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April 2014 Archives

April 1, 2014

April Fool's for Crude Oil?

Monday, April 1, 2014

Crude Oil futures have been grinding higher since the middle of the month and have been trading above the $100 level over several sessions. Last week, the EIA reported that Cushing, OK inventory levels had fallen the prior week. US consumer confidence was also stronger than expected, lifting hopes that demand could increase. The fact that Europe and the US opted not to levy new sanctions against Russia could be seen as supportive for Oil prices. The standoff between Russia and the Ukraine has sent Crude Oil prices on a roller coaster ride. At first, the crisis threatened to destabilize the region, sending prices screaming higher. Now, the focus is on sanctions and their potential detrimental effect on the Crude Oil market.

Fundamentals

The API set a positive tone early last week after the industry group indicated that gasoline inventories had decreased by 1.2 million barrels. EIA data offered follow through by reporting that Cushing inventories levels had fallen for the eighth straight week to the lowest level in two years. The EIA had also reported that gasoline inventories had fallen by 1.6 million barrels for the week, although demand is not as robust. Total motor gasoline supplied, which is the group's measure of demand, averaged 8.3 million barrels a day for the past four weeks, which is down 1.5% from the same period a year ago. Geopolitically, despite trying to talk down the situation and playing down their ambitions, Russia has been amassing military forces along its border with the Ukraine. This has added a fear premium to the prices of Crude Oil.

Technical Notes

Turning to the chart, we see the May Crude Oil contract grinding higher over the past few weeks. Prices did jump a bit after crossing the 100 level, indicating some shorts may have been squeezed out of the market. Friday and yesterday's close both hinted at a possible near-term reversal. It is interesting to note that the 20-day momentum is negatively diverging from the RSI indicator and price. This suggests the market may be set to reverse.

Rob Kurzatkowski, Senior Commodity Analyst

April 2, 2014

Soybean Prices Rally Despite "Bearish" USDA Report

Wednesday, April 2, 2014

The following is a summary of Monday's USDA reports:

Prospective Plantings:

Corn: 91.7 million acres vs. estimate of 92.9 million acres
Soybeans: 81.5 million acres vs. estimate of 81.37 million acres
All Wheat: 55.8 million acres vs. estimate of 56.01 million acres

Grain Stocks (as of March 1st):
Corn: 7.006 billion bushels vs. 5.4 billion last year
Soybeans: 992 million bushels vs. 998 million last year
Wheat: 1.005 billion bushels vs. 1.235 billion last year

Fundamentals

Despite slightly higher estimates for both inventories and planted acreage, Soybean prices continue to move higher as strong export demand remains the focus of the trade. Monday's USDA quarterly grain stocks and prospective plantings report was initially viewed as neutral to bearish for Soybeans according to analysts. Old-crop Soybean inventories as of March 1st totaled 992 million bushels, which was slightly higher than pre-report estimates, but below the 998 million bushels in storage this time last year. U.S. producers are expected to plant record acreage to Soybeans this year, with the USDA estimating that nearly 81.5 million acres of Soybeans will be planted vs. 76.5 million acres last year. However, U.S. Soybean exports continue to run stronger than expected, especially with the South American harvest under way. It is surprising that the U.S. has not lost much business to Brazil and Argentina as of yet and this continued demand for old-crop soybeans is being reflected in a strengthening of the old-crop/new-crop spreads.

Technical Notes

Looking at the daily chart for May Soybeans, we notice prices breaking out to the upside following nearly a month of price consolidation between 1365.00 and 1460.00. Trading volume was muted during the consolidation phase, but failed to increase in a meaningful way during the recent upside price breakout. The 14-day RSI has moved back into overbought territory with a current reading of 71.63. More importantly, we also have a bearish divergence forming in the RSI, which combined with low to moderate trading volume could be harbinger of an upcoming downward price correction. The next resistance level is seen at 1500.00 with support seen at the March 12th low of 1365.50.

Mike Zarembski, Senior Commodity Analyst


April 3, 2014

Mild Weather Puts a Damper on Natural Gas

Thursday, April 3, 2014

With the end of cold weather approaching in the US, the price of Natural Gas futures has fallen. Weather conditions are expected to be at or above average on the East Coast and the South through April 5th. Several cities in the Northeast may hit the 60 degree mark in coming days, suggesting more mild weather may be on the way. After nearly doubling in value over a three and a half month period, prices have given back much of the gains in short order.

Fundamentals

Natural Gas inventory levels totaled 896 billion cubic feet in the week ended March 31. This marks the lowest level of US stockpiles since 2003, according to the EIA. Natural Gas supplies were at record deficits of 50.8% compared to the five-year average. Inventory levels are expected to remain at low levels and below average through October, despite record production. Natural Gas production is expected to rise by 2.5% to 71.96 billion cubic feet a day in 2014, which would mark the ninth consecutive year of increases. Even with production ramping up another year, the tight inventory levels could suggest that panic buying is a possibility if weather shifts. All has been quiet in Russia over recent days. The quiet has sucked some of the fear premium out of energy prices. Like the weather, hostile actions by Russia could trigger panic buying.

