« November 2014 | Main | January 2015 »

December 2014 Archives

December 1, 2014

Oil Prices Plunge on OPEC Inaction

Monday, December 1, 2014

Gasoline futures prices fell sharply following the OPEC announcement, dropping below $2 per gallon for the first time since the fall of 2010. Gasoline prices also received some bearish news from this past week's EIA energy stocks report, with gasoline inventories rising by a larger than expected 1.825 million barrels, despite a small uptick in U.S. gasoline demand the past month.

Fundamentals

Oil importing nations received an early holiday gift, courtesy of the Organization of the Petroleum Exporting Countries, which is better known as OPEC, following a decision to leave current production quotas in place. The current quote at 30 million barrels per day is thought to be too high given current global demand, as well as to offset the increased production seen in the U.S., OPEC actions or I should say inaction in regards to curtailing production to help support falling Oil prices surprised some traders as futures prices plunging over 8% following the announcement. The decision to keep output unchanged was certainty not unanimous as members such as Venezuela and Iran were proposing production cuts of between 1 and 2 million barrels per day. However, Saudi Arabia, the largest oil producing nation in the cartel, was against any cuts in production and instead preferring to see oil prices fall in order to maintain market share. OPEC power to help steer global oil prices is being challenged by increased production by non OPEC members such as the U.S., as well as slack global demand, especially in Europe. Among the nations thought to really feel the pinch of Oil prices near $70 per barrel is Russia, whose governmental budgets are based on oil prices closer to $100 per barrel. With the next schedule meeting for OPEC not until June 5th, we may see 6 months or more of oil prices near current levels unless extraordinary actions are taken to reduce global oil output.

Technical Notes

Looking at the weekly continuation chart for RBOB Gasoline, we notice prices were already in a bear market phase prior to Thursday's steep selloff, as previous support near the 2.4400 price level gave way back in late September. No surprise that prices are now well below both the 20 and 200-day moving averages, and the 14-week RSI is now well into oversold territory with a current reading of 13.80. The next major support level is not seen until prices approach 1.5800, which is still nearly 30-cents below current front month futures price levels. Resistance is seen near 2.4400.

Mike Zarembski, Senior Commodity Analyst


December 2, 2014

Treading Water

Tuesday, December 2, 2014

Gold shrugged off the negative outside market developments to close sharply higher yesterday. In fact, it was the best one-day rally for Gold in more than a year. OPEC decided not to take action and trimmed production, which drove energy and metals markets lower, initially. The US Dollar Index also rallied to its highest level since 2009. Gold shrugged off these negative developments to post strong gains on positive physical demand from India as well as signs that value buyers could give prices a lift.

Fundamentals

Gold traders have been keeping a close eye on India during the wedding season, which is a key driver of jewelry demand. India is expected to import more than 100 tonnes of Gold in November, which would mark the third consecutive monthly imports in excess of 100 tonnes. Traders were pleasantly surprised by the lack of action from the Indian government with regard to import restrictions. Previously, the government had stepped in to limit imports in order to stabilize local prices. Switzerland announced that it plans to require the Swiss National Bank to hold 20% of its reserves in Gold within 5 years. This would mean the banks would have to purchase 1500 metric tonnes of the metal to meet current reserve requirements. While Indian and Swiss demands for Gold are certainly positive for Gold, whether or not the metal can sustain rallies could hinge on the direction of the US Dollar. If the greenback continues to make gains, it could be extremely difficult for Gold to maintain positive momentum.

Technicals

Turning to the chart, we see the February Gold contract closing above the 1200 level. If the Gold market is able to hold on to gains above this level, the market may be able to build some sustainable momentum. Prices have had multiple closes above the 20-day moving average, suggesting that a near-term low may be in place. The February contract did close above the 50-day moving average, but not in convincing fashion. If prices can hold the 50-day average, it could be a sign that the market is gaining some traction.

