tag:www.futuresblogs.com,2010://3 2010-03-12T15:23:30Z Movable Type 3.34 tag:www.futuresblogs.com,2010://3.1229 2010-03-12T15:22:30Z 2010-03-12T15:23:30Z

Fundamentals The days of relatively "cheap" Gasoline prices appear to be ending once again, a byproduct of improving economic conditions tied in with curtailed production. Despite attempts by the Chinese government to dampen its surging economy, energy demand remains robust,...

Futures Fundamentals The days of relatively "cheap" Gasoline prices appear to be ending once again, a byproduct of improving economic conditions tied in with curtailed production. Despite attempts by the Chinese government to dampen its surging economy, energy demand remains robust, with China's oil imports in February coming in at the second highest total in its history! Although U.S. energy demand is still well below the levels seen 3 years ago, Oil prices are stubbornly holding near the $80 per barrel level due to Asian demand. Relatively high oil prices and lackluster U.S. gasoline demand has hurt refinery margins to the point where major and minor refiners have curtailed production, which has been hovering near an 80% utilization rate, and have actually shut-down some refineries due to the current economics of producing refined products. This situation could make Gasoline supplies tight going into the summer -- especially if we continue to see some improvement in the employment picture. On Wednesday, the Energy Information Administration (EIA) reported that U.S. Gasoline stockpiles fell by 2.9 million barrels last week to stand at 228,984,000 barrels, as refinery operating rates fell to 80.73%, which is down over 1% in the past week. Although supplies are just over 16 million barrels above last year at this time, supplies should become tighter, because environmental regulations require special gasoline blends for some major population centers in the U.S., which forces refiners to produce these custom blends as summer approaches, which can cause shortages in some areas. It remains to be seen whether U.S. motorists will balk at paying $3.00 plus for gasoline this summer and continue the trend of cutting back on driving that we have seen the past two years, or if improving job prospects and consumer sentiments will bring the public back to the roads, despite higher retail Gasoline prices. Trading Ideas Even though gasoline prices are currently trading near their yearly highs, the potential for even higher prices remains -- especially if we continue to see an improvement in the employment situation. Some traders looking for gasoline prices to continue to rise may choose to investigate purchasing a bull call spread in RBOB Gasoline futures options. An example of this trade would be buying the June RBOB 2.35 calls and selling the June RBOB 2.50 calls. With June RBOB futures trading at 2.2663 as of this writing, the spread could be purchased for about 0.0500 points, or $2,100 per spread, not including commissions. The premium paid is the maximum potential loss on the trade, with a potential profit of $6,300 minus the premium paid should June RBOB be trading above 2.50 at option expiration in late May. Technicals Looking at the daily continuation chart for RBOB gasoline futures, we notice the bullish trend in gasoline prices began at the end of December of 2008. Since that time, we have made higher highs and higher lows, with prices failing to close below the 200-day moving average since May of 2009. Even though futures prices are up sharply from the Dec '08 lows, we have barely recovered 50% of the decline from all-time high prices made in July of 2008! The 14-day RSI remains strong, but has moved slightly below overbought levels with a current reading of 65.78. Near-term support for May RBOB is seen at the recent lows made on February 25th at 2.1330, with resistance seen near the 2.3500 area. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1226 2010-03-11T14:11:28Z 2010-03-11T14:13:06Z

Fundamentals Sugar prices continue to tumble on expectations that Indian output will be higher than previously expected. The bearish supply news comes on the heels of Indian buyers backing out of import deals, which has quickly cast a dark cloud...

Futures Fundamentals Sugar prices continue to tumble on expectations that Indian output will be higher than previously expected. The bearish supply news comes on the heels of Indian buyers backing out of import deals, which has quickly cast a dark cloud over the Sugar market. The country is said to be adequately supplied at the moment and will not require imports at this time, which could result in a glut of supply on the market. The improved crop yields in India have the potential to increase output by almost a million metric tons over prior estimates. Neighboring growers, namely Thailand, have also increased their acreage to meet the global shortfall, which has alleviated some of the long term supply fears. Soft commodities as a whole have fallen out of favor with fund traders, as evidenced by the recent meltdown in the Sugar, Cocoa, and Coffee markets. The Dollar Index has also stood its ground. Both of these factors have given the Sugar prices little outside support. At this point, there would have to be a monumental swing in fundamentals for prices to rebound sharply from current price levels. Trading Ideas Given the scope and severity of the recent decline in Sugar prices, some traders may wish to tread lightly and look for volatility to die down before entering the market. It could seem foolhardy to enter into new short positions at this point, as the market may experience some short-covering. Instead, some traders may choose to look for a rebound as an opportunity to enter into a bearish option position, or to short the futures. Technicals The May Sugar chart can simply be described as catastrophic. Prices have broken sharply through support near the 22.50 and 20.75 levels sharply and are now testing the 50 percent Fibonacci retracement from the beginning of the rally at 19.40. If this level is broken, the May contract could tumble another 1.00 points before finding additional support. The oversold conditions on the RSI could spark some short-covering, but this may only be a temporary reprieve for bulls, as the recent sell-off has done major crop damage and could very well have changed the long-term market trend. Rob Kurzatkowski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1223 2010-03-10T13:44:59Z 2010-03-10T13:46:18Z

Fundamentals The March USDA Crop Production report is typically greeted with a big "yawn" by grain traders, because normally the final previous year's production is already known, and traders are more eager to see the estimates of the next crop...