Technical Notes

Turning to the chart, we see the May Natural Gas contract testing the 4.25 support level. Failure to hold here could result in the price of Natural Gas falling back to the mid-3.00's. May Natural Gas prices have retraced beyond the 61.8% Fibonacci retracement level. Prices are trading below the 100-day moving average. Several more closes below the average could be seen as bearish.

Rob Kurzatkowski, Senior Commodity Analyst


April 4, 2014

S&P 500 Remains Near Record Highs Ahead of Payrolls Report

Friday, April 4, 2014

Prior to the release of this morning's non-farm payrolls and unemployment data for March, traders received some mixed data on the economic front. Early on Thursday, the Labor Department reported that the number of Americans filing for unemployment benefits rose by 16,000 last week to a seasonally adjusted 326,000. This was slightly above estimates and may be a signal that a rebound in hiring due to improved weather conditions is not yet occurring. However, the ISM non-manufacturing Index rebounded in March, with the purchasing Manager Index rising to 53.1, vs. 51.6 in February. More importantly, the employment index rose above 50 to 53.6 in March, after a sharp decline to 47.5 in February.

Fundamentals

Financial traders are once again gearing-up for the always highly anticipated release of the non-farm payrolls and unemployment data for the previous month. The March figures, which will be released at 7:30 AM Chicago time, are expected to show employment rose by 200,000 jobs in March, up from 175,000 jobs created in February. Private sector employment is once again behind job creation, with the ADP National Employment report showing that 191,000 private sector jobs were added in March. This is up from February's upwardly revised 178,000 jobs created according to ADP data. Weather is expected to have played a factor in hiring last month, as brutal winter weather in January and February may have held back hiring, especially in the construction sector. The unemployment rate is expected to tick lower by 0.1% to 6.6%. E-mini S&P traders will note that the index rallied to new all-time highs just prior to the payroll report's release, but trading volume has been rather lackluster the past few sessions. This may signal that weak bears are covering short positions prior to the report, with the fear of a much better than expected headline employment number. Equity bulls, however, seem to fear adding to existing long positions with the employment report looming, so we may see some heavier than normal trading volume today as market participants re-enter their positions once the jobs data has been released.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we note that trading volume has been rather light during the recent move towards new-all time highs, which may become disconcerting to momentum-based system traders. Prices have vacillated on both sides of the 20-day moving average for the past 3 weeks, with little excitement by traders as new highs are made. The 14-day RSI remains strong and well below overbought levels, with a current reading of 60.25. Longer-term, it may take a close below the 200-day moving average to truly signal a downside price correction is in place, but that would currently require a 130-point drop in the S& P Index, which does not appear likely in the coming days. Resistance is seen at 1900.00, with support found at 1830.50.

Mike Zarembski, Senior Commodity Analyst


April 7, 2014

10-Year Notes Rise on "Dull" Jobs Report

Monday, April 7, 2014

The U.S. was not the only nation to report its employment data on Friday. Our neighbor to the north, Canada, reported better than expected gains in employment last month, as 42,900 jobs were created in March. In contrast to the U.S., the employment gains were primarily in the public sector, and full time jobs led the advance with just over 30,000 jobs created. The unemployment rate fell to 6.9%, vs. expectations of 7.0%. The positive employment report sent the Canadian Dollar soaring vs. the U.S. Dollar, rising to its highest levels in nearly 6 weeks.

Fundamentals

U.S. employment rose in March, but failed to meet the lofty expectations of traders and analysts. The Labor Department reported that 192,000 jobs were added last month, which was just shy of the 200,000 plus jobs expected. There was some good news on the monthly revisions front, as the payroll figures for January and February were raised by a combined 37,000 jobs. All of the new jobs came from the private sector, as public sector employment continues to struggle. The unemployment rate remained steady at 6.7%. Overall, the market reaction to the employment report was positive for both equities and bonds, however a late morning sell-off in the stock indices took that sector into the red on profit-taking selling after the S&P 500 made new all-time highs. Analysts believe that Friday's employment data will do little to sway the Federal Reserve from its present course of tapering its bond purchases. In addition, with few signs of inflationary wage pressures occurring, the Fed may also be in no hurry to ponder a short-term interest rate increase, at least not until the pace of employment growth returns to more "normal" levels.

Technical Notes

Looking at the daily chart for 10-year note yields, we notice what may be a head-and-shoulders pattern, which if true, could signal that yields are set to potentially decline. Yields are currently holding right at the 200-day moving average, but a weekly close below this support level could signal further downside potential. The next support level is seen at 2.65%, with resistance found at 2.82%.

Mike Zarembski, Senior Commodity Analyst


April 8, 2014

China, Libya Sink Oil Prices to Start Week

Tuesday, April 8, 2014

Crude Oil futures started the week on a negative note, giving up 70 cents in yesterday's trading session. It was a turbulent trading session after pro-Russian protestors seized control of several state buildings in several eastern Ukrainian cities. After a lull in activity, the events sparked fears that Moscow is trying to "dismember" the Ukraine from within, in the words of Ukrainian officials. Fears of a Crimea-like situation have added a bit of fear premium back into prices.