December 3, 2014

Can Dr. Copper Heal Thyself

Wednesday, December 3, 2014

The fundamentals for Copper in 2015 seem to favor the bears as the market is expected to be in surplus. It is estimated by analysts that the global Copper market will see a 500,000 ton surplus next year due to added supplies and a slow growth world economy. Demand from China, the world's largest user of commodities, is expected to slow as the world's most populous nation is expected to see slower economic growth in the coming months.

Fundamentals

It's been over 4 years since traders have seen Copper prices this low, as fears of slower global economic growth and a rally in the value of the U.S. Dollar have perpetuated a bearish trend in commodity prices including Copper. The "red" metal received a dose of bearish news as China's Manufacturing Purchasing Managers Index fell to 50.3 in November, which was the lowest reading in 8 months. While the current outlook for Copper prices appears to be negative, current price levels may force producers to begin to limit the expansion of Copper mines which should help to prevent the potential for overproduction in the coming years. This should help to place an eventual floor for Copper prices, but an eventual low may not be put into place for months in the future.

Technical Notes

Looking at the daily continuation chart for Copper futures, we notice a large descending triangle formation on the daily chart. This technical formation is considered a continuation pattern formed in a downtrend, where prices consolidate prior to a resumption of the major trend in place. Prices are currently holding above the major low of 2.7200 made back in June of 2010, but if this key support level fails to hold, there is not much in the way of support until the 2.4400 price level. The 14-day RSI is weak with a current reading of 36.84. Resistance is seen near the 2.9550 price level.

Mike Zarembski, Senior Commodity Analyst


December 5, 2014

Flattening Yield Curve Signaling Slowing Economic Growth?

Friday, December 5, 2014

Traders may need to scale back their expectations slightly for November job creation as the widely watched ADP National Employment Report showed that 208,000 private sector jobs were created. This was below the consensus estimate of 225,000 jobs. Small businesses created the bulk of new jobs last month, with a gain of 101,000 jobs according to ADP. The important manufacturing sector was responsible for 11,000 new jobs and the construction industry showed a solid increase of 17,000.

Fundamentals

While there are signs that the U.S. economy continues to improve, those analysts and traders who follow the interest rate markets are starting to see some indications that some headwinds are forthcoming. One clue is how the U.S. Treasury yield curve is performing. Market participants are seeing the yield curve, which is the interest rate difference between the 5-yr Notes and 30-yr Bonds, narrow to levels not seen since 2008 and most of us remember what happened to the global economy back then. A flattening of the yield curve could be an early signs of a slowing economy and in fact, recent data on wage inflation shows little to no growth in workers' wages, which could hurt consumer spending. Low inflation may also cause the Federal Reserve to further delay raising interest rates which would be bullish for U.S. interest rates. Traders will turn their focus to this morning's employment data, featuring the always highly anticipated Non-farm payrolls report and unemployment rate. The current forecast is for an employment gain of 230,000 new jobs in November, with the unemployment rate expected to hold steady at 5.8%. Astute traders will be analyzing the non-headline figures such as average hours worked, hourly earnings and the so called "U6" employment rate for further clues to how the employment picture actually appears to most workers.

Technical Notes

Looking at the weekly continuation chart for 5-yr Note futures, we notice that the uptrend line that has been drawn from the 2007 lows has been broken with prices now consolidating below this major trend-line, as well as hovering below the 200-week moving average. This shift in trend is likely due to the perception that the Federal Reserve will be raising rates some time in 2015. Shorter-term treasury maturities are more sensitive to changes in short-term interest rates, which is a key factor in the recent flattening of the yield curve. The recent consolidation pattern has allowed the formation of some fairly clear support and resistance levels. With support found at the consolidation pattern low of 117-21, with resistance seen at the consolidation high of 122-22.5.