Futures Fundamentals The March USDA Crop Production report is typically greeted with a big "yawn" by grain traders, because normally the final previous year's production is already known, and traders are more eager to see the estimates of the next crop year's prospective planting intentions that are reported at the end of March. However, Mother Nature put a twist in this year's report, as the USDA is expected to revise its 2009 Corn and Soybean crop estimates due to the lateness of this year's harvest -- including some areas where the Corn crop has yet to be taken out of the ground. Traders are expecting the USDA to lower the size of the 2009 Corn crop by between 30 and 70 million bushels from the 13.151 billion bushel estimate in January. However, traders also expect the USDA to lower U.S. Corn demand estimates due to lower U.S. export projections, as a stronger Dollar has hurt the competitiveness of U.S. Corn in the world market. Traders are expecting the USDA to leave U.S. Corn carryout for the 2009-10 season near the 1.719 billion bushel estimate from its January report. Also affecting U.S. Corn demand is the concern that the late harvest has affected the quality of the Corn crop in some areas. In addition, South American producers are expected to harvest bumper Corn and Soybean crops this season, making both Brazil and Argentina strong competitors in the export market this year. New crop corn futures will be watched closely by traders, as warm and wet weather forecasts for the Midwest could cause localized flooding in some areas of the Corn Belt -- especially given the snow cover in the upper Midwest. Concerns that a wet spring will once again delay Corn plantings should give some support for December 2010 futures, particularly if it appears that planting delays will be lengthy enough that some producers switch from planting Corn to planting Soybeans, which have a shorter growing season. Trading Ideas Since the sharp sell-off seen in Corn futures following the January USDA crop report, July Corn futures have traded in a relatively narrow 35-cent range. USDA reports have historically been a catalyst to trigger major moves in the grain markets, and some traders may wish to wait until the report is released to see the direction the market moves once the report is out. Given the recent trading range in which corn has been stuck, some traders may wish to investigate entering a trade in the direction of a price breakout outside of the recent range. An example of this trade would be placing an OCO order (one cancels other) to buy July Corn above the recent highs at 402.25 on a stop, and an order to sell July Corn below the recent lows of 368.75 on a stop. If one side of the order is filled, the other side of the OCO order will be cancelled. At this point, a trader may possibly wish to place a stop loss order 10 cents below recent highs of 402.25 if the buy side of the OCO is filled, or 10 cents above the recent lows of 368.75 if the sell side of the OCO is filled. Technicals Looking at the daily chart for July Corn, we notice that prices remain well below both the 20 and 100-day moving averages, giving Corn bears the upper hand. The 14-day RSI has begun to trend lower, with a current reading of 41.41. Support remains at the February 5th lows of 368.75, with resistance seen at the highs of the recent trading range made on January 13th at 404.50. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1219 2010-03-09T13:56:28Z 2010-03-09T13:57:37Z

Fundamentals Cotton futures were lower Monday, ahead of today's USDA supply and demand report. The sluggish price action the market has seen was not at all surprising, given the strength that the market has seen for the better part of...

Futures Fundamentals Cotton futures were lower Monday, ahead of today's USDA supply and demand report. The sluggish price action the market has seen was not at all surprising, given the strength that the market has seen for the better part of a month. Also, the rise in prices has caused many farmers to begin selling their inventories, causing some traders to worry about a short-term supply glut. There is also uncertainty on the ending stocks figure, which could put some downward pressure on prices if it comes in higher than expected. Despite the choppy price action and investor concerns over the USDA data, Cotton market fundamentals remain strong. Better than expected retail sales data indicates that shoppers may not be as shy with their pocketbooks in the future as they have in the past when it comes to clothing. The real test in this regard will come when clothing stores return to regular pricing, as some of the retail sales data may still be skewed by closeouts and sales of winter items with the coming change of season. The employment outlook continues to show signs of life, with the Non-Farm Payrolls number coming in at what can be seen as "normal" levels. The strong export sales figures have also been encouraging, indicating that demand has remained strong in the face of rising prices. The recent pullback in prices can be attributed to profit-taking by long-only and index funds who have provided support for the Cotton market. If other soft commodities continue to falter, the Cotton market could benefit from fund and speculative buying. Trading Ideas Cotton fundamentals and technicals both favor the bull camp at this point, and there would likely have to be a major revision in the USDA data for the market fundamentals to shift. Some traders may choose to enter the long side of the market on a breakout from the tight consolidation pattern on the daily chart, but an option play may be the more conservative route. Some traders may wish to buy the May Cotton 82 call (CTK082C) and sell the May 86 call (CTK086C) for a debit of 1.50, or $750. The trade risks the initial investment for a potential profit of $1,250. Technicals Turning to the chart, May Cotton appears to be forming a bullish flag. If confirmed, the pattern indicates that the May contract has plenty of upside potential. If the pattern does not pan out, however, there is a possibility that prices could pull back and possibly test support near the 75.00 level, which can be viewed as a significant support level. Despite the downward move in prices and the RSI, momentum continues moving higher, which can be seen as bullish divergence and a sign that prices may continue their uptrend in the near future. Rob Kurzatkowski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1216 2010-03-08T14:21:11Z 2010-03-08T14:23:10Z

Fundamentals There was no joy for Treasury bulls Friday morning after the widely anticipated U.S. Non-Farm Payrolls report for February was released. Non-farm payrolls for February fell by “only” 36,000 in February according to the Labor Department, despite the severe...

