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April 1, 2013

Bulls get Early April Fools from USDA

Monday, April 1, 2013

Highlights from the USDA Quarterly Gain Stocks and Prospective Plantings Report:

Grain Stocks
Corn: As of Mar 1st: 5.40 billion bushels Estimate: 5.01 billion bushels
Wheat: As of Mar 1st: 1.23 billion bushels Estimate: 1.167 billion bushels
Soybeans: As of Mar 1st: 999 million bushels Estimate: 940 million bushels

Planted Acreage Forecast
Corn: Acres: 97.3 million Estimate: 97.3 million acres
Wheat: Acres: 56.4 million Estimate: 56.4 million acres
Soybeans: Acres: 77.1 million Estimate: 78.5 million acres

Fundamentals

As expected grain futures saw volatile trading on Thursday as the USDA released its highly anticipated Quarterly Grain Stocks and Prospective Plantings report. The biggest surprises came in the stocks report with the USDA seeing much larger inventories than traders expected. For Corn, the USDA projected U.S. inventories as of March 1st at 5.40 billion bushels, down from 6 billion bushels this time last year but nearly 400 million bushels higher than the average trade estimate. The report was not friendly for Soybean bulls either as the USDA's March 1st projection came in at 999 million bushels, down from 1.374 billion bushels last year but up a whopping 60 million bushels from pre-report estimates. All Wheat stocks as of March 1st were projected at 1.23 billion bushels, which was higher than last year's totals and above analysts' estimates. Planting Intentions came in very close to expectations with the USDA expecting 97.3 million acres for Corn and 56.4 million acres for Wheat. Soybean acreage was deemed a slightly bullish 77.1 million acres vs. 78.5 million acres traders were anticipating. The market reaction was swift with Corn futures falling the 40-cent limit in old- crop May and July 2013 contracts and sharp declines seen in both Wheat and Soybeans as well. Old-crop vs. new--crop spreads were particularly hard hit as larger than expected old crop inventories triggered strong liquidation selling in the bull spreads particularity in Corn, where large speculators were holding significant long positions in the old-crop/new-crop spread. Given the new data from the USDA, we may see these spreads continue to weaken as these spreads are unwound.

Technical Notes

Looking at the daily chart for May Corn, we notice Thursday's limit-down move, seemed to have negated the upside breakout from the consolidation phase that began after contract highs were made back in August of last year. Prices are now below both the 20 and 200-day moving averages and momentum as measured by the 14-day RSI has turned weak with a current reading of 39.88. The next support point is not seen until the January 7th lows of 678.50. Below this support level, we do not see any real chart support until the 585.00 price level. Resistance is seen at the recent highs of 737.75.

Mike Zarembski, Senior Commodity Analyst


April 3, 2013

Soft Chinese Manufacturing, Rising Stockpiles Weigh on Copper

Tuesday, April 2, 2013

Copper traders have had to digest a lot of negative news in recent weeks. LME stocks have been increasing on a daily basis, Chinese manufacturing data has been soft, and there have been signs that the American housing market recovery may be slowing or stalling. Codelco, which is the world's largest Copper producer, has seen a two-day strike at its Radomiro Tomic mine in northern Chile. While the company says the production they are losing due to the strike is "substantial", Copper shipments from the country have been unaffected. If the strike drags on for a significant period of time, it could act as support for the metal. Also, it could spur physical buying because of uncertainly and relatively low prices.

Fundamentals

Copper hit fresh seven-month lows intra-day yesterday, on weaker than expected Chinese manufacturing data. China's equivalent to the ISM index came in at 50.9, versus estimates of 51.2, suggesting that previous concerns about the nation's economic growth were justified. This may also confirm suspicions that the Chinese government is indeed more concerned with economic growth than inflation. In the US, the ISM index fell to 51.3, versus analysts' estimates of 54.0, hinting at manufacturing weakness. Today's factory orders data is expected to rise to five-month highs. Failure to do so would likely put pressure on Copper prices. Inventory levels of the metal continue to increase. Shanghai stock rose 3.36% last week and now stands at 247,591 tons. LME stocks have risen for the 32nd day to 571,125 tons. Orders to remove Copper from LME warehouses have surged to 116,625 tons, which is the highest level in over nine years. It will be interesting to see if Shanghai stocks increase by roughly the same level, or if this metal is actually taken out to be used in manufacturing.

Technical Notes

Turning to the chart, we see the May Copper contact breaking down to new 7-month lows yesterday. Many traders may be a bit suspicious of the breakout, however, because of the long lower wick on yesterday's candlestick. Prices are now entering a level of heavy congestion on the daily chart. Prices will likely have to break 3.30 on the downside to gain additional downside momentum and confirm a downside breakout. The RSI indicator is at oversold levels, which could be supportive, near-term.

Rob Kurzatkowski, Senior Commodity Analyst


Coffee Prices "Perk-up" on Short-covering

Wednesday, April 3, 2013

Coffee futures are the only member of the so called "softs" commodities where large speculators are holding a net-short position. The most recent Commitment of Traders report shows non-commercial traders net short 26,361 contracts as of March 26th. On the other side of this trade are commercial traders who were net long 25,255 contracts at that same time. Given the concerns of supply issues out of Central America this season and analysts' expectations for increased demand for the Arabica Coffee by commercial roasters, we could be seeing a bottom forming for prices this year.

