Food and Fiber Archives

Crude Oil Soars to Near-Record Highs!

Lead month September Crude Oil surpassed the $78 per barrel mark this afternoon, as traders look for continued strong world demand. In the U.S., expectations for an increase in refinery utilization should result in another drawdown of Crude inventories last week. Current expectations for tomorrow's EIA energy stocks report are for Oil inventories to have fallen by 700,000 barrels last week, as refineries are expected to have operated at 92.4% capacity. RBOB Gasoline and Heating Oil futures also posted sharp gains, despite estimates that product inventories increased by 1.1 million and 1.4 million barrels, respectively. Technical Crude traders are looking at the all-time highs of $78.40 for the nearby contract as a key resistant point, with the potential for $80 barrels if fresh buying emerges above this level. Support is seen at the 20-day moving average of $74.50. September Crude Oil closed at $78.21, up $1.38.

October Sugar rallied sharply this morning, as commodity fund and trade-house buying emerged in electronic trading before the opening of the pit session. Near-record highs for Crude Oil futures were also seen as a supportive factor for Sugar, as high energy prices may spur increased demand for cane-based ethanol. Floor sources report some producer selling around 10.30 in the October contract, but fund buying absorbed the sell orders as prices closed near the highs of the session. Spread trading was active on the screen, with over 23,000 October/March spreads traded. The next resistance point for October Sugar is seen at 10.53, with support found at Monday's lows of 9.91. October Sugar closed at 10.33, up 0.31.


Bulls charge ahead at the close!

Today was quite the sea saw battle between the bulls and the bears in the US stock market. In the end, the bulls won today’s battle. The Dow closed the day at 13,366 gaining 154 points. The S & P ended the day 10 points on the positive side of the fence while the Nasdaq closed at 2553, up 7 points.

In the news, pending home sales came out with a surprise increase of 5% for the month of June. This could be a leading indicator of new and existing home sales for the report coming out at the end of August. The ISM index came in below expectations at 53.8. The concensus was 55.5.

Bond yields were on the rise today as the 10 year note closed the day with a yield of 4.78%.

In the overseas markets, the Nikkei closed yesterday at 16,870 (down 2.19%) and the Hang Seng closed at 24,455 (down 3.15%).

Economic Data Scheduled for Thursday, August 2, 2007

(All times are U.S. Central Time)

7:30 AM: Initial Jobless Claims (Consensus 310K)
9:00 AM: June Factory Orders (Consensus +1.0%)


6:00 AM: BOE Interest Rate Decision (Consensus 5.75%)

European Union
4:00 AM: June PPI Mom (Consensus +0.3%)
4:45 AM: ECB Interest Rate Decision


Coffee Futures Starting to Heat Up!

Speculative accounts are starting to warm up to the Coffee market of late, with the September contract surging to highs not seen since late June. Origin selling, which would normally appear on rallies during the harvest season in Brazil, has been light, further aiding the bullish cause. A strong Brazilian Real versus the U.S. Dollar and price subsidies from the Brazilian government are allowing growers to hold back on sales while awaiting higher prices. The next official crop estimate for the 2007-08 Brazilian Coffee crop comes on August 24th, with some early estimates calling for a crop of between 32 and 35 million bags. Roasters will be looking to secure supplies soon to meet winter demand and with Brazil’s domestic Coffee prices relatively high versus exchange prices, some traders look for roasters to use the futures markets and exchange stocks as a source for supplies.

Looking at the daily chart for September Coffee, we notice prices moving above the 100-day moving average during yesterday’s sharp rally. With follow-through buying in early trade this morning, the next resistance point appears to be the June 21st highs of 117.95. The 14-day RSI looks solid with a current reading of 65.65. Support is seen at 112.30, with major support found at the recent lows of 111.00. Currently, September Coffee is trading at 117.10, up 0.90.


Cotton Consolidation Continues!

Range-bound trading may continue in Cotton futures this week, as traders gear up for the August USDA crop report on Friday. The August report is widely anticipated, as it is the first report of the season that uses actual surveyed data, thus providing a better estimate to the size and condition of the crop. U.S. and world Cotton production is expected to decrease this season, as U.S. growers have switched acreage to more profitable crops such as Corn or Soybeans, and poor weather conditions in China have caused analysts to lower estimates of the Cotton crop there. On the export front, the 2007-08 marketing year is off to a solid start, with U.S. Cotton exports running at 8.4% of USDA projections for the year, up by 1.3% from this time last season. Traders will also focus on this afternoon’s USDA weekly crop progress report to see if the Cotton crop ratings fell again last week.

Looking at the daily chart for December Cotton, we notice a rising wedge formation unfolding the past two weeks. Prices remain below the 20-day moving average, currently standing at 6507. The 14-day RSI is reading a rather neutral 55.55 this morning. Though trading should be choppy the next few days, Friday’s report has the potential to be the catalyst for direction in Cotton prices heading into the fall harvest period. In early trade, December Cotton is trading at 6470, down 19.


Sugar Not So Sweet For Bulls!

The recent rally above the 10-cent level for October Raw Sugar futures failed to spur fresh momentum buying, as origin sellers took advantage of the rally to hedge production and send prices tumbling to 3-week lows in early trade today. The N.Y market has received no help from the White Sugar market traded in London, which fell to 21-month lows this morning, as Russia still has not raised its import duty on Sugar. The import duty was expected to increase short-term demand, as buyers covered their needs before it took effect. Large Sugar surpluses in Brazil and India have also pressed Sugar prices lower – India is expected to have 1.3 million tons of White Sugar available for export this month, with exporters looking to be eager sellers on any price increases. Despite weak fundamentals, the most recent Commitment of Traders report shows both large and small speculators holding a net-long position of 105,836 contracts as of July 31st, which leaves room for further liquidation selling should prices continue to tumble.