Mike Zarembski, Senior Commodity Analyst


December 10, 2014

"Turnaround Tuesday" Troubles Trend-following Traders

Wednesday, December 10, 2014

A "risk-off" mentality has entered the psyche of traders of late, which has triggered some rather significant "corrections" in several key markets with bull trends in the U.S. Dollar and U.S. equities now showing some signs of weakness, despite a much better than expected employment reading in the November Non-farm payrolls report. In addition, the Crude Oil and Copper markets have rallied in the face of global data that would normally be deemed bearish for these commodities.

Fundamentals

Tuesday was a tough day for trend-following traders as many market prices ran counter to existing trends. The catalyst for this position covering was word that China was implementing rules to help tighten lending standards to curtail a troubling rise in borrowing by local governments and entities. While the ultimate goal of government officials is to help improve the status of Chinese municipal bond market in the short-term, these new policies will curtail the ability of local entities to borrow, which may weigh on spending to be used for infrastructure and place further headwinds on growth in the world's most populous nation. In addition, traders are once again turning their attention to Greece, where the nation's stock and bond markets fell sharply as Prime Minister Antonis Samaras called for early presidential elections which could lead to an anti-austerity party, Syriza, in power. So with signs of China slowing down spending and potential European turmoil, it is a bit ironic that commodities such as copper rallied sharply and the Euro extended gains against the U.S. Dollar, despite fundamentals that would support an opposite reaction. However, commodity funds have been heavily short both Copper and the Euro and the move towards a "risk off" mentality has thrown fundamentals to the curb for the near-future as positions are liquidated.

Technical Notes

Taking a look at the weekly continuation chart for Gold futures we notice the market in the midst of a 5-week upward correction as prices are now testing the 20-week moving average. The past 2-weeks have been particularly volatile for Gold, which could be a signal of a potential change in trend from multi year lows or a sign of position liquidation ahead of the year-end holiday season. What is nice about looking at weekly charts is that it takes out some of the "noise" that can be seen on shorter duration charts and allows one to focus on the overall trend of the market. 1346.80 is seen as the next significant resistance level for front-month Gold futures with support remaining at the 2014 low of 1130.40.

Mike Zarembski, Senior Commodity Analyst

December 11, 2014

"Why Should I Cut Production?"

Thursday, December 11, 2014

Oil futures are lower after Saudi Arabia questioned the perceived necessity to cut production. Saudi Arabian Oil Minister Ali Al-Naimi, when questioned by reporters if the kingdom would trim its production, quipped "Why should I cut production?" It is this attitude and Saudi Arabia's influence that have many believing that OPEC will not cut production anytime soon, to the dismay of some member states. Coupled with the the US continuing to add production, the supply glut in Crude Oil is likely not going away anytime soon.

Fundamentals

The collapse in Oil prices has put heavy economic strain on some OPEC member nations, who have budgeted. Venezuela has pleaded its case for a meeting ahead of the cartel's next scheduled summit on June 5th. Venezuela has stated that it does not believe in the free market and would like OPEC to be more proactive in supporting prices. The motivation for the Saudis not wanting to cut production is to harm the US shale Oil business and to curb further investment. Long-term, they view shale as a strong competitive threat. The Saudi economy has the luxury of being able to withstand the drop in Oil prices. OPEC has reduced its 2015 demand forecast to the lowest level in a decade. Demand for OPEC Oil is expected to drop to 28.92 million barrels per day in 2015, which is down 280,000 barrels per day from the cartel's previous forecast. This is 1 million barrels per day less than the cartel is currently producing.

Technical Notes

Turning to the chart, we see the Feb Crude Oil contract continuing to slide, now testing the $60 level, which can be viewed as fairly significant support. Failure to hold $60 suggests prices could test the $50 mark. The market remains oversold, however, this has hardly triggered value buying. The downtrend line has steepened recently. Traders may want to keep an eye out for a potential spike lower that may signal a near-term reversal.