Fundamentals

It was a volatile start to the week for Coffee futures, as prices traded to 2-week highs on concerns that an outbreak of "Coffee Rust" disease in Central America will curtail output. The potential impact to Central American Coffee production, which accounts for about 10% of global production, combined with a rather large short position being held by speculators, seems to be triggering optimum conditions for a bout of short-covering buying. Trading activity was particularly volatile on Monda, as New York Arabica Coffee has a shortened trading schedule due to the closure of the London commodity market for the Easter Monday holiday. Going forward, Coffee bulls still have some strong headwinds to overcome, including a record off-year crop from Brazil and a much stronger U.S. Dollar, which are weighing on commodity prices. However, the lower prices currently seen for Arabica Coffee may spur increased demand from end-users, as the price premium seen for Arabica Coffee vs. lower quality Robusta has fallen to nearly 4-year lows. This may shift demand from roasters back to Arabica beans, after a two-year stretch of increased Robusta Coffee usage in blends due to high Arabica prices.

Technical Notes

Looking at the daily chart for July Coffee, we notice the nearly 5 ½-cent price range during Monday's holiday-shortened trading session, as traders came back over the weekend to concerns about lower production out of Central America. However, the day's early gains were muted by selling pressure that was uncovered once prices moved above the 20-day moving average. Volume was relatively light to start the week, as European traders remained on holiday until Tuesday, when volume rose sharply as prices drifted lower. The 14-day RSI has recovered from oversold conditions, but is still holding at a relatively weak reading of 39.92. There remains significant upside resistance between 145.00 and 150.00 on the daily chart. However, should prices manage to rally through this upside congestion, there is no significant upside resistance until the 163.00 price level. Major support is seen at the contract low of 134.80 made back on March 20th.

Mike Zarembski, Senior Commodity Analyst


April 4, 2013

Allure of Safe Haven Assets Fade

Thursday, April 4, 2013

Gold has fallen out of favor with many investors, who no longer see the metal as a safe haven asset. The Fed has created an environment where risky assets are at a premium to safe haven bets, which have had lagging returns. The Cyprus situation failed to create enough panic to drive Gold prices. Technically, Gold is in a vulnerable position, having broken support at 1565. If prices reach the 1520 level, it will likely signify a technical bear market from 2011 highs.

Fundamentals

Gold futures continue to struggle, as investors appear to have pared down positions in the metal in favor of other assets. Central banks around the globe continue pumping cash into their respective economies, which would normally be seen as a positive factor for Gold. However, it is the non-threat of inflation that allows the central banks to keep the presses printing cash. Gold has lost its luster among many traders as a safe haven asset. Instead, some traders are looking for higher returns in the equity markets, which have been artificially inflated by Fed policy. ETF holdings have fallen to their lowest levels in almost 7 months, which could be a sign that even retail has lost faith in the yellow metal. Barring a sudden uptick in inflationary conditions or a panic in equities, Gold may very well continue lower.

Technical Notes

Turning to the chart, we see the June Gold contract breaking support at the 1565 mark. If the breakout is confirmed, this could result in prices reaching technical bear market levels, which come in near 1520. The RSI is giving oversold readings, which could help buffer the downside for Gold. However, if a downside breakout occurs on oversold conditions, the sell-off could be explosive. In such instances, fresh buyers attempt to buy value and are quickly forced out of the market, likely adding fuel to selling pressure.

Rob Kurzatkowski, Senior Commodity Analyst


April 5, 2013

Aggressive Stimulus Measures by BOJ Send Yen Tumbling

Friday, April 5, 2013

The current decline in the value of the Japanese Yen has already been anticipated by large speculative accounts, with the Commitment of Traders report showing leveraged funds holding a large net-short position in Japanese Yen futures. Although normally we would be anticipating a bout of short-covering buying to emerge once speculators have become too one-sided on the downside, the announcement by the Bank of Japan of further enhancing accommodative monetary policies may allow further weakness to emerge in the value of the Yen, as bearish speculators add to existing short positions that are now moving in their direction.

Fundamentals

An announcement by the Bank of Japan (BOJ) of implementing even more aggressive stimulus measures with the goal of raising annual inflation levels to 2% spurred widespread selling in the Japanese Yen by traders, as the policy measures announced were more aggressive than anticipated. Among the initiatives announced by new BOJ governor Haruhiko Kuroda were increased purchases of assets like stocks and ETF's, an increase of the amounts of bonds purchased to 7.5 trillion Yen per month, which is up from 3.8 trillion, aand an extension of the duration of Bond purchases up to maturities as long as 40 years. Traders rushed into the Japanese markets after the announcement, rallying the Nikkei 225 futures over 600 points, sending Japanese Government Bonds (JGB) futures up over 1-full point, and weakening Yen futures by nearly 400 pips. Though the initial market reaction seemed to confirm the BOJ's intentions to stimulate growth, the longer-term results are more uncertain, with some economists fearing that these aggressive policies could spur asset price bubbles, which could in turn end up doing more harm to the economy when they burst. However, it seems doubtful that this concern was front and center in bank officials' minds in their attempt to spur economic growth after nearly two decades of stagnation.

Technical Notes

Looking at the daily continuation chart for Japanese Yen futures, we notice how effective the BOJ's policy announcement was in weakening the value of the Yen. The sell-off may have been especially pronounced, as it came during a period when the Yen was rallying against the U.S. Dollar after making multi-year lows. Prices have now fallen below the 20-day moving average, and momentum as measured by the 14-day RSI has turned weak, with a current reading of 37.32. Support is seen at the March 12th low of 1.0340, and a failure of this support area to hold may signal that a run to 1.0000 may be in the cards. Resistance is seen at the April 2nd high of 1.0809.

Mike Zarembski, Senior Commodity Analyst


April 8, 2013

"Swing and a Miss" for Analysts on March Jobs Data

Monday, April 8, 2013

Large and small speculators have been holding net-short positions in Bond futures according to the Commitment of Traders report, and the recent rally seems to have caught many traders off-guard. The weaker than expected Non-Farm Payrolls report may have provided the catalyst for additional buying in Treasuries, as those caught short the market stampede for the exits.