Fundamentals

The worrisome events in the Ukraine helped boost prices during the trading session. Crude Oil prices had actually gapped lower on Sunday evening amid concerns over the Chinese economy. The World Bank had trimmed its growth forecast for China and other East Asian countries. Across the East Asian and Pacific (EAP) region, growth forecasts have been trimmed to 7.1 percent in 2014, 2015 and 2016, down from the previous forecast of 7.2 percent. The World Bank cited capital outflows and strains placed on EAP countries from slow recoveries by developed nations as reasons for the downward revision. It looks as though some Libyan Oil will be making its way back into the supply line. Rebels have given up the Hariga and Zueitina Oil terminals and will give up two additional ports in their control in two to four weeks. Hariga and Zueitina can handle 110,000 and 70,000 barrels a day in shipments, respectively. The other two terminals, in El Sider and Ras Lunaf, can handle 340,000 and 220,000 barrels a day, respectively. El Sider is the nation's largest port. This can be seen as a bearish development for Oil prices in the near-term. Traders, however, will likely also be paying close attention to Cushing, OK stockpiles in Wednesday's EIA report. If the destocking of Cushing continues, it may offset the fresh Libyan supplies of petroleum.

Technical Notes

Turning to the chart, we see the May Crude Oil contract failing to test the March 28 relative high before falling back yesterday. Thus far, Oil prices have held above the uptrend lines. Failure to hold these trendlines may result in heavier near-term selling pressure. Momentum remains below the zero line and is flatter than both prices and the RSI indicator, hinting as possible near-term weakness. Prices have not been able to post more than two consecutive closes above the 100- day moving average.

Rob Kurzatkowski, Senior Commodity Analyst


April 9, 2014

Cattle Futures Weaken as Beef Prices Tumble

Wednesday, April 9, 2014

Large speculators have been adding to a record net-long position in Live Cattle futures just prior to the recent sell-off. The most recent Commitment of Traders report shows non-commercial traders (normally large speculators and commodity funds) were holding a net-long position of 156,812 contracts, up nearly 1,000 contracts for the week ending April 1st. This record long position increases the potential for a sharp price correction on bearish news, especially if large-scale selling occurs as speculators liquidate positions.

Fundamentals

The bull market in Live Cattle futures has run into some headwinds lately, as record high prices for beef have finally seen some backlash from wholesalers. Meat packer profit margins have been cut due to high prices for cash Cattle, which have slowed demand for market ready Cattle from end-users. Retail consumers are also starting to balk at paying high prices for beef, which in turn has forced wholesale beef demand lower. Unseasonably cool spring weather in parts of the Midwest and East Coast has also played a factor in weak beef demand, as the spring barbeque season has been delayed. Traders still bullish on Live Cattle will note the wide discount of summer month futures to cash market prices, which could spark a rally in deferred month contracts should wholesale beef prices begin to stabilize. However, the potential for an increased supply of market ready Cattle to enter the market later this spring and into early summer could encourage buyers to hold off on purchases, awaiting lower cash prices in the coming weeks.
Technical Notes

Looking at the daily chart for June Live Cattle, we notice prices have had the most significant move below the 20-day moving average since November of 2013, as the April 4th sell-off took out a key support level. However, there are two major uptrend lines that have yet to be tested, so calling an end to this historic bull market may be premature. The 14-day RSI has turned weak, with a current reading of 43.97. 131.650 looks to be the next support level for June Live Cattle, with resistance seen at 137.550.

Mike Zarembski, Senior Commodity Analyst


April 10, 2014

FOMC Backtracks on Rate Outlook, Gold Rallies

Thursday, April 10, 2014

Gold futures had a late day surge after the FOMC had released the minutes of their last meeting. The minutes of the Federal Reserve's March meeting suggested that several policy makers may have exaggerated the pace of the interest rate tightening. According to the minutes, "several participants noted that the increase in median projection overstated the shift in the projections." In the near term, this can certainly be seen as positive. However, over the longer term, a murky economic outlook suggests growth could be slower, thus cooling demand for inflationary demand for the metal. Yet, the economic outlook is not dire enough to trigger defensive buying.

Fundamentals

While there is no safe haven buying based on economic fear, the situation in the Ukraine remains supportive of Gold prices. There have been worries over of the fact that economic indicators been somewhat disappointing of late. Some banks have been chalking up some of the skittishness in economic reports to the cold weather. The backtracking by the Fed with regard to future interest rate policy may lead to more optimism. Many of the bearish bets out there have been based on the Fed raising interest rates prematurely. Today's acknowledgement by the Fed itself that raising interest rates prior to the economy getting back on its feet without the need for the interest rate crutch. The US Dollar Index traded down to the lowest level since mid-March and threatens to break through near-term support around the 79.50 mark. A downside breakout in the Dollar Index could energize the bull camp.