Futures Fundamentals There was no joy for Treasury bulls Friday morning after the widely anticipated U.S. Non-Farm Payrolls report for February was released. Non-farm payrolls for February fell by “only” 36,000 in February according to the Labor Department, despite the severe winter weather that affected much of the northeastern parts of the U.S. This was much better than the pre-report consensus of a decline of around 70,000 jobs last month. The unemployment rate remained steady at 9.7%, which was also better than anticipated. One area where the severe winter weather may have had an effect was in the average hours worked, which fell by 0.2 hours to stand at 33.1 hours last month. Bond futures declined after the report was released, as traders sold existing positions that were purchased before the report in anticipation of a much larger decline in payrolls last month. In addition, traders sold bond futures in anticipation of next week’s U.S. government bond and note auction, expected to total $74 billion dollars, with $40 billion of 3-year notes, $21 billion of 10-year notes, and $13 billion of 30-year bonds up for auction. Traders typically sell bond futures ahead of the treasury auction as a hedge against cash purchases. Even though the payrolls report was better than expected, we still had job losses last month, with an estimated 8.4 million jobs having been lost since December of 2007. Until we start to see actual gains in the employment picture, it is doubtful that the Federal Reserve will begin aggressively raising interest rates anytime soon, which will be supportive to the short end of the Treasury yield curve. The long end of the curve could remain under pressure due to rising inflationary fears tied to the huge government deficits the U.S. is running and concerns that bond buyers will require much higher interest rates to continue their purchases of U.S. Government Bonds in the future. Trading Ideas A quick look at the daily chart for June 30-year Bonds will show what looks like the development of a trading range pattern with a high boundary of 118-02 and a low boundary of 113-13. Traders anticipating that the June contract will remain within this price range might choose to investigate selling strangles in the April Bond options, with strike prices outside of the above-mentioned boundary. An example of this trade would be selling the April Bond 120 calls and selling the April Bond 113 puts. With June Bonds trading at 116-22 as of this writing, this strangle could be sold for 12/64, or $187.50 per strangle, not including commissions. The premium received is the maximum potential gain in the trade and will be received if June Bonds remain above 113-00 and below 120-00 at option expiration on March 26th. Given the risk involved in selling naked options, traders should have an exit strategy in place should the position go against them, such as closing out the trade early should June Bonds close above 120-00 or below 113-00 before the options expire. Technicals Looking at the daily chart for June 30-year Bonds, we notice that the recent rally attempt has been stymied by the better than expected February NFP figures. Prices are trying to hold above both the 20 and 100-day moving averages, but this is proving difficult. The sell-off gives further support to the belief that we may see a more range-bound trade the next few weeks unless we get a major shock either bullish or bearish to the market. The 14-day RSI has turned neutral, with a current reading of 51.35. 118-02 remains resistance for June Bonds, with near-term support found at the recent lows of 114-15 made on February 18th. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1213 2010-03-05T13:43:23Z 2010-03-05T13:44:30Z

Fundamentals Apparently, stock index futures traders believe all will be well with the economic environment in the U.S., as S&P futures continue to rally, moving ever so closer to testing the yearly highs. Stock bulls did get some good news...

Futures Fundamentals Apparently, stock index futures traders believe all will be well with the economic environment in the U.S., as S&P futures continue to rally, moving ever so closer to testing the yearly highs. Stock bulls did get some good news on Thursday, as weekly jobless claims resumed their decline, falling from 3-month highs. Jobless claims fell by 29,000 for the week ending on February 27th. More importantly, continuing claims also fell to levels not seen in over a year. Also supportive was release of the Labor Department's report on non-farm productively for the 4th quarter, which showed a better than expected increase of 6.9%. Unit labor costs fell by a 5.9% annual rate, which should help elevate concerns of wage inflation and give Federal Reserve officials another reason to keep interest rates near record low levels for the foreseeable future. Not all the economic news out on Thursday was positive, as U.S. factory orders rose by only 1.7% in January, which is below estimates of a 2.0% gain. Pending home sales fell by a much larger than expected 7.6% in January, as the harsh winter weather took its toll on potential home buyers. Traders will likely now turn their focus to Friday's release of non-farm payrolls for February. The current consensus is for payrolls to have fallen by 70,000 jobs last month, although the range of estimates is rather wide this month, as traders and analysts try to estimate the effects on employment attributable to the severe winter weather seen in the eastern parts of the U.S. last month. The unemployment rate is expected to increase by 0.1% to 9.8%. Although there are signs of improvement in the U.S. economy, it's unlikely many are willing to say we are completely out of the woods -- especially until we see firm signs of sustained employment growth, which would do wonders for consumer confidence levels and help to justify the equities market rally that began nearly a year ago. Trading Ideas With economic indicators providing a mixed picture for equities in the near-term and the VIX (CBOE's S&P 500 Volatility Index) hovering near its recent lows, we may start to see some bigger moves in the S&P futures, with an increase in volatility a definite possibility. Given this scenario, some traders may wish to investigate strategies that will benefit from a big move in the indices, as well as an increase in volatility. One such trade involves the purchase of April E-mini S&P 500 straddles. With the June E-mini futures trading at 1114.50 as of this writing, the April 1115 straddle could be purchased for 53.00 points, or $2,650 per straddle, not including commissions. The premium paid is the maximum potential loss on the trade, and the trade will show a profit at expiration in April should the June futures be trading above 1168.00 or below 1062.00. Given the effects of time decay on a long straddle position, some traders may wish to close out the trade before expiration if the price on the straddle falls to 50% of the original purchase price. Technicals Looking at the daily continuation chart for E-mini S&P futures, we notice the recent rally from the February 9th lows of 1054.00 has occurred on declining volume. This could be construed that traders do not truly believe the recent rally will hold, as they are not aggressively adding to long positions as the index rises. The 20-day moving average is attempting to cross above the 100-day moving average, which if accomplished, would send a buying signal to momentum traders. The 14-day RSI is moderately supportive, with a current reading of 58.13. 1125.00 is seen as near-term resistance, with major resistance found at 1147.25. Near-term support is found at 1084.50, with major support seen at 1054.00. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1209 2010-03-04T14:25:01Z 2010-03-04T14:26:21Z