Fundamentals

April has arrived, and thoughts turn to the upcoming baseball season. It is generally believed that pitchers have an advantage over hitters early in the season. In the case of the Non-Farm Payrolls report for March, it appears that Labor Department statisticians had the upper-hand on traders and economists, as pre-report estimates were widely off the mark. March non-farm payrolls came in at a weak 88,000 jobs, which is well below the widely varied estimates of between 150,000 and 210,000 jobs most traders were anticipating. All of the gains were seen in the private sector, which created 95,000 jobs last month. Ironically, the unemployment rate declined by 0.1% to 7.6%, which also caught pundits off guard. The details show a mixed bag for employment sectors, with gains seen in business services and health care, but payroll cuts found in the retail and manufacturing sectors. Public sector jobs continue to be shed, falling by 7,000 jobs last month, although Federal government jobs fell by 14,000. Though we did see a small decline in the unemployment rate, which is now at its lowest levels since December 2008, it was a decline of almost 500,000 participants from the workforce that accounted for the lower rate. This continued slow growth in employment gave traders another reason to ignore those expecting the Federal Reserve to reduce its "stimulus" program in the coming months. Market participants' reaction to the payrolls was of little surprise, with equity index futures falling sharply and U.S. Bond futures rallying to highs not seen since January. Bond prices may also be seeing renewed interest after the Bank of Japan's announcement of aggressive actions to help stimulate its moribund economy. So even though U.S. interest rates are at historically low levels, they still look attractive to investors in both Europe and Japan, where both German Bunds and Japanese Government Bonds are trading at even lower yields than that of U.S. government debt.

Technical Notes

Looking at the daily continuation chart for U.S. Treasury Bond futures, we notice what might be interpreted as a head and shoulders bottom formation, with prices now breaking out from the neckline. In addition, Friday's price surge brought prices back above the 200-day moving average (MA) for the first time since late December. The 14-day RSI is surging higher and has now reached overbought levels, with a current reading of 75.18. The next upside resistance level is found at the December 28th high of 148-25. Support is seen at the 20-day MA, currently near the 143-22 price level.

Mike Zarembski, Senior Commodity Analyst



April 9, 2013

Chinese Inflation Tame, but Will Inventories Rain on Oil Traders' Parade?

Tuesday, April 9, 2013

Crude Oil futures are higher for the second consecutive session after China showed tamer inflation figures. Lower inflation in the industrial giant suggests that the government may act more aggressively to stimulate growth. Tomorrow's EIA data is expected to show another increase of Crude Oil to the tune of 1.5 million barrels to 390 million barrels. If analyst predictions are correct, Oil reserves would be at their highest levels in 22 years.

Fundamentals

Crude Oil futures have faltered, shedding $5 rather quickly before prices stabilized yesterday. Chinese CPI was tamer than expected, with consumer prices rising 2.1% in February, versus the median estimate of 2.5%. We recently mentioned that the People's Bank of China (PBoC) and other policymakers may actually be more concerned with growth than inflation, and the consumer inflation data all but confirms those suspicions. Aggressive expansionary policy from China could outweigh the glut of Crude Oil in the US. This afternoon's API and tomorrow's EIA reports are expected to show a hearty build in Crude Oil of 1.5 million barrels, and gasoline and distillates are expected to have a drawdown of 1.8 and 1.7 million barrels, respectively. Crude Oil may get some outside support from the RBOB, as the contract is technically oversold and has a near-term bullish signal.

Technical Notes

Turning to the chart, we see the May Crude Oil contract dropping to minor support at the 92.50 level before recovering. In addition to finding chart support, the contract ran into the 100-day moving average. Prices briefly traded at or below the average over the past two sessions. Failure to hold 92.50 suggests prices may test support at 90.00. Currently, the oscillators are at neutral levels and not giving traders very many clues as to the direction of the market.

Rob Kurzatkowski, Senior Commodity Analyst


April 10, 2013

Commodity Bulls Starting to Get a Chocolate Craving?

Wednesday, April 10, 2013

Despite a nearly 6-month down move, both large and small speculators are holding net-long positions according to the Commitment of Traders report. The most recent report shows non-commercial traders net-long 17,525 contracts as of April 2nd. This was up over 1,000 contracts for the week. Non-reportable traders were net-long 1,585 contracts after adding 101 contracts for the week. Commercial traders continue to be on the short side of the market and are getting shorter as prices rally to 1-month highs.

Fundamentals

Cocoa bulls appear to be starting to regain their sweet tooth, as the nearly 6-month slump in prices has finally sparked buying interest by both commercial and speculative interests. Prices rallied nearly 3% on ,f stronger European chocolate sales are adding some support to the market that had fallen nearly $250 per ton since the beginning of the year. However, before traders get too optimistic that near-term lows may be in place, the market has to overcome potential hedge selling by West African producers, who may wish to take advantage of any speculative rally to hedge forward what is expected to be an ample mid-crop harvest assuming timely rains occur. It would appear that we will need to see some significant upside surprises on the demand side to sustain longer-term upside momentum, though in the interim, bulls seem to have regained the upper hand.

Technical Notes

Looking at the daily chart for July Cocoa, we notice an upward channel forming, which could be the start of a "V" bottom technical formation, especially if we trade above near-term resistance at 2267. The 14-day RSI has turned up, with a current reading of 62.40. Although prices are now trading above the 20-day moving average (MA), the widely watched 200-day MA is still nearly 120 points higher, and it would take a weekly close above this longer-term average to change the outlook from bearish to bullish. Once again, resistance is seen at the February 7th high of 2267, with near-term support found at the March 18th low of 2091.

Mike Zarembski, Senior Commodity Analyst


April 11, 2013

Swine Flu May Hurt

Thursday, April 11, 2013

Soybeans have fallen hard since September of last year on softer demand and expectations that farmers will plant heavily to take advantage of relatively high prices. Since the initial drop, prices have been mired in a bear market consolidation range of 1350-1500. The H7N9 bird flu has been a concern for many traders, as it could hurt Chinese demand. Furthermore, a move below the lower end of the consolidation could trigger technical selling.