Rob Kurzatkowski, Senior Commodity Analyst

December 12, 2014

"Warm" Weather Forecasts an Early Gift for Natural Gas Bears

Friday, December 12, 2014

Natural gas futures initially turned higher following a larger than anticipated draw from storage last week. The weekly Energy Information Administration (EIA) gas storage report showed that 51 billion cubic feet (bcf) of gas was removed from storage last week, which was 6 bcf above pre-report estimates of a 45 bcf draw. This leaves supplies at 3.359 trillion cubic feet (tcf) which is 9.5% below the 5-yr average for this time of year. Nearly the entire draw was in the eastern regions where supplies fell by 50 bcf. Producing regions added 7 bcf to inventories for the week ending December 5. However, the 8-14 day forecast calling for above normal temperatures for the main gas heating areas of the U.S. helped to cap gains.

Fundamentals
While the weather outside is anything but frightful here in Chicago for mid-December, Natural Gas futures have staged a minor rally of late, as short-covering buying has helped to propel prices higher. After falling to yearly lows earlier this week, the lead month January futures have rallied over 20 cents as a "risk off" mentality entered the commodity markets this week, which caused traders to lighten positons across nearly every market sector. Large traders and funds are holding an exceptionally large net-short position in Natural Gas, especially as we are in the early stages of the winter heating season when the demand for gas for warming homes and businesses can cause gas storage levels to decline sharply. The most recent Commitment of Traders report shows large non-commercial traders holding a net-short position totaling 206,295 contracts as of December 2. This leaves the market vulnerable to short-term price rallies should weaker shorts start to cull positions. Commercial traders are mainly on the other side of the trade, with a net-long position totaling 164,287 contracts. The commercial position is mainly buying by power generators who are taking advantage a rare price low in December to hedge anticipated needs. Looking forward as we approach the end of the year, gas traders will turn their focus to increasing gas production from shale formations and a 8-14 day weather forecast calling for above to well above seasonal temperatures for nearly the entire U.S,. but especially for the upper-Midwest, where it appears that Santa will have "moderate" winter temperatures in his bag for the folks in North Dakota, Minnesota, and Wisconsin.

Technical Notes

Looking at the daily chart for February Natural Gas futures, we notice that the recent price recovery off of 2014 lows has stalled, despite what was a relatively bullish weekly EIA gas storage report. Prices remain well below both the 20 and 200-day moving averages and the 14-day RSI, although weak, with a current reading of 39.46, remains above oversold price levels. With the trend solidly still in the bear camp, the market may be in a consolidation phase, but the potential for a test of new lows would not be out of the question. Support remains at the yearly low of 3.612, with resistance seen at 4.040.

Mike Zarembski, Senior Commodity Analyst

December 15, 2014

Corn "Pops" to 5-month Highs

Monday, December 15, 2014

A look at the Commitment of Traders report for Corn futures/options shows a battle between large speculators holding a net-long position and commercial hedgers and small speculators on the other side of the trade.

Fundamentals

Despite a record Corn harvest this year, Corn futures price have rallied to 5 month highs as traders believe Corn demand will be robust in the coming months. One reason for the optimism for Corn demand is the thought that China will reconsider restrictions it has in place on China importing U.S. Corn on concerns that supplies may contain some genetically modified strains that have not yet been approved. In addition, the continued turmoil between Russia and Ukraine may affect Ukrainian grain shipments, which could send additional business to the U.S. Current price differentials for cash Corn vs. Soybeans, could see producers dedicate additional acreage towards Soybeans this coming crop year mainly at the expense of Corn. Following the new year, grain traders will eagerly await the release of the USDA January crop production report on January 12, for the final data on the size of this past seasons harvest. With talk among analysts that the USDA may lower its final totals for both Corn and Soybeans, traders may be covering short positions ahead of the end of the year when trading volume tends to wane as market participants take time off for the holidays.