Fundamentals The grain complex at the CBOT received a lift from extremely heavy rains in Argentina, which could cause crop damage. Grains also received support from a weaker Dollar and higher equity prices. The equity markets have been relentless, seemingly...

Futures Fundamentals The grain complex at the CBOT received a lift from extremely heavy rains in Argentina, which could cause crop damage. Grains also received support from a weaker Dollar and higher equity prices. The equity markets have been relentless, seemingly rallying every time investors expect a meaningful correction to surface. This suggests that the dismal demand outlook for Soybeans may not be as bad as many had expected, and the resilience of the economy may stoke the flames of inflation. The rains in Argentina and Brazil could offer the market near-term support. However, the market could remain in a very tight trading range until next week's USDA report. The inclement weather in South America could cause the USDA to trim its forecast for ending stocks, which could further support the market. Traders may also look east for support, as Malaysia may fall short of its palm oil goals and China may increase its imports of Bean Oil. This could cause crushers to begin aggressively buying Beans, with the expectation that demand for crush will improve. Traders may also wish to focus on the price of Crude Oil, which has firmed in recent weeks, but has been quiet in recent trading sessions. Oil is a driver of the commodity markets, in general, and the possibility that biofuel demand could increase if Crude keeps rising has certainly caught the attention of grain traders. Trading Ideas Soybean fundamentals have improved with the weather problems in South America and potential increase in Asian demand. Supplies, however, are more than ample at the moment, which could be a stumbling block for future rallies. Likewise, the technical picture for Beans has improved with the snap back from relative lows made a month ago, but prices have been choppy since then, indicating a great deal of uncertainty. Some of this choppiness can be attributed to the fogginess surrounding next week's USDA report. Given the bearish nature of the past two reports and the South American weather issues, some traders may be looking for a bull tilt to the upcoming report. Some traders may wish to put on a conservative bullish position, such as a bull call spread. Traders may possibly wish to consider buying the May Soybean 980 calls (SK0980C) and selling the May 1000 calls (SK01000C) for a debit of 10.00, or $500. The trade risks the initial investment for a potential profit of $500 if the May contract closes above 1000 at expiration. Technicals Turning to the chart, we see May Soybeans edging higher in recent sessions, but the market remains trapped in a range between 950-975. Prices have flirted with the 50-day moving average for the past two sessions. A close above the average could be seen as technical progress, as the market has traded below the average for the past two months. A close above resistance at 975 could be a sign that the Beans may be set to test the 1000 level in the near-term. The oscillators are neutral at the moment and give no signal of what may lie ahead. Rob Kurzatkowski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1206 2010-03-03T16:43:43Z 2010-03-03T16:46:09Z

Fundamentals Since reaching 14-month highs back in mid December of last year, Coffee futures have turned cold, having fallen over 20-cents per pound on expectations of large supplies this season out of Brazil, the world's largest Arabica Coffee producer. Also...

Futures Fundamentals Since reaching 14-month highs back in mid December of last year, Coffee futures have turned cold, having fallen over 20-cents per pound on expectations of large supplies this season out of Brazil, the world's largest Arabica Coffee producer. Also setting a negative tone for the Coffee market as well as other commodities has been the resurgence of the U.S. Dollar, with the Dollar index futures hovering near 9-month highs. It appears that traders are ignoring current tight world coffee stocks, caused by disappointing production totals out of Central American and Columbia this past season, and are looking towards potentially huge supplies expected out of Brazil once the harvest begins in May. The current supply situation has been given less weight by traders now that spring weather is moving into the Northern Hemisphere, putting an end to the peak Coffee consuming season. Supplies of Robusta Coffee, however, look to remain tight next season, as Vietnam, the world's largest Robusta Coffee grower, is expecting its Coffee production to fall by 15% this season, to total only 14.2 million bags. Large speculative accounts continue to liquidate their net-long positions in Coffee futures, with the most recent Commitment of Traders report showing large non-commercial traders (commodity and hedge funds) were holding a net-long position of 11,372 contracts as of February 23rd. This was down nearly 3,000 contracts for the week and could signal that the recent down-move has been due to liquidation of positions, not the initiation of new shorts entering the market. With prices having rebounded since multi-month lows were made last week, the Coffee market might be due for a period of consolidation, at least until we start to see how large the Brazilian harvest may actually be. Trading Ideas If coffee prices remain range-bound ahead of the start of the Brazilian harvest, some traders may wish to investigate trading opportunities that will benefit from a sideways market. One such trading strategy would be selling out of the money strangles in Coffee futures options. Since mid-December, May Coffee futures have traded within a price range bounded by 149.20 on the high side and 126.60 on the low side. A trader could sell a May Coffee 155 call, and at the same time sell a May Coffee 120 put. With May Coffee trading at 132.05 as of this writing, this strangle could be sold for about 0.85 points, or $318.75 per strangle, not including commissions. The premium received would be the maximum potential gain on the trade. Given the potential loss on selling naked options, traders should have an exit strategy in place in case the position moves against them. Some traders may possibly wish to consider exiting the trade early if the premium on the strangle moves to 3 times the amount received, or if May Coffee closes above resistance at 149.20, or below support at 126.60 before the options expire in April. Technicals Looking at the daily chart for May Coffee, we notice prices holding below both the 20 and 100-day moving averages, which confirms its current bearish bias. However, we do notice a bullish divergence forming in the 14-day RSI, as the February 25th lows of 126.60 failed to produce a new low in the RSI. This lends some confirmation to the belief that the downtrend is beginning to look tired, and we are likely to see prices move sideways for awhile. Also notice how volume has fallen the last few sessions, right after the roll from the March contract was completed. We did not see any increase in volume as prices moved lower, which could signal that little fresh selling has taken place other then the liquidation of existing long positions. Near-term support remains at 126.60, with near-term resistance found at 137.35. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1203 2010-03-02T14:26:28Z 2010-03-02T14:27:53Z