Fundamentals

The bird flu, which has killed at least nine people since last month, may result in Chinese Soybean imports falling for the first time since the 2003-2004 marketing year. Citizens have been told to avoid contact to limit their potential of contracting the deadly virus. Beans are used in feed for poultry. Farmers are expected to plant heavily this year to capitalize on high prices, suggesting a setback in Chinese imports could lead to a sharp drop in prices. Outside markets will probably do little to help Soybean prices. Global Corn inventories are expected to be 125.29 million metric tons, versus last month's estimate of 117.48 million metric tons, according to the USDA. Many analysts expected a jump in Corn inventories, but to a lesser degree, at 120.41 million metric tons. This may create bearish sentiment in the entire grain complex.

Technical Notes

Turning to the chart, we see the July Soybean contract trading just above support at the 1350 level. This is a stout and pivotal support level, suggesting a downside breakout could be a significant market event. Price could test the low 1200's on a bearish breakout. The RSI was oversold, which helped prices hold the 1350 mark. Prices failed to cross the 20-day moving average after bouncing, which can be seen as negative near-term.

Rob Kurzatkowski, Senior Commodity Analyst


April 15, 2013

Industrial Metal Bulls Trying to Escape Bears' Clutch

Friday, April 12, 2013

Large speculators have been net-short Copper futures for weeks, with the most recent Commitment of Traders report showing non-commercial traders net-short 27,078 contracts as of April 2nd. These large speculators added over 6,000 new net-short positions that week, just prior to the recent lows being put in place. Given this large short position and commercial interest in buying at recent price levels, we may see some sustainability to the recent upward price move, mainly being driven by short-covering buying. This may become especially acute should economic data continue to be viewed as supportive for economic growth.

Fundamentals

Just when it appeared that the industrial metals complex was going to be mired in a bear market, better than expected wholesale inventories data and lower inflation reading from China gave support for Copper prices. In addition to better economic data, a nationwide miners' strike in Chile helped support prices. The Commerce Department reported that U.S. wholesale inventories fell by 0.3% in February, vs. an expected increase of 0.6%. In addition sales also increased by 1.7% led by computer equipment and nondurable goods sales. Inflation data out of China was subdued, with March CPI rising by 2.1% vs. 3.2% in February. Many traders hope that lower inflation readings will allow the Chinese government to continue with stimulus measures to meet the targeted growth rate of 7.5% and help spur increased demand for commodities, including Copper. On the supply side, 25,000 miners have staged a 24-hour strike in Chile, the world's leading supplier of Copper, in order to bargain for better wages, benefits, and working conditions. While a short-term labor stoppage should have little effect on Copper supplies, it does raise concerns that future production may be curtailed, and should such events occur, we may see a lower Copper surplus than previously thought.

Technical Notes

Looking at the daily chart for May Copper, we notice that Tuesday's price surge propelled the market above the 20-day moving average (MA) for the first time since February 15th on a closing basis. However, profit-taking by weak longs has kept prices from advancing further. Prices are, however, trading above the downtrend line drawn from the February 19th high. This was the day in which a dramatic downward move in prices triggered the nearly 2-month decline in prices. The 14-day RSI has moved out of oversold territory and is currently reading a more neutral 44.08. The next resistance level is seen at the chart "gap" of 3.5100 made back on March 18th. Support for May Copper is found at the April 4th low of 3.3060.

Mike Zarembski, Senior Commodity Analyst



Gold Losing its Luster for Investors?

Monday, April 15, 2013

The commitment of Traders report shows that both large and small speculations have been busily liquidating net-long positions with the most recent report showing a net decline of over 20,000 contracts for the week ending April 2nd. There has been similar or even more dramatic shift out of physical Gold ETF's as well funds are being allocated to currently better performing assets such as equities. Though Gold prices have fallen over 12% in the past 6 months vs. the U.S. Dollar, if one were to view gold prices against other weaker performing currencies, such as the Japanese Yen, we can see that Gold has not yet lost all of its luster for trader.

Fundamentals

The nearly 12 year long bull market for Gold is facing its toughest test since the financial crisis of 2008-09 as investor sentiment seemed to have shifted towards equities and away from precious metals. Analysts from some of the largest investment banks have recently turned bearish on the "yellow metal" after prices have declined over $400 per ounce since all-time highs were made back in 2011. Gold has been seen as a "safe haven" investment and was especially popular with investors during the early stages of the European debt crisis. However, Gold has failed to live up to its "flight to safety" status, as prices have tumbled despite continued European economic struggles, a bailout of Cypriot banks, and heightened tensions on the Korean peninsula. Two major factors seem to have shifted investors psychologically; first we have a renewed bull market in equities, especially in the U.S. as well as Japan, with Central Banks fostering very accommodative monetary policies that have forced liquidity into the economy with much of it moving into equities. In addition, inflation fears remain subdued which is taking another valid reason to hold precious metals off the table, at least for the near-term.

Technical Notes

Looking at the daily continuation chart for Gold futures going back 10 years, we notice what appears to be a large descending triangle formation. Prices plunged through the base of the triangle which was acting as a major support area. The biggest question remains whether recent price weakness is really signaling the end-of the Gold bull market or is this just a large consolidation pattern that may ultimately be a base for potentially much higher prices ahead? Prices are below both the 20 and 200-day moving averages and the 14-day RSI has turned weak with a current reading of 28.90. It is difficult to pinpoint a specific support and resistance level when looking at a long term price chart so using a price range would better capture the overall picture. For Gold, we support between 1480.00 and 1500.00. A close below this price range could see a test down towards 1400.00. Resistance is seen from the 200-day moving average, currently near 1662.00, and all the way up to 1700.00. A close above this price range, especially a move above 1725.00, would put a test of 1800.00 back into the picture.