Technical Notes

Looking at the daily chart for March Corn, we notice what may be a head and shoulders bottom formation. This could signal that a major low is in place with prices now testing the "neckline" of the formation. A close above the 200-day moving average (MA) would add confirmation to this technical pattern and put Corn bulls back in charge. The 14-day RSI has turned positive with a current reading of 65.06. Resistance is seen at the 200-day MA, currently near the 425.00 price level, with support found at 375.25.

Mike Zarembski, Senior Commodity Analyst

December 16, 2014

Risk On, Risk Off

Tuesday, December 16, 2014

Gold futures have found support in recent sessions, as traders have looked for safe havens for capital. The sell-off in energies and surplus in grains have resulted in softer commodity prices, leaving investors few options. The metals market is also seeing corrective action going into year end, as shortholders look to lock-in profits before the new year. Likewise, the US Dollar Index may see a bit of a correction in the latter portion of the month, after reaching 5-year highs earlier this month. This could offer precious metals some support.

Fundamentals

The global economy still faces many risks in 2015, which may be beneficial to Gold as a safe haven investment. Recent indications from China suggest that manufacturing could be slowing. In Europe, the ECB seems to be fixated on avoiding deflation, which could result in a quantitative easing program there. In the US, the Federal Reserve has pledged to keep interest rates low "for the foreseeable future." The general theme from central banks seems to suggest fast and loose policy. The drop in energy prices has been a negative force for Gold to this point. However, cheaper Oil could finally awaken the global economy from its slumber, which may stimulate inflationary pressure. There are many things that must fall in line for this to occur, but cheaper Oil will certainly not hurt economic growth in the West.

Technical Notes

Turning to the chart, we see the February Gold contract rebounding from recent lows around the 1150 mark. Prices confirmed support at this level. Recent price action has put Gold above the 20- and 50-day moving averages. This suggests that a near-term low may have been established. The 100-day moving average has acted as resistance in recent sessions. Solid closes above the average could result in further momentum.

Rob Kurzatkowski, Senior Commodity Analyst

December 17, 2014

No Dry Well for Oil Traders

Wednesday, December 17, 2014

With WTI prices down over 45% for the year, so-called commodity currencies have really taken a beating -- but none more than the Russian Ruble. The currency is down over 50% for the year, despite a short-lived bounce earlier this week after the Russian Central Bank raised the lending rate to 17% from 10.5%. Russia still has a sizable cache of foreign reserves, but has already gone through over 20% of them trying to defend the nation's currency. With its huge dependency on Oil sales to fund the government and few signs that the bearish trend in Oil prices is nearing an end, traders should be prepared for further actions by the Russian governments, even potentially currency controls, to help stop the Ruble's descent.

Fundamentals

"Will they or won't they?", that is the question on traders' minds today, as analysts parse through the language in the statement that follows the end of the Federal Reserve's December FOMC meeting. The biggest change that is expected is the removal of the phrase "considerable period of time" as a signal to the market that the Fed is preparing to move towards a more "normal" monetary policy and the eventual move towards raising interest rates, most likely starting sometime in the middle of 2015. The Fed appears to be seeing enough positives in the improvement of the U.S. economy to prepare for the eventual raising of rates, despite the recent increase in market volatility spurred on by a sharp decline in Oil prices and a return of volatility to the global equity markets. While some pundits view lower Oil prices as a sign of slowing global economic growth and a negative for global equity prices, one has to wonder how cheaper energy prices is a negative for most businesses and consumers outside of overleveraged energy companies and nations such as Russia and Venezuela, which need Oil prices closer to $100 per barrel in order to fund the nations' budgets. The steep decline in Oil prices is only partially due to increased supplies and moderate global demand, but it is important to be cognizant of the large speculative long positions in the Crude Oil futures markets and any long liquidation selling that has added "fuel to the fire" of the Oil price decline.
Technical Notes

Looking at the weekly continuation chart for Crude Oil, we get a better "long-term" view of the market, and we notice that the recent sell-off has not yet touched the uptrend line drawn from the major lows made back in 1998, when Crude was trading near 10.00 per barrel. The speed of the recent price sell-off does bring back memories of the 2009 price decline, but even then prices rebounded from near $30 per barrel to over $100 in a relatively short period of time. The 14-week RSI is reading vastly oversold, with a current reading of 11.96. Even a "minor" short-covering rally could see prices trade back towards $70 per barrel, without negating the recent bearish momentum. Tuesday's low for the January futures at 53.60 is now seen as support for the lead month futures, with resistance found at 65.55.