Technical Notes

Turning to the chart, we see the August Gold contract creeping above the 1300 level. However prices did fall short of the 20- and 50-day moving averages. Also, while yesterday's candlestick is not a textbook spinning top, it could be interpreted as a possible near-term reversal signal favoring the bear camp. The recent rise in Gold price can be at least partially attributed to oversold technical conditions. The RSI has now rebounded from oversold levels. The momentum indicator has continued to move lower, despite the rebound in prices, which may be interpreted as being possibly bearish.

Rob Kurzatkowski, Senior Commodity Analyst


April 11, 2014

Will Palladium Shine for Precious Metals Bulls?

Friday, April 11, 2014

Large speculators are slowly accumulating a net-long position in Palladium futures, according to the Commitment of Traders report. Non-commercial traders, mainly large speculators and commodity funds, added 70 new net-long positions during the week ending April 1st. This brings the overall net-long position to 23,309 contracts, which is a large position for this relatively thinly traded market, but the current size of the position still leaves room for the further accumulation of long positions before the position becomes burdensome. Commercial hedgers are on the other side of the trade, with a net-short position of 25,627 contracts.

Fundamentals

Although Gold has lost some of its luster for precious metal bulls, there appears to be some renewed interest in Gold's lesser known cousin Palladium. Front month June Palladium has rallied nearly $50 per ounce during the past 4 weeks, as both supply and demand fundamentals have turned bullish. On the supply side, a strike by South African miners has curtailed palladium production by over 100,000 ounces so far this year. South Africa is the world's second largest Palladium producer, accounting for over a third of global production. In addition to supply issues from South Africa, precious metals traders are considering recent political events in Russia, which is the world's largest Palladium producer. Here traders fear that potential sanctions against Russia for their involvement in Ukraine and eventual takeover of Crimea could curtail Russian Palladium sales in the coming months. Analysts think that Russian Government Palladium stockpiles are already at very low levels, which would have limited Palladium sales into the market even before any potential sanctions are announced.

On the demand side of the equation, analysts point to the continued increase in auto demand in China, and the growing need to help contain the nation's pollution issues should help to increase the demand for Palladium, which is an important component in catalytic convertors. In fact, over 70% of the demand for Palladium is for use in pollution controls of gasoline powered motor vehicles. Unlike Gold, which made its all-time highs less than 3 years ago, Palladium prices peaked back in 2001, when export disruptions out of Russia, due to mostly political reasons, sent prices above $1,000 per ounce. Déjà vu anyone?

Technical Notes

Looking at the weekly continuation chart for Palladium futures, we notice what was once a rather quiet market suddenly became alive back in 1998, which ushered in a rather volatile trading pattern for the past 16 years. The run-up to the peak in prices back in 2001 did not last long, as the market quickly retreated back to "historic" price levels in about 2 year's time. Prices appear poised to break out from the recent consolidation phase, although there is still some upside resistance at the 2011 highs. Near-term resistance is seen at the recent high of 802.45, with support found at the March 20th "spike" low of 746.30.

Mike Zarembski, Senior Commodity Analyst


April 14, 2014

Bulls Starting to Get Juiced Over O.J. Futures

Monday, April 14, 2014

Both large and small speculators have become bullish on O.J. futures according to the Commitment of Traders (COT) report. The most recent COT report shows non-commercial and non-reportable traders holding a net- long position totaling 7,560 contracts as of April 1st. This is prior to the recent upside price breakout that occurred last week. Commercial traders are net-short O.J and it would not be a surprise to see additional hedge selling occur should the market begin to approach the $2 price level.

Fundamentals

While traders are focusing on the tumultuous activity in the equity markets of late, a potentially robust bull market appears to be quietly forming in a market that is not normally on the radar screens of most market participants--Frozen Concentrate Orange Juice (FCOJ). Front month futures are now trading at their highest levels in nearly 2 years after the USDA once again lowered their estimate for the size of the Florida orange crop this season. The USDA this past Wednesday estimated the Florida Orange crop at 110 million 90-pound boxes. This compares to a crop of 133.6 million boxes last season. If the USDA estimate proves accurate, this will be the lowest orange harvest out of Florida in nearly 30 years! Florida's citrus groves have been plagued by an outbreak of "Citrus Greening" disease which causes affected trees to drop their fruit before maturity. In addition, there are still some concerns by analysts that dry weather will also curtail production out of Brazil, the world's largest orange producing nation. Lower Orange production should continue to force retail Orange Juice prices higher, but in return may trigger a continued reduction of consumer demand for this popular breakfast drink. Retail sales of O.J. fell by over 5% in March vs. year ago levels as consumers balk at paying high O.J prices at the grocery store and have a slew of alternate options to meet their breakfast beverage needs. This lack of retail demand may help to dampen any extreme price moves as end-users may eventually begin to balk at chasing the market higher should prices approach the $2 level.

Technical Notes

Looking at the weekly continuation chart for O.J. futures, we note that historically, O.J. prices have been unable to sustain price rallies above the $2 per pound price level, a feat that has only occurred 5-times in the past 40 year. Although the current bull market is still well shy of historic price levels, we should note a rather strong price base has formed from which prices have broken out to the upside. Trading volume has waned starting in 2008 due mainly to a lack of large speculative interest. Near-term resistance for the front-month May contract is seen at 170.00, with support found near the 135.00 price level.