Mike Zarembski, Senior Commodity Analyst



April 17, 2013

Silver Breaks Down on Gold, China

Tuesday, April 16, 2013

Many traders' appetites for precious metals have greatly diminished, resulting in sharp selling in Silver. Silver prices felt pressure as both a precious and industrial metal. Base metals prices have fallen off sharply, with Nickel trading at 8-month lows,while Copper is at 18-month lows. Chinese industrial production has been slowing, which will likely hurt demand for Silver used in electronics. Fears that central banks may be swapping precious metals reserves in favor of currency has created a sense of panic among some metals traders afraid of catching themselves on the wrong side of the market. The wave of selling could trigger some value buying in Silver. However, traders buying on leverage in futures and Silver ETFs on margin suggest longs could be skittish.

Fundamentals

Silver dropped 11% yesterday, falling to the lowest level since October 2010. The metal was facing assault from all sides, as Chinese growth slowed to 7.7%, US equity prices slumped, and supply and demand fundamentals have loosened. Certainly, the tragic event in Boston did little to help equity and commodity markets after the negative tone had already been set. Economic data from China continues to show a pattern of weakening, which suggests industrial use for the metal will decrease. Furthermore, slower Chinese growth could very well lead to lower global inflation, curbing demand for the metal as an inflation hedge. There are concerns that Cyprus may sell its Gold holdings. In and of itself, Cyprus selling their Gold reserves would not have a major impact on the physical market. However, this move could hint at wider spread monetization of Gold reserves by central banks. At the same time, many investors are decreasing their holdings of Gold ETF positions to their lowest level in almost three years. SLV inventories have held up surprisingly well, but that could change quickly if prices continue to head south.

Technical Notes

Turning to the chart, we see the May Silver contract in a free-fall after breaking support near the $26.65 level. Prices are well into technical bear market levels, which could make fresh long positions few and far between, and could easily shake the resolve of those who decide to test the long side of the market. The next significant support level comes in near $19.25. The two-day plunge resulted in the RSI moving from neutral to very oversold conditions, which could trigger some short-covering and profit-taking.

Rob Kurzatkowski, Senior Commodity Analyst


Commodity-wide Bear Market Spurred by Slower Global Growth Prospects


Wednesday, April 17, 2013

Commodity markets were not the only assets hard hit, with the so-called "commodity currencies", such as the Australian and Canadian Dollars, were hit hard, as many traders feared slower growth forecasts for 2013 due to lower commodity prices. Ironically, the weakest of the "majors" -- the Japanese Yen -- has recovered some of the recent steep losses, as this favorite market of bearish traders is in the midst of short-covering buying tied mainly to the long liquidation of commodity positions, not to any changes in the very "accommodative" monetary policies announced by the Bank of Japan.

Fundamentals

The historic sell-off in Gold prices the past few sessions has sent many traders away from commodities in general, triggering what may be the start of a commodity-wide bearish trend, at least for the near-term. It seems that no commodity complex has been spared long-liquidation selling, with even relatively uncorrelated markets like livestock and the" softs" showing weakness. With the advent of "commodities" as an asset class the past several years, the market correlations have trended closer to 1 during times of heightened volatility. Outside the metals sector, energy markets were also hard hit at concerns that the Chinese economy is slowing more than expected. Slow growth for the world's largest consumer of commodities is becoming even more pronounced given the recessionary environment in Europe. Though U.S. and Japanese Central Banks are still in stimulus mode, it appears that the liquidity being provided is not moving fast enough into the "real" economy by means of increased spending by consumers and expanding businesses, but is instead finding its way into "soft" assets like equities and bonds that may do little to spark demand for "hard" assets and commodities.

Technical Notes

Looking at the daily continuation chart for the GSCI Index, notice that a look at the big picture, commodity prices are in the middle of a consolidation pattern that begins at the end of 2010. Prices are currently below both the 20 and 200-day moving averages, but are still over 75 points above critical lows made back in June of 2012. The 14-day RSI is approaching oversold an reading, currently at 32.30. Support is seen near 602.00, with resistance seen at the 200-day moving average, currently near the 649.50 price level.

Mike Zarembski, Senior Commodity Analyst


April 18, 2013

Crude Production Ramps Up

Thursday, April 18, 2013

Crude Oil futures have certainly not been immune to the recent pressure in equity and commodity markets. Some markets have simply been caught up in the moment, and could very well recover in the not too distant future. However, Crude Oil may not be one of those markets. The supply glut in the US has been the 800 lb gorilla in the room that no one has wanted to talk about. However, global demand cooling could bring things to a head. Brent Crude has traded below $100 for several sessions , and is in danger of violating a key support level. If this occurs, Crude Oil of all varieties could be under extreme pressure. The G20 meeting is expected to address currency devaluations, although there may simply be more empty half-promises, rather than anything of substance to come out of the meeting.

Fundamentals

Crude Oil futures are at their lowest levels in four months on rising supplies and weakening equity prices. The bloodbath in the metals markets along with increased metal margin requirements has caused repercussions around the commodity world, triggering margin calls and forcing some longs to liquidate. This was certainly an inopportune time for the EIA to report an output increase to 7.2 million barrels a day. This is the highest output level since 1992. It has also been no surprise to anyone following the energy markets that North America is swimming in Crude Oil. Many Crude bulls were banking on rising demand to help work down these inventories, which is why the second weekly demand decrease was particularly discouraging.