Fundamentals Cocoa futures continued their slide, falling to a six-month low on demand concerns. Traders are concerned that the sharp appreciation from lows made in late 2008 may dissuade buyers. Chocolatiers have looked to cut costs in the past by...

Futures Fundamentals Cocoa futures continued their slide, falling to a six-month low on demand concerns. Traders are concerned that the sharp appreciation from lows made in late 2008 may dissuade buyers. Chocolatiers have looked to cut costs in the past by decreasing the amount of Cocoa in their finished product or reducing the size and keeping the same content for higher end brands. To make matters worse for Cocoa bulls, Ivory Coast deliveries have climbed 2.6 percent above last year's figures. The Cocoa harvest is also almost 7% of last crop year's pace. This will likely keep physical buying tame, as end-users will remain reluctant to buy at these higher price levels in light of the high prices. Also, the political situation in the Ivory Coast, which always seems to be dicey, has calmed considerably in recent days, with protests called off in light of the new election commission. For the time being, at least, the political situation is not part of the equation. The US Dollar has stood its ground recently, which has caused demand for commodities to remain lackluster, at best. Commodities that are vulnerable to selling pressure, such as Cocoa, have suffered due to poor fundamentals. Trading Ideas Both the fundamental and technical outlooks for the Cocoa market have tilted in the bear camp's favor. The only market-changing events that bulls can hope for at this point are a revival of political tensions in the Ivory Coast and a sudden collapse in the price of the greenback. The price of the commodity has swung wildly, suggesting some traders may wish to consider entering into a bearish option strategy and avoid the futures market, as it can be extremely unpredictable. Some traders may look to buy the May Cocoa 2800 puts (CCK02800P) and sell the May 2700 puts (CCK02700P) for a debit of 35 points or better. The trade risks its initial investment of $350 for a potential profit of $650 if the futures contract closes below 2700 on the April 1st expiration date. Technicals Turning to the weekly Cocoa chart, we see the market confirming a triple-top pattern. After initially holding its ground near the 3000 market, the selling pressure in the front month May contract has hit a fever pitch. Yesterday's close was slightly below the significant close of 2828 over one year ago. Failure to hold the 2828 level could result in prices coming down to the 2500 area or possibly even 2250. Yesterday's close was also below the first Fibonacci support line at 2877, suggesting prices could come down to 2675 in the near-term. The sharp selling pressure could result in oversold market conditions, which could be mildly supportive of price in the near future. Rob Kurzatkowski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1200 2010-03-01T13:34:15Z 2010-03-01T13:35:32Z

Fundamentals Sugar futures have certainly lost some of their bullish bias this past month, having fallen over 5 cents per pound since the start of the month, as concerns about world economic recovery and buyers beginning to balk at high...