Mike Zarembski, Senior Commodity Analyst


December 18, 2014

Russia's Wheat Dilemma

Thursday, December 18, 2014

The crash in the exchange rate of the Ruble has created demand for Wheat from Russia. However, the export demand for the grain has also driven up the price of food, including bread, in the country. Given the fact that the Russian economy has been faltering, the last thing the country needs is rapid food inflation. It will be interesting to see how Russia plans to go about limiting exports, given the disastrous results of the 2010 export ban. After Russia disallowed exports in 2010, the price of Wheat more than doubled.

Fundamentals

There have been reports that Russia had denied export licenses for Wheat, supporting the assessment that the government could be curbing exports. This seems to be the method Russia plans to use instead of official embargoes or tariffs. There had been talk that the price that the Russian government is willing to pay for the grain will also increase to encourage farmers to keep supplies within its borders. If the Ruble can stabilize or reverse course, Wheat could find itself under selling pressure. The velocity in which the Ruble has dropped suggests that there could at least be a short covering bounce in the currency. The exchange rate of the Ruble, as well as the Russian government's reaction to Wheat exports, are likely to be the primary driver of Wheat prices. Outside of Russian concerns, Wheat supply and demand fundamentals are not particularly strong. This suggests that a potential down move in the grain could be swift and extreme if supportive forces from Russia dissipate.

Technical Notes

Turning to the chart, we see the rally in the March Wheat contract intensifying in recent sessions. Prices are on the verge of testing resistance near the 660 level. Given the overbought technical conditions, 660 may provide stout resistance in the near term. If, however, prices are able to post solid closes above 660, the market may gain some traction. The recent rally has resulted in prices moving above the major moving averages, including the 200-day moving average.

Rob Kurzatkowski, Senior Commodity Analyst

December 19, 2014

Equity Traders Like FOMC 'Fedspeak"

Friday, December 19, 2014

U.S. consumers are in a good mood as we enter the holiday season, as the Bloomberg Consumer Comfort Index rose to a 7-year high. Lower oil prices have finally relieved some of the "pain at the pump" faced by consumers the past several years, which should put additional dollars in the pockets of consumers just in time for holiday shopping.

Fundamentals

Equity bulls received an early holiday present courtesy of the Fed, as the major U.S. stock indices have rallied sharply following the end of the December FOMC meeting. Analysts were keenly focused on any changes in the wording of the policy statement as well as what Fed Chariwoman Janet Yellen would say in the post-meeting press conference. That is where, on the surface, the interest rate picture remained cloudy. While it still appears that the Fed is prepared to finally raise short-term interest rates in 2015, it will not be early in the year if you believe Chairwomen Yellen who stated that the Fed would be unlikely to begin raising rates for "at least the next couple of meetings". That would put the April 2015 FOMC meeting in the spotlight for the first movement on interest rates. However, the potential velocity on any interest rate increases may have slowed, as the median forecast for interest rates by members of the FOMC was lowered to a 1.125% Fed Funds rate by the end of 2015, vs. 1.375% in the previous meeting. By 2017, the expected Fed Funds rate is 3.625%, which is lower than previous forecasts. Market reaction was mixed following the meeting, with Equity Indices and the U.S. Dollar rallying, but U.S. Treasuries and the Euro moving lower.