Technical Notes

Turning to the chart, we see the May Crude Oil contract trading near support at the 85.00 mark, after breaking support at the 92.50 and 90.00 levels. The 85.00 mark is a rather important support level, as failure to hold here suggests prices could come down to test the low 80's. The recent wave of selling pressure has resulted in the RSI indicator moving into oversold territory, which may be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


April 19, 2013

Potential for Planting Delays Supporting New-Crop Corn Prices

Friday, April 19, 2013

New-crop Corn futures have been mired in a bear market, as the potential for a 14-billion plus U.S. Corn crop on top of disappointing demand for old-crop Corn has led to a market trading at 10-month lows. The net-long position being held by speculators, both large and small, has fallen sharply during the past 4-weeks, and a move below technical support levels could finally provide the impetus for a move by non-commercial traders to the net-short side of the market.

Fundamentals

Following a year of extreme heat and drought conditions, many grain producers are welcoming a return of adequate moisture levels as the spring planting season begins. However, it appears that this season's April showers may become too much of a good thing, as heavy rainfall has spread through the central Corn Belt, with the potential flooding keeping producers out of the fields. In addition, cooler than normal temperatures have kept the northern area snow covered due to heavy spring snowstorms, also bringing fears of flooding for the Red River Valley. North Dakota producers were expected to plant over 4-million acres towards Corn this season, however this estimate could prove too high if growers cannot get into the fields by mid-May. Weather conditions during the next few weeks may determine the early trend for new-crop Corn prices, with warmer and drier conditions allowing planting to progress and adequate soil moisture bringing near ideal conditions to start the season. However, if we see a continuation of cold and wet weather forecasts, some traders may start to price-in some sort of weather premium, as the Corn market can likely not sustain two consecutive years of a short grain crop out of the U.S.

Technical Notes

Looking at the daily chart for December Corn, we notice prices holding near the upper bounds of a 25-cent plus consolidation pattern. Movement above 550.00 seems to be drawing in some selling pressure, which may be tied to hedge selling, though most likely aided by large speculators looking for lower Corn prices later in the fall. Thursday's decline took prices back below the 20-day moving average, which is giving support for commodity bears looking for an overall decline in commodity prices this year. The 14-day RSI has turned lower, with a current reading of 46.38. Support is seen at the April 1st low of 525.50, with resistance found at the high of the recent price consolidation at 551.00.

Mike Zarembski, Senior Commodity Analyst


April 22, 2013

Exports and Weather Concerns Bringing Some Support to Wheat Futures

Monday, April 22, 2013

Freezing temperatures in the Western Plains, potential flooding in the Red River Valley, and strong demand for Soft Red Winter Wheat are just some of the key fundamentals drawing some traders to explore strategies involving inter-commodity spreads in the Wheat complex. Strong export demand for Soft Red Winter (SRW) Wheat has helped to narrow the price discount vs. the Hard Red Winter (HRW) variety lately, though concerns of damage to the HRW crop in the Western Plaines may halt this bearish trend, should damage estimates turn out worse than expected. The Hard Red Spring (HRS) Wheat price may become volatile, as concerns mount regarding the extent of the spring floods in the upper Midwest this season. Should flood damage become severe, we may see HRS prices rise relative to both SRW and HRW going into summer.

Fundamentals

After trending lower for most of 2013, Wheat futures prices have begun to stabilize, as weather concerns for the emerging crop and stronger export demand have taken some of the bearish bias out of the market. Below freezing temperatures in the Western Plains have triggered fears that the recently emerged crop has suffered some damage. However, it is still too early to tell the extent of any damage, as the effects of cold temperatures will depend on what stage of development the crop is in. The Great Plains region has been in the midst of a severe drought during the past several months, although recent precipitation and snow cover should benefit the Hard Red Winter (HRW) Wheat crop grown in this region. Soft Red Winter (SRW) Wheat futures, meanwhile, are being supported by strong export sales, with China among the leading buyers of SRW this month. Hard Red Spring (HRS) Wheat prices are finding some support from the potential of severe flooding in the Red River Valley. North Dakota is the leading HRS producing state, accounting for nearly half of U.S. production of this high protein variety. The upper Midwest still has significant snow cover,with recent storms producing nearly an additional foot of snow in some areas. A late spring thaw will keep fields too wet to plant, which could cut the expected acres planted from the expected 6.2 million acres the USDA is expecting.

Technical Notes

Looking at the daily chart for July Soft Red Winter Wheat, we notice what appears to be a diamond-bottom formation. This rather rare formation is normally associated with pending market tops, but can also be useful in identifying potential bottoms in a downward trend. Prices are trading near the 20-day moving average (MA), but are still well below the longer-term 200-day MA that is a popular barometer to determine if the longer-term trend of a market is favoring bulls or bears. The 14-day RSI is neutral, with a current reading of 50.97. Support for July Wheat is seen at the recent low of 669.00, with resistance found at the March 28th high of 740.50.

Mike Zarembski, Senior Commodity Analyst



April 24, 2013

Bears chasing the "Loonie"

Tuesday, April 23, 2013

The Canadian Dollar has been among the most popular risk currencies over the past five years. Traders' love affair with the currency could be ending due to negative forecasts for the Canadian economy, which is expected to grow at a slower pace than much of the industrialized world. The recent growth concerns have resulted in some traders flocking to US Dollars in a flight to quality. The Loonie figures to be extremely sensitive to economic data; probably even more to negative data and earnings data.

Fundamentals

The recent bear run in commodities has put pressure on the Canadian Dollar, which is approaching early March lows. The Loonie is particularly sensitive to Crude Oil prices, the country's largest export, so higher prices over the past three sessions have slowed the slide in the currency. The Canadian Dollar could be influenced by equity markets and economic data. Because of its relationship to commodities, the Loonie can be termed a risk currency. There are still a slew of earnings reports and economic data through the end of the week, which will likely result in increased volatility in the currency. The Canadian economy is expected to lag behind the rest of the globe, which could make risk-off selling particularly violent in the event that economic data is weaker. Some traders may, instead, favor the Aussie or Kiwi Dollars if they decide to delve into risk currencies.