Futures Fundamentals Sugar futures have certainly lost some of their bullish bias this past month, having fallen over 5 cents per pound since the start of the month, as concerns about world economic recovery and buyers beginning to balk at high prices have overshadowed continued tight supplies. The International Sugar Organization expects Sugar output to remain in a deficit for the remainder of the 2009-10 marketing season, with production expected to be below demand by over 5% during the remainder of the marketing season. However near-term, buyers have been reluctant to purchase Sugar at current prices, with Egypt and Pakistan recently cancelling import tenders due to high cash market prices. Output from Brazil, the world's largest Sugar producer, is expected to increase sharply this coming season, with output up just over 6.5% through mid-February. Indian Sugar production estimates have been raised to about 16 million metric tons this season, recovering from the dismal 14.7 million metric tons produced last season due to lack of timely rainfall. Although Sugar production is expected to rebound later this year, it will not help elevate current tight supplies -- especially if large users such as India, China, and the U.S. need to enter the market to meet immediate needs. So although there appears to be light at the end of the tunnel for Sugar buyers next season, when supplies are expected to increase, we may still see one last rally attempt this spring, as buyers need to get their immediate Sugar "fix"! Trading Ideas With Sugar prices now trading well-off the recent highs, but short-term supplies remaining extremely tight, we may see one last rally attempt in the May Sugar contract. There appears to be strong support around the 20-cent level in the May futures that should hold if one more bull market run occurs. Some traders may wish to investigate selling May Sugar puts below major support at 20 cents. An example of this trade would be selling the May Sugar 19.75 puts. With May Sugar currently trading at 23.53 as of this writing, these puts could be sold for about 0.28 points, or $313.60 per option, not including commissions. The premium received would be the maximum potential gain on the trade, and given the potential risk in selling naked options, traders should have a pre-determined exit strategy should the trade move against them. One such strategy would be closing out the trade before expiration in April if the option premium on the puts sold trade at 2 times the premium received. Technicals Looking at the daily chart for May Sugar, we notice prices have fallen below the 100-day moving average for the first time since mid-December of last year. Just since February 1st, Sugar prices have fallen nearly 20%, as speculative bulls have booked profits and lightened-up on their net-long positions. The 14-day RSI has become weak with a current reading of 36.56. Prices have now fallen back into the chart "consolidation" area which started back in September, which may draw buyers back into both the physical and futures markets for Sugar. 22.76 is seen as the next support point for May Sugar, with resistance now seen near 24.88. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1197 2010-02-26T13:45:36Z 2010-02-26T13:47:44Z

Fundamentals The "Loonie's" flight to parity vs. the U.S. Dollar has taken a detour lately, as concerns that the global economic recovery may be on shaky ground has traders fleeing "risk trades." The budget crisis in Greece and China's attempts...

Futures Fundamentals The "Loonie's" flight to parity vs. the U.S. Dollar has taken a detour lately, as concerns that the global economic recovery may be on shaky ground has traders fleeing "risk trades." The budget crisis in Greece and China's attempts to slow its surging economy are among the biggest reasons traders are nervous. The Canadian Dollar and other so called "commodity currencies", such as the Aussie Dollar and Brazilian Real, surged last year, as prospects for improving economic conditions had traders eager to invest in countries whose exports of raw materials would benefit from a recovery. Nearly 50% of Canada's exports are derived from the raw materials sector, making the country a favorite for investment during an economic upturn. Traders expecting better economic circumstances placed so called "carry trades" by buying the "commodity" currencies and selling the low yielding U.S. Dollar and Japanese Yen. However, concerns that the Greek debt situation will not be resolved easily has put "safety" ahead of potential longer-term gains in some traders' minds, triggering an unwinding of these "carry trades", which increased the selling pressure on the Canadian Dollar - especially vs. the Yen. Traders have also reassessed their expectations regarding when the Bank of Canada (BOC) will raise short-term rates, with the consensus now expecting it will be the beginning of the third quarter of this year before the BOC will act. Although the longer-term outlook for Canada and the "Loonie" looks bright, in the near-term the Canadian Dollar could remain on the defensive until the market believes that the European Union has a reasonable plan to deal with the Greek crisis and any global economic recovery will not be stymied. Trading Ideas Although the Canadian Dollar is in a short-term downtrend, the economic prospects for our neighbors to the north look positive in the long-term. Some traders wishing to take advantage of the recent set-back to take a bullish position longer-term may wish to consider buying a bull call spread in longer-dated Canadian Dollar options. Using the June contract, currently trading at 0.9383, a trader could choose to buy the 0.95 call and sell the 1.00 call for a debit of about 1.38 points, or $1,380 per spread, not including commissions. The premium paid would be the maximum risk on the trade, with a potential profit of $5,000 minus the premium paid if the June Canadian Dollar is trading above 1.0000 at option expiration in June. Technicals Looking at the daily chart for the March Canadian Dollar, we notice prices accelerated to the downside after falling below the 20-day moving average. Much of the selling is tied to long liquidation as sell-stops are triggered and buyers holding back waiting for lower prices. The next major support point does not come into play until just below the 0.9300 area, at which point the market may wish to test the mettle of "Loonie" bulls to see if fresh buying emerges. The 14-day RSI has weakened considerably, with a current reading of 40.36, although it remains well above oversold levels. The February 5th lows of 0.9274 look to be the next support point for the March contract, with resistance found at the week's high of 0.9643. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1194 2010-02-25T14:51:50Z 2010-02-25T14:53:11Z

Fundamentals Yen futures have mounted a comeback the past few sessions, as traders cover Euro/Yen carry trades due to the financial turmoil in the Eurozone. The Japanese currency could very well have plummeted if the crisis in Greece had not...