Technical Notes

During times of increased market volatility, it is wise to take a look at the "big picture" of the direction of a market in order to filter out the daily "noise" that can negatively affect a trader's confidence about holding a position. So today we are looking at the monthly continuation chart for the E-mini S&P 500 futures. If we assume that the start of the recent bull market leg began at the March 2009 lows, prices are showing few signs of a potential long-term change in trend. Even the steep declines seen in October of this year did little to alter the intermediate trend that started at the October 2011 lows. Resistance for the lead month future continues to be at the all-time highs of 2079.00, with support seen at the Oct. 2011 uptrend line, which for the month of December is near the 1850.00 price level.

Mike Zarembski, Senior Commodity Analyst

December 22, 2014

Consumers Getting a Gift at the Pump

Monday, December 22, 2014

Retail Gasoline prices fell to their lowest level in more than 5 years amid the plunge in Crude Oil prices. This can be seen as good news for consumers, who may have a bit more to spend for the holiday and post-holiday shopping seasons. Coupled with the improvement in the labor market, the US economy has a chance to make some real progress in the early part of 2015.

Fundamentals

The dramatic fall in Crude Oil prices has been the main driver of the decline in the RBOB contract. U.S. Oil output rose to 9.14 million barrels a day in the week ended Dec. 12th. This is the highest weekly output since 1983, according to EIA data. Improvements to driving methods, as well as the use of shale Oil, have led to a whopping 65% increase in US output in the past 5 years. On the political front, the energy markets may gain a bit of support from the fighting in Libya, which has spread to the country's fourth largest Oil port. There has been no damage to the facility at this point, but the threat remains.

Technical Notes

Turning to the chart, we see the January RBOB contract consolidating above the 1.5000 level. Given the preceding down move, the bias for a potential breakout from the consolidation remains with the bear camp. The 1.5000 level can be seen as both technical and psychological support for the RBOB. The RSI indicator continues to show oversold readings in the high teens. The momentum indicator points toward more potential weakness in the near-term.


Rob Kurzatkowski, Senior Commodity Analyst


December 24, 2014

Traders Sell No Swine Before its Time

Wednesday, December 24, 2014

The following are the highlights from Tuesday's release of the USDA Quarterly Hogs and Pigs Report:

USDA Pre-report Estimate

All Hogs and Pigs: 102% 101.6%

Kept for Breeding: 104% 103.0%

Kept for Marketing: 102% 101.5%

Fundamentals

The old saying that "the cure for high prices is high prices" certainly describes the U.S. Hog market of late, as record high prices for Lean Hog futures earlier this year provided enough incentive for producers to aggressively expand the herd. Increased supplies of Hogs in the next several months have sent futures prices tumbling, with the February futures contract now trading near its lowest level of the year, and nearly $20 per hundredweight below the summer highs. Hog bulls received some positive news on Monday, as the Cold Storage Report showed frozen stocks at 485.8 million pounds as of the end of November, which was well below the nearly 500 million pounds analysts were expecting. Lead month futures are trading at a nearly $3 per hundredweight discount to the CME Lean Hog Index. Some recent selling pressure might have been tied to position squaring ahead of the quarterly Hogs and Pigs Report that was released on Tuesday afternoon. The most recent Commitment of Traders report showed non-commercial traders shedding over 8,000 net long positions during the reporting period ending on December 16th on expectations that the USDA would show that the Hog herd has expanded and Hogs weights were running higher than average, which would eventually lead to increased supplies of pork in the first half of 2015.

Technical Notes

Looking at the daily chart for February Lean Hogs, we notice prices in solid bearish trend since the middle of November, with increased downward acceleration once prices broke below the 200-day moving average. The 14-day RSI has bounced back from recent lows but remains weak, with a current reading of 29.54. The market did see some buying interest once prices briefly traded below 80.000. However, any upward momentum was stymied as momentum traders sold into strength and capped the recent rally attempt. Support is seen at the recent low of 78.675, with resistance found at 82.900.