Technical Notes

Turning to the chart, we see the June Canadian Dollar failing to maintain enough momentum to carry it above the 0.99 level and approach parity. Prices are now sliding towards relative lows near the 0.9675 mark. Failure to hold this level could bring heavy technical selling pressure. Despite recent selling, the RSI indicator remains in neutral territory and is not showing oversold conditions. Closes below the 20-day moving average suggest that a near term high may be in place.

Rob Kurzatkowski, Senior Commodity Analyst


Nikkei Trades Near 5-year Highs as Yen Continues to Weaken

Wednesday, April 24, 2013

The CME group offers trading in a Nikkei 225 futures contract that is denominated in U.S. dollars. The following are some of the key contract specs:

OptionsXpress Symbol: NK Contract Size: $5 X Nikkei 225 Index

Tick Size: 5 points = $25.00

Contract Months: March, June, September, December

Settlement: Cash Settled

Trading Hours: 5:00 pm to 4:15 pm Central Time

Fundamentals

The Bank of Japan's (BOJ) plan to help stimulate the country's moribund economy has seen some success in the equity markets, as many investors and traders move funds into Japanese stocks, sending the benchmark Nikkei 225 index soaring to 5-year highs. On April 4th, the BOJ announced that it would embark on a massive monetary stimulus program to, hopefully, jump- start an economy that has been in a deflationary spiral for nearly 2 decades. The Japanese equity markets received further positive news this past weekend, as a meeting of G 20 leaders failed to take to task the BOJ's expansive monetary policies. This gave a green light for forex traders to sell the Yen, sending the currency closer to the widely watched 100 Yen per dollar level. A weaker Yen should help the country's major exporters become more competitive and hopefully will lead to improved earnings in the coming months. This week will see many Japanese companies report earnings, which will be closely followed by traders hoping to get a read on how the recent weakness in the Yen is starting to affect company profits. The biggest bottleneck seen in the BOJ's goals of restoring economic growth may come from the country's private sector and their willingness to invest in their businesses based on the belief that the economy has really turned the corner out of a recessionary environment and is now facing only a short-lived bounce due to the massive stimulus orchestrated by the Central Bank.

Technical Notes

Looking at the daily continuation chart for the Nikkei futures, we notice the market moving up in a near vertical fashion after breaking out to the upside in late November. The 20-day moving average has been a fairly reliable support indicator throughout most of the up-move, with price breaks below this indicator lasting only a couple of sessions before resuming their upward trend. The 14-day RSI is strong, with a current reading of 69.00, though Nikkei bears will note a bearish divergence forming in the RSI, as a new high in prices has failed to generate new momentum highs as well. 14000 is seen as the next resistance lead for the lead month futures, with support found at the April 2nd low of 11870.

Mike Zarembski, Senior Commodity Analyst



April 25, 2013

US GDP Sparks Copper Optimism

Thursday, April 25, 2013

Copper prices are higher for the second consecutive session on short-covering and value buying. Many traders seem upbeat ahead of the US GDP data, which could give the market a short-term sugar high. The Copper market still appears well supplied, as evidenced by rising LME inventories. If the global economy was healthy, rising stocks would not be as great of a concern, but the slowing Chinese economy does raise some red flags. Year over year, Copper imports by China are down 36.7% in the month of March. Technically, trading in the low 3.00's has triggered some profit-taking from shorts.

Fundamentals

Copper prices are higher ahead of tomorrow's Q1 Advanced GDP figure. The report is expected to show growth over the past quarter at somewhere between 2.8 and 3.2%. The Chain Deflator, which measures inflation, is predicted to have risen from 1.0 in Q4 of last year to 1.7 in Q1 2013. The prospect of the US economy moving from contraction to a healthy growth rate appears to have traders upbeat this morning. Copper has seen some value buying in both the physical and futures markets over the past two days. Some of the buying activity could also be attributed to short-covering on both the LME and COMEX. The LME contract broke a key technical level at $7000 a tonne, which could make the market vulnerable to selling pressure. LME stocks are still near decade high levels, and COMEX stocks have been building, so there is a sense that the Copper market is over supplied.

Technical Notes

Turning to the chart, we see the June Copper contract in a virtual freefall. Prices are now approaching the $3 mark, which is both a key technical and psychological support level for the COMEX contract. Given the importance of this support level, it would not be surprising to see some short-covering and short-term buying from traders seeking a small bounce in prices. If the market fails to hold the 3.00 level, prices could test relative lows from June 2010. Yesterday's strong up-day engulfed the prior two down days. If prices manage to get above 3.15, the market may gain some short-term momentum. With a move above 3.25, the market could gain stronger traction.

Rob Kurzatkowski, Senior Commodity Analyst


April 26, 2013

Bond Prices at 2013 Highs but Becoming Overbought?


Friday, April 26, 2013

After forming what appears to be a head and shoulders bottom on the daily continuation chart, Treasury Bond prices are hovering several points above the "neckline", although a further-up move in prices is being hampered by this week's Treasury auction and rising equity prices. Cash movement into U.S. Treasuries may be coming from outside the U.S.-- especially from Japan -- as the BOJ's aggressively accommodative monetary policies are forcing domestic investors to search for yield outside the country, with the U.S. in the forefront due to its higher yields and "safe-haven" status.

