase, which may be signaling that some producers fear lower prices heading into 2013 and are using any short-term bounce in prices to initiate short hedges.

Fundamentals

The Grinch stole Christmas for Cocoa bulls, as prices have fallen to lows not seen since mid-November, as producer selling has stymied any rally attempts. Cocoa supplies are continuing to move out of the growing areas of West Africa and on to ports to be possessed for the export markets. Though this season's Cocoa supplies are running behind last year's totals, weak demand from Europe, due to the continuing economic slowdown on the continent and a stronger Euro, continue to weigh on prices, despite signs of stronger demand from American end-users. Many traders report some hedge selling of next season's crop from Ivory Coast producers, which may be signaling that growers expect production to rebound in the 2013-14 production cycle. A quick look at the most recent Commitment of Traders report shows both large and small speculators lightening-up on their net-long position, having shed nearly 4,500 contracts the week ending December 11th. Prices have fallen since the report, and it appears likely that additional long liquidation selling may occur should prices fail to hold at recent lows.

Technical Notes

Looking at the daily chart for March Cocoa, we notice support gave way at the 200-day moving average ("MA"). The 14-day RSI has turned weak, with a current reading of 38.10. The July 11th low of 2294 is seen as near-tem support for March Cocoa, with no significant chart support found until 2200. Resistance is found at the recent high of 2453.

Mike Zarembski, Senior Commodity Analyst


December 26, 2012

Coffee Prices Grind to New Lows

Monday, December 24, 2012

Coffee's trading volume has begun to wane the past several weeks, as prices have moved to 2-year lows. Large speculators have been adding to their net-short positions lately, according to the Commitment of Traders report. Though Coffee prices appear to be nearing oversold levels, we will need to see some bullish news to send prices out of their slump.

Fundamentals

The bear market for Coffee prices may be cooling now, as a large speculative short position combined with uncertain prospects for Coffee production in 2013 may finally put a temporary halt to declining prices. Increased production from Central American producers has added supplies to the market in November, with exports up nearly 20% from the previous year. Brazilian Coffee trees have fared well through the flowering stage, and ideal weather conditions may force analysts to raise their estimates for 2013-14 production totals. Vietnam is increasing its exports of Robusta coffee, as huge near-term supplies are depressing domestic prices now that the harvest is nearly complete. Though current fundamentals seem to favor Coffee bears, the longer-term outlook is more supportive. With Coffee prices hovering near $1.40 per pound, we may start to see South American producers curtail their expansion plans due to lower prices. This may begin a trend of lower production totals out of South America in the coming years, as upkeep and maintenance costs are slashed.

Technical Notes

Looking at the daily chart for March Arabica Coffee, we notice prices trading at levels not seen since late 2010, as the bear trend continues. Despite the sell-off, the 14-day RSI has not yet reached oversold levels, with a current reading of 38.57. Psychological support is seen at 140.00, with resistance found at the 20-day moving average, currently near the 148.55 price area.

Mike Zarembski, Senior Commodity Analyst


Is the Sell-off Complete for Precious Metals Prices?

Wednesday, December 26, 2012

Precious metals prices appear to be rebounding after a viscous price selloff last week. Gold and Palladium have preformed the best of the group with some weakness still seen in Platinum and to a lesser extend Silver prices. This may be signaling that traders are looking for slower economic growth going into 2013 as the more industrial members of the complex are lagging in the price recovery.

Fundamentals

After steep price sell-offs the past few trading sessions, precious metal futures have rebounded off of multi-month lows as some "flight to safety" buying was seen after the U.S. House filed to pass the so called "Plan B" proposal to avert the U.S. falling over the "Fiscal Cliff". Silver has been the worst performer of late, with the March futures falling over $3 per ounce in just three trading sessions. Silver warehouse stocks have been increasing and concerns of a possible slowdown in the U.S. economy should the Bush ear tax cuts be allowed to expire as well as position squaring ahead of the yearend holidays were seen as factors in Silver's poor performance. Gold prices also showed some weakness but not nearly as dramatic as Silver's as the Central Banks of Russia, Brazil and South Korea were reported as buyers of physical Gold on the recent price decline. In addition, Gold is seen as more of a "safe haven" investment than Silver, which has a duel role as a precious and industrial metal. Both large and small speculative accounts are holding net-long positions in both Gold and Silver according to the Commitment of Traders reports, though we have seen some long liquidation selling by large speculators in Silver prior to the recent price collapse. Baring a major global event, we should see quieter trading going into the New Year as traders square their positions for the holiday's.

Technical Notes

Looking at the daily chart for March Silver, we notice the price decline last week really accelerated once prices traded below the widely watched 200-day moving average( MA). Many traders look at where prices are as compared to the 200-day MA to determine is a market is in a bullish or bearish phase. Long liquidation sell stops were most likely resting just below the MA and light holiday trade may have exacerbated the sell-off. Thursday's lows were not surpassed on Friday, which gave the green light for" bargain hunter" buyers to emerge. The 14-day RSI also briefly moved into oversold territory on Thursday before moving higher with a current reading of a still weak 34.36. Thursday's low of 29.635 looks to be support for March Silver, with resistance found at the 200-day MA, currently near the 30.935 area.

Mike Zarembski, Senior Commodity Analyst


December 27, 2012

Can Cold Weather Finally Cause Natural Gas to Heat Up?