Mike Zarembski, Senior Commodity Analyst


April 15, 2014

Web 2.0 Coming to a Head?

Tuesday, April 15, 2014

Technology stocks have faced selling pressure in the recent weeks, as market sentiment for the sector seems to have shifted. NASDAQ stocks have outperformed the broad market and many traders believe the tech sector may be long overdue for a significant correction. Web 2.0 companies, such as Twitter, Facebook and Netflix, are priced extremely high. Traders are concerned that the valuations of many of these companies may be out of touch with reality, similar to the tech bubble that burst in 2000. There are many similarities between then and now, including an oversaturation of companies that offer almost identical products. This redundancy has investors concerned about the viability of some companies over the long haul.

Fundamentals

Tech has weighed down the overall market for over a month now, but it is not the only negative force impacting the market. The standoff between Russia and the Ukraine has also cast a cloud over equities. Traders are concerned that a prolonged standoff may result in further economic sanctions against Russia. Threats that Russia could cut off natural gas supplies to Europe through the Ukraine are also worrisome. March retail sales were better than expected at 1.1 %, up from 0.7 % in February. The rise in retail sales is encouraging for reasons other than the obvious. There is been much chatter than the less than stellar economic numbers over recent months can be attributed to the weather. Traders are hopeful that the jump in March retails sales could possibly be a harbinger of better economic data to come.

Technical Notes

Turning to the chart, we see the March e-mini NASDAQ contract coming down to test relative lows at 3430. This relative low could be seen as support and failure to hold the average could result in heavier selling pressure. Prices are now trading below the 20-, 50- and 100-day moving averages, which could be seen as bearish.

Rob Kurzatkowski, Senior Commodity Analyst

April 16, 2014

Wheat Rallies on Ukraine Conflict Fears

Wednesday, April 16, 2014

The Winter Wheat crop has run into some difficulty due to dry weather, especially in the Southern Plains. The western portions of Kansas and Oklahoma, along with Northern Texas have been mired in a prolonged drought, with many counties seeing little to no precipitation for several months. Weekly crop condition ratings continue to fall, with only 34% of the crop rated good to excellent as of April 13th. A whopping 32% of the crop is now rated poor to very poor, compared to only 8% of the crop prior to winter dormancy.

Fundamentals

U.S. Wheat futures posted strong gains to start the week, as many traders fear that the political turmoil that has arisen in Ukraine will begin to affect Wheat sales from this leading grain exporting nation. Over the weekend, pro-Russian protesters clashed with Ukrainian troops in parts of Eastern Ukraine, sparking fears of further intervention by Russia into the nation's affairs. Ukrainian grain producers are feeling the effects of this rising political tension, as a weakening currency and difficulty in obtaining credit is proving problematic in obtaining much needed supplies to begin this season's plantings. While grain sales from the Black Sea region are continuing apace, analysts fear that grain sales may be disrupted in the future should Russian intervention in the nation's affairs escalate. Grain traders are beginning to believe that the U.S. Wheat exports could increase in the coming months should sales from the Black Sea region be curtailed. However, before one becomes too bullish on U.S. Wheat prices, we should note that global wheat production is expected to increase this coming season, despite potential production concerns from Ukraine. Increased Wheat production is expected out of Europe, Canada, and India for the 2014-15 season which would provide some serious competition for the U.S. in the global grain export market.

Technical Notes

Looking at the daily chart for new-crop July K.C. Wheat futures, we notice prices attempting to break out to the upside after a nearly 3-week price correction of the current uptrend which begin back in early February of this year. The recent price correction was a near-perfect 38.2% Fibonacci retracement of this uptrend from the February low to the recent highs made in late March. After briefly tumbling below 50, the 14-day RSI has turned positive, with a current reading of 55.68. Resistance is found at the 20-day moving average, currently near the 759.25 price level, with support found at the recent low of 723.25.

Mike Zarembski, Senior Commodity Analyst


April 17, 2014

Risk On for Oil

Thursday, April 17 2014

Crude Oil futures continue to trade above the $100 mark after supportive statements from the Federal Reserve and a continued heightened state of alert in the Ukraine region. In her first speech in front of Wall Street since becoming the Fed Chairwoman, Janet Yellen emphasized her backing of a recovery. This follows the extremely dovish FOMC minutes, where the Fed essentially backtracked on their initial interest rate outlook/timetable, suggesting rates could stay low for as long as they need to in order to facilitate a recovery. The heightened state of alert in Ukraine is an ongoing concern for energy traders. Russia had already threatened Europe by stating that supplies of Natural Gas could be cut off if Ukraine does not pay its bill. There are similar concerns with regard to petroleum, which has both consumers and traders on edge. The humiliation of Ukrainian forces by pro-Russian protesters, who managed to seize tanks and flew Russian flags from the armor, will do little to help the situation.