Futures Fundamentals Yen futures have mounted a comeback the past few sessions, as traders cover Euro/Yen carry trades due to the financial turmoil in the Eurozone. The Japanese currency could very well have plummeted if the crisis in Greece had not happened. The Yen could benefit from the much softer rhetoric from Fed Chairman Ben Bernanke during his Congressional testimony. The central bank head stated that the US economy is in a "nascent" recovery, which may require low interest rates for an extended period of time. The Yen became the focus of traders looking to put on carry trades, as many had expected the Fed to have a more hawkish tone with regard to interest rates, or possibly to raise the Fed Funds rate. The central bank raised its overnight discount rates last week, which was an unexpected move that market observers believed may have hinted toward a rise in the Fed Funds rate. Mr. Bernanke dashed these hopes, which were a bit overblown, and this could put the greenback under pressure against major currencies. Traders executing carry trades may switch from Yen to Dollars in order to balance out positions. Trading Ideas The fundamental and technical outlooks appear to give conflicting views of the Yen. The fundamentals seem to indicate that the Japanese currency could move higher, yet the technical outlook appears to hint that the Yen could move lower over the near-term, and trade sideways over the intermediate-term. This suggests that some traders may wish to consider taking advantage of the possible lack of direction by trading the range and shorting the March contract when prices approach 1.1200, and reversing if and when the currency falls back into the low 1.0900's. Some traders may possibly wish to abandon the strategy on a significant close above 1.1250 or below 1.0750. Technicals Turning to the chart, the March Yen continues to trade sideways, unable to break resistance in the 1.1250 area. Yesterday's doji pattern hints at a possible near-term reversal. The fact that the March contract was unable to close above the 20 and 50-day moving averages could also be seen as a technical setback for the currency. Momentum has also been lagging behind both price and RSI, as well as hinting at technical weakness. Rob Kurzatkowski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1190 2010-02-24T14:23:42Z 2010-02-24T14:24:57Z

Fundamentals Oil prices remain resilient, hovering near $80 per barrel, despite less than stellar fundamentals. Some of the recent gains in Oil were attributed to a refinery workers' strike in France, which sparked a run-up in Gasoline prices. Oddly, a...

Futures Fundamentals Oil prices remain resilient, hovering near $80 per barrel, despite less than stellar fundamentals. Some of the recent gains in Oil were attributed to a refinery workers' strike in France, which sparked a run-up in Gasoline prices. Oddly, a refinery shutdown may actually be bearish for Oil prices vs. refined products, as Oil demand decreases due to the refinery shutdown. In the U.S., low refinery margins have refineries operating at levels well below capacity, curbing Oil demand from actual users of the product. Despite lower refining output, U.S. gasoline supplies remain more than ample. Traders are looking for U.S. gasoline supplies to have increased by between 500,000 and 1 million barrels last week when the Energy Information Administration (EIA) releases their weekly energy stocks report. The increase is expected despite expectations of lower gasoline imports last week due to the strike in France. Crude Oil inventories are also expected to show an increase of nearly 2 million barrels. Not even a rising U.S. Dollar, especially vs. the Euro, could derail the recent up-move. So what is behind Crude's strength? Looking at the most recent commitment of traders report, we notice large non-commercial traders (traditionally commodity funds and large speculative accounts) increased their net long positions by nearly 19,000 contracts for the week ending February 16th. This increase was before the last upsurge to $80 in the April contract. These traders tend to be more technical or trend-following in nature, and will add to winning long positions as prices move higher. Non-reportable positions (small speculators) decreased last week, as small traders continued to abandon their net-short positions as oil prices rose. So it appears that technical considerations, not fundamentals, are in vogue in the Oil markets lately, and until proven incorrect, large speculators will want to continue to add to their long positions as long as the up-trend remains in place and their statement balances increase. Trading Ideas Given the Oil market's seeming ignorance to bearish fundamentals, it may be difficult to fight the trend and take a short position in Oil. By using options on Oil futures, however, a trader is able to establish a bearish position in Oil with a predefined risk that may allow one to ride out any short-term up-move without the fear of potentially unlimited risk. One such strategy would be selling bear call spreads in Oil options. An example would be selling the April Crude Oil 85 calls and buying the April Crude Oil 90 calls. With April Crude trading at 78.51 as of this writing, the spread could be done at a credit of 0.35, or $350 per spread, not including commissions. The premium received is the maximum potential gain on the trade and would be realized if April Crude Oil is trading below 85.00 at the option expiration in March. The maximum loss would be $5,000 minus the premium received if April Oil is trading above $90.00 at option expiration. Given this potential risk, some traders may wish to minimize the risk by closing out the trade early if April Oil trades above resistance at 85.00 before the options expire. Technicals Looking at the daily chart for April Crude Oil, we notice a "Doji" appeared on the daily chart, marking what appears to be a top in the latest up-move. This candlestick chart indicator can be a sign that the current trend has run its course, as the market has entered a period of equilibrium where neither bulls nor bears have control. Although prices remain above both the 20 and 100-day moving averages, yesterday 's sell-off did take prices below the 100-day MA , which may spark long liquidation selling should we close below this widely-watched technical indicator. The 14-day RSI has turned lower, moving to a more neutral reading of 55.59. Monday's high of 80.78 appears to be near-term resistance for the April contract, with major resistance seen at the January 11th high of 84.96. Near-term support is seen at the 20-day moving average, currently near the 75.80 area, with major support seen at the February 5th low of 69.80. Mike Zarembski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1186 2010-02-23T14:04:44Z 2010-02-23T14:14:43Z

Fundamentals Stock index futures were higher for the sixth consecutive session, albeit only modestly so, despite the Fed's surprise decision to raise the discount rate last week. The move by the central bank can be seen as a positive for...