Thursday, December 27, 2012

Many natural Gas traders went on a buying spree yesterday, as cold weather and a major storm front hit much of the country. This boost may only be temporary given the huge stockpiles of Natural Gas and relatively tame longer-term weather forecasts. The recurring theme lately has been the so-called Fiscal Cliff talks between the President and GOP lawmakers. This black cloud has hung over commodity markets and Natural Gas is no different. The President cut short his vacation to meet with legislators in hopes of getting a budget in place before the New Year. This, combined with the storm front, caused a temporary sugar-high for prices yesterday.

Fundamentals

Natural Gas prices rose yesterday after forecasters predicted below average temperatures for the next 6-10 days in the Northeast. The major storm front that blanketed much of the Midwest with snow has virtually shut down Indianapolis. The colder temperatures extending into the New Year may not only boost heating demand for Natural Gas, but also power demand from industrial facilities. Price action has been largely negative for much of December, despite cooler weather patterns and favorable petroleum prices. The Commitment of Traders report shows a fairly sizable net short position from speculators, which likely may help to boost prices, as it indicates potentially oversold conditions. Yet, prices have been at the lower end of their range.

Technical Notes

Turning to the chart, we see the February Natural Gas contract continuing to trade around the 3.40 level. The measure of the double-top pattern on the daily chart suggests prices could potentially test support around the 3.20 level. The RSI is once again closing in on oversold levels, suggesting there could be some support from buyers.

Rob Kurzatkowski, Senior Commodity Analyst


December 28, 2012

Crude Rallies Despite Potential Fall off the "Fiscal Cliff"

Friday, December 28, 2012

Increased volatility may be in the cards for Oil prices in the coming days, as traders deal with geopolitical issues in the Middle East and concerns of an economic slowdown in the US during a period of lighter than normal holiday trade.

Fundamentals

The rally in Crude Oil futures prices continues, despite concerns that little progress is being made in Washington to avert the so called "Fiscal Cliff". Front month futures have recently traded to highs not seen in nearly 2 months, after the announcement of arrests of individuals in the United Arab Emirates in an alleged terror plot. This news seemed to cause an increase in the "risk premium" seen in Oil prices, due to the heightened potential of supply disruptions out of the Middle East. However, with little new information forthcoming on the terror plot, some traders may start to turn their focus to the potential impact on Oil demand should the US experience rising tax rates and forced spending cuts if US political leaders fail to come up with an agreement. This may cause a lightening-up of long positions going into the New Year. Due to the Christmas Holiday earlier in the week, the weekly EIA energy stocks report will be released later this morning (11:00 AM EST), which is 2 days later than normal. Analysts' estimates are for a draw of 1.7 million barrels of Crude last week, with refining operating rates expected to have fallen by 0.1% to 91.4%. Any major deviation from these figures could generate an oversized move in Crude prices, as lower liquidity due to light holiday trade may exacerbate market volatility.

Technical Notes

Looking at the daily chart for February Crude, we notice prices once again trading above $90 per barrel highs not seen since mid-October. The recent rally sent prices above the 20-day moving average ("MA"), but still nearly $3 below the widely watched 200-day MA. We also have what might be a rounded-bottom formation on the daily chart, which if true, could set the stage for potentially higher prices going into 2013. The 14-day RSI is positive, with a current reading of 59.28. The October 22nd high of 92.17 looks to be resistance for February Crude, with support seen at the 20-day MA, currently near 88.37.

Mike Zarembski, Senior Commodity Analyst


December 31, 2012

Equity Index Futures Slide as Fiscal Cliff Looms

Monday, December 31, 2012

The end of the year sell-off in equities may be short-lived, especially if US government leaders agree to a last minute deal to avert a series of tax increases and severe spending cuts. However, unless we get meaningful reforms to deal with the soaring US deficit and US economic growth begins to rebound, it may be a challenging year for equities to sustain any significant gains.

Fundamentals

US equities seem poised to limp into the New Year, as concerns that no last minute deal out of Washington to avert the so called "Fiscal Cliff" had many nervous traders moving to the sidelines. E-mini S&P 500 futures closed lower for the 5th consecutive session, with economically sensitive energy and material stocks leading the declines to end the trading week. Fears of falling over the"Fiscal Cliff" overshadowed rather positive economic data, with the Chicago purchasing managers index (PMI) coming in better than expected at 51.6 for December, vs. expectations for a reading of 51.0. Pending home sales rose by a better-than-expected 1.7% in November, which can be viewed as a sign that the US housing market may be in recovery. Though negotiations on a budget agreement are expected to run through the weekend, there is no consensus that US political leaders will beat the January 1st deadline. However, a temporary extension of the Bush era tax cuts may be possible prior to the end of the year, which would allow for more time to craft a plan agreeable to both political parties. Any signs that a deal has been reached or at least a temporary extension of negotiations may trigger a "relief rally" after the first of the year, as investors rush back into equities and other "risk assets".

Technical Notes

Looking at the daily chart for the March E-mini S&P 500 futures, we notice what appears to be long liquidation selling to end the year on much lower than normal trading volume due to the end of the year holidays. Prices have moved below the 20-day moving average (MA), but remain nearly 9 points above the longer-term 200-day MA. Momentum is turning weak, with the 14-day RSI currently reading 38.35. The 200-day MA, currently near 1375.00, looks to be support for the March futures, with resistance found at last week's high of 1425.50.

Mike Zarembski, Senior Commodity Analyst