Fundamentals

In addition to the supportive statements with regard to Fed stimulus, Fed Chairwoman Yellen also reiterated sentiment that the slowdown in economic metrics over the past several months could be attributed to the extremely cold weather. She had also emphasized that inflation remains tame, which would allow the Federal Reserve to continue with its expansionary policies. This also set a positive economic tone for the WTI Crude Oil contract. The EIA reported that Crude Oil supplies increased by more than 10 million barrels this past week, which is the largest weekly increased in almost 13 years. Despite the huge jump in inventories, the destocking of Cushing continues. The NYMEX delivery point has shed another 800,000 barrels this week. The EIA reports were even more dramatic than the API, which reported a 7.6 million barrel build and a drawdown of 600,000 barrels from Cushing. Overall, the reports could be seen as supportive for Oil prices, as the huge build could be attributed to the backlog of shipments due to the temporary closure of the Houston Ship Channel in late March.

Technical Notes

Turning to the chart, we see the June Crude Oil contract trading near resistance at the 104.25 mark. Failure to take out this level, as well as relative highs at 104.92 can be seen as somewhat negative in the near-term. The market needs to take these levels out to maintain upward momentum. The RSI is still showing near overbought levels, which may drag on prices going into a long weekend.

Rob Kurzatkowski, Senior Commodity Analyst


April 21, 2014

Coffee Bulls Struggle as Double-Top Forms on Daily Charts

Monday, April 21, 2014

Large and small speculators remain net-long Coffee futures, but not in any meaningful way. The most recent Commitment of Traders report shows non-commercial and non-reportable traders holding a combined net-long position totaling just over 45,000 contracts for the week ending April 8th. This relatively small position is surprising given the strength of the price rise, as well as fundamentals that appear bullish for some time. Some of the lack of participation may be tied to the upcoming harvest in Brazil, as well as a double-top technical formation that may be keeping more timid Coffee bulls on the sidelines until an upside breakout negates the bearish technical pattern. We note that Commercial traders have not been aggressive sellers in the futures market, as uncertainty as to the size of the Brazilian crop makes producers hesitant to lock-in prices should production totals fall short of estimates.

Fundamentals

Coffee futures have been an exciting bullish story so far in 2014, as the market turned from a potential surplus and prices hovering near multi-year lows to a raging bull market and a supply deficit this year. The catalyst for this turnaround was Mother Nature and her wrath towards the Coffee growing regions of Brazil. Drought conditions plagued the developing Coffee crop this season, causing irreversible damage early in the development stage. Analysts are now lowering their estimates for the size of the Brazilian crop from 60 million bags earlier in the season to as low as 45 million bags in the more pessimistic outlooks. However, with prices rallying over 90% since the start of the year, traders may become hesitant to become aggressively bullish now that prices are hovering near $2 per pound. The first real estimate as to the size of the Brazilian Coffee crop will not occur until the harvest begins in May.

Technical Notes

Looking at the daily chart for July Coffee, we notice what appears to be a double-top formation which gained some credence after the sharp price decline seen on Tuesday. There also appears to be a bearish divergence forming in the 14-day RSI. In order to confirm this bearish technical pattern we would need to see prices close below the 20-day moving average (currently near the 187.20 price level), and more importantly, see prices close on a weekly basis below recent lows at 167.95. A weekly close above 211.50 would invalidate the technical formation.

Mike Zarembski, Senior Commodity Analyst


April 23, 2014

Sugar Prices Steady as China Buys

Wednesday, April 23, 2014

One potential wild card for the Sugar market this year is the formation of an El Nino weather event. This weather phenomenon is caused by a prolonged warming of water temperatures in the equatorial Pacific Ocean. In the past, particularly strong El Nino's have generated weather patterns that tend to favor dry conditions over Australia as well as Southeast Asia all the way to India. This lack of moisture can affect crop production including Sugar cane production, by reducing yields. Brazil also tends to feel the effects of El Nino, with an increased probability of above normal temperatures in the prime agricultural regions of this key Sugar producing nation.

Fundamentals

World raw Sugar futures prices rebounded from recent lows as larger than expected Chinese imports spurred buying interest. Lead-month July Sugar rallied from 2-week lows after Chinese government officials reported the country's Sugar imports doubled last month from a year ago levels. China imported just over 411,000 metric tons of Sugar in March as the world's most populous nation continues to stockpile certain commodities for state-owned reserves. While the Chinese purchases were viewed as supportive for prices in the near-term, the longer term trend appears to favor bearish traders as the Sugar cane harvest in Brazil is about to begin. Brazil's agricultural bureau, Conab, estimated the 2014-15 cane harvest at 671.7 million metric tons. If true, this would be record output for the largest Sugar cane growing nation. The potential for record production is even more remarkable as an early season drought affected parts of the major cane growing regions. Weather forecasts calling for moderate to heavy rainfall in the Brazilian cane growing regions may force delays to the harvest, but unless showers continue for an extended period of time, it may be difficult for any price rally to be sustained as producer hedge selling could be substantial if prices move towards recent highs near 18.50.