Mike Zarembski, Senior Commodity Analyst


December 26, 2014

Fundamentals vs. Technicals Battle for Control of Cocoa Prices

Friday,December 28, 2014

Speculators, both large and small, have been adding to their net-long positions of late, according to the most recent Commitment of Traders report (COT). The COT shows non-commercial traders added just over 3200 new net-long positions during the reporting period ending December 16th. Non-reportable traders added nearly 800 new net-long positions during the same period.

Fundamentals

Cocoa bulls are a resilient bunch, as a minor uptrend is now occurring following a $500 per ton price decline that began in late September. Some analysts believe the recent recovery in prices is tied to renewed buying interest by processors ahead of the holiday season, when the demand for Chocolate increases. Physical buyers in Nigeria report that cash Cocoa prices have risen to their highest levels since August because producers are limiting the supplies of Cocoa to the market in hopes of receiving even higher prices in the coming months. Both the Ivory Coast and Ghana, two of the world's leading Cocoa producing nations, are expected to see disappointing production totals this season, with the potential of an El Nino weather event hampering 2015 production looming in traders' minds.

Technical Notes

Looking at the daily chart for March Cocoa, we notice that prices have rallied just over $200 per ton from recent lows, which happens to correspond to the 38.2% Fibonacci retracement level of the downtrend that started at the late September 2014 highs to the mid-November lows. There are some significant headwinds that could hamper further gains, such as the 200-day moving average (MA), as well as psychological resistance at the 3000 per ton price level. Resistance is seen at the 200-day MA, which is currently near the 3040 price level, with support seen at the November low of 2780.

Mike Zarembski, Senior Commodity Analyst


December 31, 2014

Gold Prices Jump in Thin Post Holiday Trade

Wednesday, December 31, 2014

While large speculators continue to maintain a long position in Gold futures, one notable trend observed in the Commitment of Traders report was the move by non-reportable traders, normally small speculators, to a net-short position on Gold during the week ending December 16th. One has to ponder whether this move to a net-short position is a signal that a near-term low may be in place, as small speculators traditionally have been bullish the Gold market.

Fundamentals

Gold bears had a rude awakening following the Christmas holiday, as Gold prices rose sharply in very thin post-holiday trade. Many analysts attributed the rally to short-covering buying by weak shorts on expectations that Chinese officials will announce additional measures to help stimulate the nation's economy. Any additional stimulus measures from the Peoples Bank of China could help to spur inflationary pressures, which could be viewed as potentially bullish for commodity prices, including Gold. Bullion traders note some decent physical buying out of India, which could be lending some support to Gold prices as the end of 2014 approaches. The outlook for Gold prices in 2015 remains fluid, as the bear camp notes that the potential for interest rate hikes in the U.S. and possibly Great Britain next year would add support for both the U.S. Dollar and British Pound and be a negative for Gold prices. Gold bulls counter that an increase in global tensions, in particular involving Russia and the Middle East, will trigger increased investor appetite for so-called "safe haven" investments including Gold, especially with prices hovering near 4 ½ year lows. Gold ETF's have seen holdings fall to lows not seen in over 6 years, as investors have shifted investment funds to better performing assets such as equities and even government bonds. However, for those who possess a contrarian mindset, this could potentially be an indicator that prices and interest have reached oversold levels and a Gold rally may be in store sometime in the new year.

Technical Notes

Looking at the daily chart for February Gold futures, we notice what may be the formation of a "bull flag" technical formation. We note that the downward price move from the recent high of 1239.00 occurred on much below-average trading volume. This could be a sign that selling pressures are starting to abate. We would need to see an upside price breakout, in particular a weekly close above the 20-day moving average on higher than average trading volume, to add validation to this normally bullish technical pattern. The 14-day RSI has turned neutral, with a current reading of 49.80. Support for the February contract is seen at the December 22nd low of 1170.70, with resistance found at the December 9th high of 1239.00.

Mike Zarembski, Senior Commodity Analyst