Fundamentals

Those pundits writing off the U.S. Treasury bond market have been proven wrong once again, as yields have fallen to their lowest levels of 2013 on concerns that global growth may continue at a sluggish pace. China's purchasing managers index slipped last month to a reading of 50.5, vs. 51.6 in February. Although readings above 50 are considered expansionary, slowing growth prospects become more troubling when paired with weaker data from both the U.S. (52.0 in March, vs. 54.6 in February) and the Euro zone (46.5 in March). U.S. durable goods orders in March fell by a larger than expected 5.7% last month, adding to concerns about a slowdown in economic growth. U.S. Treasury prices are also receiving a boost by aggressive monetary policies put in place by the Bank of Japan, which include a plan to aggressively purchase its own government debt. This is sending Japanese investors into U.S. Treasuries, as their currently paltry yields still look attractive vs. what can be obtained in Japan. We are also starting to see some shift of opinions on the current austerity measures seen in Europe, as the prospects of a deepening recession on the continent have some policymakers considering moving to more accommodative monetary policies, including interest rate cuts, such as that being followed by the U.S. and Japan, to hopefully jumpstart the beleaguered economies of Europe. Though it appears that Bond bulls have regained the upper hand, we could be in for some increased volatility as the market digests a fresh supply of Treasuries totaling 99 billion dollars that hit the market this week. The auction of 35 billion worth of 5-year notes on Wednesday saw strong foreign participation once again, with these short-term notes yielding 0.71%. This is the lowest yields have been since November, and may be viewed as a sign that there is still demand in the shorter-end of the yield curve, despite current low rates.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice that prices have turned choppy after a nearly 9-point rally since early March. Prices are holding above both the 20 and 200-day moving averages (MA), keeping both longer and shorter-term Bond bulls in the driver's seat. The 14-day RSI is fairly strong, with a current reading of 60.13. The next resistance level is seen at the "spike" high made on April 23rd at 149-06, with support found at the 200-day MA, currently near the 147-12 price level.

Mike Zarembski, Senior Commodity Analyst


April 29, 2013

Sugar Prices Slump on Large Global Surplus

Monday, April 29, 2013

The world Raw Sugar market is not alone in the clutches of commodity bears. Domestic U.S. Sugar prices have fallen to lows not seen since 2009, as the U.S. is expected to produce a surplus of Sugar this season. U.S. Sugar production is expected to increase by nearly 6% this year, and supplies from Mexico, which are allowed into the U.S. without tariffs due to the North American Free Trade Agreement (NAFTA), are expected to increase by over 50%. The 2008 Farm Bill set a floor for domestic Sugar prices, and the USDA may be required to purchase Sugar from domestic producers if prices fall too far.

Fundamentals

Sugar futures prices are struggling to rebound following a move to nearly 3-year lows on concerns that this coming season's supplies will overwhelm demand. The Brazilian sugarcane harvest is currently well under way, as drier weather conditions are helping producers move through the fields. Some analysts expect Brazil to produce a record sugarcane crop in the 2013-14 marketing season, which will likely add inventory to already burdensome carryover totals, estimated at 8.5 million tons expected from the 2012-13 season. Chinese sugar imports were over 20% lower in March compared to the previous year, as higher domestic production lessened the need for foreign purchases. Lower imports by one of the world's largest buyers of commodities add to the credence that global demand may be sluggish this coming season. Sugar bulls will counter that current low raw Sugar prices may persuade cane producers, especially in Brazil, to switch production towards ethanol and away from food usage, but it is still unclear if this will be enough to make a significant dent in global Sugar supplies.

Technical Notes

Looking at the daily chart for July Sugar, we notice prices falling below the recent 17.50 to 18.00 trading range prices have been in for most of April. However a failure to come close to testing the 17.00 price level triggered a bout of short-covering buying which has moved prices back towards the low end of the recent price range. Volume in the July futures has increased lately, but this is mainly due to the rolling of positions from the May contract ahead of the last trading day on April 30th. The 14-day RSI is weak, with a current reading of 37.74. 17.25 is seen as the next support point for July Sugar, with a move below this level signaling a potential test of 17.00. Resistance is seen at the recent high of 17.97 made back on April 12th.

Mike Zarembski, Senior Commodity Analyst


April 30, 2013

WTI Playing Catch Up

Tuesday, April 30, 2013

Crude Oil prices have benefited from a more optimistic outlook on the US and Eurozone economies from traders. After rising sharply in recent sessions, some traders may be a bit more guarded ahead of this afternoon's API and tomorrow's EIA data. Both reports are expected to show an increase in Crude Oil stockpiles in the US. The large inventory levels in the US have been the principle reason for the disconnect between WTI and other varieties of Crude Oil. Some traders are banking on destocking by year's end, as new takeaway avenues like the Gulf Coast Pipeline Project are completed. This could result in the WTI/Brent spread narrowing to less than $5 by year's end.

Fundamentals

Crude Oil futures have rallied almost $8 from the recent low close on the 17th, as traders appear to have been in "risk on" mode. Traders seem to be undeterred by weaker GDP data and large supplies. Tomorrow's EIA data is expected to show a Crude Oil inventory increase of 1.1 million barrels. If accurate, the 389.7 million barrel inventory figure would be the largest since July of 1990. Currently, lackluster demand suggests that it could take some time to work down inventory levels. One of the reasons for the stockpile of Crude Oil in Cushing, OK is the lack of takeaway capacity from the hub. Many market observers are expecting new pipelines across the Midwest to help work down excess stocks of petroleum from storage facilities by year's end. This suggests that the rise in WTI may be less about Crude Oil optimism and more about WTI catching up to Brent prices. The spread between the two grades closed at 9.31 yesterday, the lowest level since June 29th of last year. The spread can be seen as having stout technical support near the 7.50 mark. Some traders may wish to keep an eye on how the spread behaves if/when that level is tested.

Technical Notes

Turning to the chart, we see the June Crude Oil contract coming up on resistance at the 95.00 level. If broken, the next upside test for the market would come at 97.50. Despite the recent rally, which saw prices climb almost $8 in roughly a week and a half, the RSI is currently at a neutral 50 reading. The recent closes above the 20-day moving average suggest that a near-term low may be in place. This has created negative divergence between price and RSI, hinting that the rally could be running out of steam.

Rob Kurzatkowski, Senior Commodity Analyst