Technical Notes

Looking at the daily chart for July Sugar, we notice prices mired in a consolidation zone the past several weeks, which followed a nearly 3-cent per pound rally off of multi-year lows. Prices are currently" wedged" between the 20 and 200-day moving averages and the 14-day RSI is reading a very neutral 50.36. Chart support is found at the February 21st low of 16.93, with resistance found at the March 6th high of 18.57.

Mike Zarembski, Senior Commodity Analyst


April 24, 2014

Gold Teetering Above Support

Thursday, April 24, 2014

Gold futures got a brief reprieve from the recent selling pressure after a report showed a decrease in US home sales. This triggered concerns that the economy still has more fundamental issues outside of just a bad winter. While economic indicators may be softer, the ongoing tension in Ukraine may continue to underpin the Gold market. Ukrainian forces resumed operations to remove pro-Russian militants from eastern cities. The US is also sending 600 troops to Poland and the Baltic states to participate in military exercises, which will do little to lessen tension in the region. Technically, Gold is nearing a technical support level, which risks triggering heavier selling pressure if support is violated.

Fundamentals

Fundamentally, it appears that some of the liquidation in the precious metals market could be attributed to traders shifting assets to equities. US economic indicators have done little to instill confidence in traders that the economy is heading in the right direction. Chinese PMI showed four consecutive months of contraction, which is cause for concern. In addition to tension in Ukraine, recent statements from the Federal Reserve suggest that the bank will continue to keep the liquidity floodgates open. Holdings exchange traded funds rose by 1.8 metric tons yesterday. However, holdings did recently fall to the lowest level in three and a half years.

Technical Notes

Turning to the chart, we see the August Gold chart forming a triangle pattern on the daily chart. The lower side of the triangle pattern coincides with support. If prices break through support near the 1278.00 level, price could test the 1190 level. Near-term support also coincides with the 100 day moving average, suggesting a downside breakout could be seen as especially bearish.

Rob Kurzatkowski, Senior Commodity Analyst


April 25, 2014

Oil Bull Lives Despite Record U.S. Inventories

Friday, April 25, 2014

Those traders who follow the Oil markets closely will notice that the price premium for Brent Crude Oil has increased over WTI, as geopolitical fears have overshadowed the drawdown in inventories in Cushing, Oklahoma, which is the delivery point for the NYMEX WTI futures. Inventories at Cushing fell by 788,000 barrels last week to stand at just over 26 million barrels, which is the lowest inventory totals at Cushing in 4 ½ years. Inventory drawdowns at Cushing would normally be a bullish fundamental for WTI Crude vs. Brent, but this is currently being overshadowed by concerns that possible sanctions against Russia could hamper the nation's Oil exports. This fare has led to a nearly $3.50 increase in the front-month Brent premium vs. WTI Crude in the past 2 weeks.

Fundamentals

Crude Oil prices remain stubbornly above the $100 per barrel price level, despite government data showing record inventories. The most recent release of the weekly Energy Information Administration (EIA) energy stocks report showed U.S. Oil inventories rose by 3.5 million barrels last week to stand at a record 397.659 million barrels as of April 18th. Inventories are over 9 million barrels higher than last year, and a whopping 26.2 million barrels above the 5-year average. The inventory gains came despite lower Oil imports and higher refining utilization rates last week. While U.S. Oil inventories are at more than ample levels, one cannot say the same about Oil products. U.S. Gasoline inventories fell by 274,000 barrels last week according to the EIA, which put inventory totals at just over 210 million barrels. Gasoline stocks are running nearly 8 million barrels below last year's totals and just over 14 million barrels below the 5-year average. The saving grace for U.S. motorists is that current gasoline demand is still running below last year's levels. The situation for middle distillates such as Heating Oil and diesel is even tighter than that of Gasoline, as last week's 2.765 million barrel decline in inventories has U.S. stocks running over 24 million barrels below the 5-year average, while demand is running above last year. Given the political concerns regarding Russia and its involvement in Ukraine and the possibility of both political and economic sanctions against one of the world's largest Oil producing nations, it will be difficult for the Crude Oil prices to shed the risk premium that appears in place, as market participants will be hesitant to become aggressively short the Oil market despite what appears to be ample supplies in the market.

Technical Notes

Looking at the daily chart for June Crude Oil, we notice prices have been in an uptrend since January, with only a minor price correction seen in early March. Although prices are holding above the 200-day moving average (MA), Tuesday's price decline has caused the market to pull back towards the short-term 20-day MA, where it appears some short-term buying interest has been found. The 14-day RSI remains in neutral territory, with a current reading of 53.94. Near-term support is found at 101.20, with resistance seen at 104.10.

Mike Zarembski, Senior Commodity Analyst


April 28, 2014

Euro Calm Despite Heightening Tensions with Russia

Monday, April 28, 2014

The so called "safe-haven" currencies, such as the Swiss Franc and the Japanese Yen, have yet to reflect any flight to safety buying as a result of the ongoing Russian crisis. Gains in the Swiss Franc may be limited due to the "ceiling" in place by the Swiss National Bank (SNB), where the SNB is willing to sell Francs in order to prevent the currency from strengthening. Additional interest in buying the Yen may be muted by Bank of Japan policies to weaken the Yen to help promote inflation and pull the country from its decades-long deflationary spiral.