Futures Fundamentals Stock index futures were higher for the sixth consecutive session, albeit only modestly so, despite the Fed's surprise decision to raise the discount rate last week. The move by the central bank can be seen as a positive for the economy as a whole, as the FOMC tends to err on the side of caution. The rate hike may mean US central bankers are fairly confident that the economy has formed a base it can build on. It will be interesting to see if stock traders will remain enthusiastic, as some market observers believe the Fed may have jumped the gun in its surprising move. Many believe that interest rates need to remain low in order for the economy to rebuild, and that inflation may continue to move forward at a snail's pace. The argument can also be made that inflation is a major concern for traders going forward, so the tightening of rates may be the appropriate action from the central bank. On the economic front, jobs remain the major concern among traders. During this long economic downturn, companies have learned to operate very lean, suggesting they may be tentative about hiring new workers. This presents a problem, and could create a vicious cycle of lack of jobs leading to a smaller bottom line, leading to fewer jobs, etc. Fed Chairman Bernanke is expected to touch on the discount rate decision, as well as possible changes to the Fed Funds rate and job growth when he testifies before Congress later this week. The market does seem a bit stretched at the moment, so some traders may be looking for positive reinforcement to keep the rally moving. Trading Ideas The fundamental outlook for equities remains extremely murky presently. A host of modestly better economic indicators seem to be overshadowed by the problems the labor market has been experiencing. The chart shows the recent rally finally beginning to lose some steam, but the strong bounce the market saw from the 1050 level could be a sign the future downside potential may be limited. Given the hefty option premiums and the uncertainty in the fundamental market outlook, some traders may look to enter into a short-sighted trade. If the market opens lower this morning, traders may wish to consider shorting the March E-mini S&P, with a protective stop at 1126 and a downside target of 1075. The exact risk/reward ratio cannot be determined, as we do not yet have an entry price. Technicals Turing to the chart, the March E-mini S&P has been rallying on light volume, suggesting some traders may be hesitant to buy into the rally. Yesterday's spinning top formation suggests that the chart may be favoring the downside in the near-term. Both the RSI and momentum indicators are showing bearish divergence from prices, suggesting that the oscillators also favor the downside. The inability of the market to move above the 50-day moving average could also be seen as favoring the bear camp. Rob Kurzatkowski, Senior Commodity Analyst ]]> tag:www.futuresblogs.com,2010://3.1183 2010-02-22T13:54:43Z 2010-02-22T13:56:08Z

Fundamentals The Federal Reserve surprised most market participants Thursday afternoon by announcing a 0.25% increase in the discount rate. The discount rate is the interest rate charged to banks for emergency loans, and normally any changes in this rate are...

Futures Fundamentals The Federal Reserve surprised most market participants Thursday afternoon by announcing a 0.25% increase in the discount rate. The discount rate is the interest rate charged to banks for emergency loans, and normally any changes in this rate are considered more symbolic in nature. But traders are taking a somewhat different stance this time, as many consider this the Fed's "first shot" at attempting to ease off the stimulus gas pedal and begin the interest rate tightening cycle. Fed officials were quick to emphasize, however, that this action was not the start of a broad tightening of credit, and that any increases in the Fed Funds interest rate were still a ways off. Before Thursday's announcement, it was generally believed that the Fed would remain "accommodative" with its interest rates policy -- at least until there were clear signs that the U.S. employment picture was improving, with new jobs being created month over month. The general consensus was that there would not be enough of an improvement in the employment picture to satisfy the Fed until late in 2010, or perhaps into 2011. Now, after the Fed's action, traders are beginning to price-in an increasing chance of a 0.25% rate hike in the Fed Funds rate as early as September of this year. Currency futures reacted strongly to the Fed's announcement, with the U.S. Dollar rising sharply -- especially vs. the Yen and Euro Currency, as traders took the Fed action as a signal that the U.S. economy would recover much more quickly than the economies of the European Union or Japan. Whether the Federal Reserve is ready to speed-up the tightening cycle will still be dependent upon upcoming economic data releases. One of the biggest concerns among some Fed officials is being able to keep the inflation rate in check, especially if the current accommodative stance is kept on too long. However, if Friday's release of the Consumer Price Index (CPI) for January is any indication, this fear may be premature. The CPI rose a modest 0.2% in January, with the so-called "core" rate, which excludes energy and food prices, actually falling by 0.1% last month. This was the first decline in the "core" rate since 1982! Although several Fed governors have come out saying that the Fed's action is not the start of something bigger, traders seemed more inclined to focus on what the Fed actually does, rather than what might be said. Trading Ideas Fed fund futures are used by traders to speculate on potential changes in the Fed Funds rate set by the Federal Reserve. To calculate what the market is expecting the Fed Funds Futures rate to be, you take the current price of the Fed Funds futures month you are interested in and subtract that price from 100. For example: a Fed Funds futures price of 99.50 translates into a Fed Funds futures rate of 0.50% (100-99.50 = 0.50%). Currently, the September Fed Funds futures are trading at 99.67, which relate to about a 62% chance that the Fed will raise the Fed Funds rate by 0.25% basis points by the end of September. Traders expecting an increase of this magnitude or more may wish to sell the September Fed Funds futures. Those who believe that the Fed will not likely hike the Fed Funds rate before September may choose to buy the September Fed Funds futures. Currently, futures contracts are listed out through December of 2011, allowing traders to speculate on Fed interest rate actions almost 2 years into the future. Technicals Looking at the daily chart for December 2010 Fed Funds futures, we notice that the uptrend line drawn from the December 31st lows has been broken. This indicates that the market is not anticipating any further interest rate cuts. Yesterday's surprise Fed announcement sent prices below the 20-day moving average, possibly signaling traders' anticipation of an interest rate hike by the end of the year. However, prices have failed to take-out support at the recent low of 99.36, despite the Fed announcement. Resistance is found at the contract highs of 99.50 made on February 5th. Mike Zarembski, Senior Commodity Analyst ]]>