Fundamentals

"What me worry?" seems to be the mindset of Euro bulls, as the currency continues to show surprising strength despite increasing Russian tensions and "dovish" talk from the European Central Bank (ECB). ECB President Mario Draghi made comments last week that the continued strength in the Euro could force the central bank to implement further easing monetary policies, such as quantitative easing, in order to aid European economic recovery efforts. ECB governors also voiced their concerns that inflation targets are not being met, which could add further pressures for action by the central bank to help weaken the value of the Euro. Geopolitical concerns regarding Russia's aggression into Ukraine have not yet triggered a sell-off in the Euro despite some concerns, although remote, that Russia may consider halting shipments of Natural Gas to Europe should economic sanctions be put in place. European equity markets were lower on Friday, but overall remain in a bullish mode, which adds evidence to the belief that market participants do not yet fear any major economic fallout from the Russian crisis.

Technical Notes

Looking at the daily continuation chart for the Euro futures, we note the steady upward move since major lows were made back in July 2012. Front-month futures have been holding above the 200-day moving average since September 2013, which has kept bulls in charge for nearly 8 months. The 14-day RSI is neutral to slightly bullish, with a current reading of 54.37. Support is found at 1.3669, with resistance seen at 1.3967.

Mike Zarembski, Senior Commodity Analyst


April 29, 2014

Big Week for Bonds Ahead?

Tuesday April 29, 2014

Bond futures have found strength as a defensive play during in recent weeks, as the crisis in Ukraine drags on. Barring a major surprise from the Fed, the percolating tension between Ukraine and Russia could offer support for defensive instruments. Recent economic data has also been lackluster, which suggests that the FOMC could release a dovish policy statement. Whether or not traders buy into what the Fed is selling is another matter. Technically, the Bond market is approaching resistance near the 135 level. It remains to be seen if the market has enough momentum to push through resistance in light of looming cutbacks in asset purchases from the Fed.

Fundamentals

This is an event heavy week for the Bond market with the two-day FOMC meeting and non - farm payroll data. The Fed is expected to make further reductions to asset purchases coupled with a dovish policy statement. The central bank is expected to trim monthly purchases by $10 billion, which would mark the fourth convective monthly reduction. Asset purchases would be reduced to $45 billion a month and would mark the half way point in the Fed's plan to eliminate quantitative easing. The FOMC is also expected to reiterate its 2% interest rate target, as inflation has remained tame. The Bond market could also feel pressure from non-farm payrolls, which are expected to show positive gains.

Technical Notes

Turning to the chart, we see the June Bond contract testing and failing to break through the 135-00 level twice. This has resulted in a small M top, hinting at possible near-term weakness. Given the small size of the top, prices may test the mid-132's , which would put the Bond contract near the 100- and 200- day moving averages. The RSI indicator was showing overbought levels prior to testing 135-00, suggesting the choppy action over recent sessions could be attributed to overbought conditions.

Rob Kurzatkowski, Senior Commodity Analyst


April 30, 2014

Is Dr. Copper Starting to Turn Bullish?

Wednesday, April 30, 2014

One potential "wildcard" that could affect the direction of Copper prices in the coming months deals with the potential use of metal inventories by Chinese businesses as collateral for loans and financing. There are concerns that any government crackdown on business lending could see metal that was backing loans flood the market, which could potentially depress prices.

Fundamentals

The Copper market is said to have a Ph.D in Economics, at least by some in the metals trade, as its price movements have tended in the past to correspond to shifts in the direction of global economic activity. Recently, Copper prices have rallied off lows not seen since the summer of 2010, despite concerns that demand from China, the world's largest consumer of Copper, will slow. Data out of the world's most populist nation, shows declining rates of economic activity of late, primarily out of regions of the country that have a heavy industrial presence. This would normally indicate that demand for industrial commodities such as Copper and other base metals would decline. However, Copper inventories held in London Metal Exchange (LME) warehouses have been in a steady decline the past 30 days, and buying for China's state-owned reserves has increased as prices headed for multi-year lows. In the coming days, base metal trades will have a slew of data to ponder, including a report on Chinese manufacturing activity, the statement following this month's FOMC meeting, and of course the always anticipated U.S. Non-farm Payrolls report for April. It appears Dr. Copper is going to earn his degree this year!

Technical Notes

Looking at the daily chart for July Copper, we notice the upside breakout from the 6-week consolidation has not triggered any additional momentum buying as prices have retreated to the upper bounds of the consolidation pattern. Prices have remained above the 20-day moving average (MA), but remain 17-cents below the longer-term 200-day MA. The 14-day RSI has moved back into neutral territory, with a current reading of 51.75. This past Monday's high of 3.1390 looks to be the next resistance level for July Copper, with support found at the March 19th low of 2.9275.

Mike Zarembski, Senior Commodity Analyst