Looking at the daily chart for October Sugar, we notice prices approaching the 100-day moving average, currently at 9.71. Many technicians consider this key moving average the arbiter as to whether a market is in a bullish or bearish long-term trend, so a close below this level could be the catalyst for further speculative liquidation or even a switching of positions to the short side. The 14-day RSI looks weak, with a reading of 34.72. 9.71 will be key support for October Sugar, with resistance seen at the psychologically important 10-cent level. In early trade, October Sugar is trading at 9.81, down 0.03.


Stock Sell-off Looks to Overshadow Major USDA Report!

Grain futures: It was a fairly quiet night in the Grain futures markets, as traders saved their strength for this morning’s USDA crop production and supply/demand report. Corn traders are looking for a moderate increase in production from the July report, with average estimates for a 12.909 billion bushel crop versus 12.840 billion in July. Soybeans are expected to also show a slight production rise to 2.653 billion bushels, up 28 million bushels from July’s report. All U.S. Wheat production is expected to decline, with average trade estimates calling for 2.129 billion bushels versus the 2.138 billion bushels in July’s report. At the close of the electronic overnight session, December Corn was trading at $3.45, down 3 1/4, November Soybeans were trading at $8.82, up 4 ½, and December Wheat was trading at $6.88 ½, down 1 ¼.

Cotton: U.S. Cotton production is expected to show a slight improvement in today’s USDA report, with average estimates calling for a 17.70 million-bale crop, up from 17.50 million bales in the July estimate. This is still well below 2006 production of 21.59 million bales, as producers switched acres from Cotton to Corn and Soybeans. In early electronic trade, December Cotton is trading at 6224, down 18.

Stock Index futures: No recovery in U.S. Stock index futures this morning, as major foreign stock indexes continue to slump, with the DAX 30 currently down 1.6%, the FTSE 100 down 3.01% and the Nikkei 225 closing down 2.37%. The European Central Bank added an additional 61.05 billion Euros ($83.6 billion) into the banking system today after yesterday’s 94.8 billion Euro injection. The Central Banks of Canada, Australia, and Japan joined the U.S. Federal Reserve in adding funds to help stem a short-term credit crunch. In early trade this morning, the September e-mini S&P 500 index was trading at 1440.00, down 18.00, while September mini-Dow futures are trading at 13185, down 142.

Mike Zarembski, Senior Commodity Analyst


USDA Raises Corn Crop Estimate, Lowers Wheat and Cotton!

The August crop report has something for everyone, with the USDA raising U.S. Corn production due to a sharp increase in yield estimates. However, difficult weather conditions forced the all Wheat production estimate down by over 20 million bushels from July’s figure. The following are key highlights from this morning’s report:

Corn: The USDA raised the U.S. Corn production estimate to 13.054 billion bushels, up from 12.840 billion bushels in July and above pre-report estimates. Average Corn yields are expected at 152.8 bushels per acre, up from 150.3 in July. 2007-08 Corn carryout is expected to increase to 1.516 billion bushels, slightly above the 1.502 billion estimate for July.

Soybeans: The 2.625 billion bushel estimate for July remains unchanged for August, though average analyst estimates were calling for a moderate increase to 2.653 billion bushels. Average yields also remained in place at 41.5 bushels per acre. Carryout totals were lowered to 220 million bushels, down 25 million bushels from July and 27 million bushels below analyst estimates.

Wheat: All Wheat production is expected to decline to 2.114 billion bushels, down from 2.138 billion in July and 15 million bushels below pre-report estimates. Increased world demand is expected to increase U.S. exports, with 2007-08 carryout totals expected to drop to 404 million bushels, down form 418 million bushels in July.

Cotton: The USDA lowered U.S. Cotton production estimates to 17.346 million bales, down from 17.50 million bales in July and well below the 17.70 average pre-report estimates. U.S. Cotton carryout is expected to fall to 5.80 million, down from 5.90 million in July.

Early calls by CBOT traders are for Soybeans to open up 3 to 5 cents higher, Wheat to open up 2 to 3 cents higher, and Corn to open 1 to 3 cents lower. In early trade, December Cotton is trading at 6225, down 17.

Mike Zarembski, Senior Commodity Analyst


No Soft Landing for Cotton Today!

December Cotton fell to lows not seen since June 27th, as weaker-than-expected USDA export estimates overshadowed a cut in U.S. production. The USDA cut its estimate for the U.S. Cotton crop to 17.35 million 480-pound bales, down from 17.5 million bales in the July report. However, the USDA cut its estimate for U.S. Cotton exports by 300,000 bales, which was seen as a sign of weaker world demand, as well as the rise in world ending stocks to 51.52 million metric tons, up from 50.78 million in July. Today's sell-off sent prices through the 50-day moving average, with triggered sell-stops below this level. 6007 is seen as the next support point for December Cotton, with resistance found at 6235. December Cotton closed at 6124, down 118.

Gold and Silver futures had a wild ride today, with prices initially in the red as continued fund liquidation roiled the commodity markets. However, the fresh influx of funds to the financial system throughout the world by Central Banks and some moderate flight-to-safety buying by speculators caused a sharp rally in the two major precious metals. A weaker U.S. Dollar versus the Euro also was supportive to the metals complex. Today's rally in Gold sent prices back above both the 20- and 50-day moving averages, which triggered fresh momentum buying. Silver futures found some support after hitting 1-month lows $12.605, but prices remained below the widely watched moving averages at the close of the day session. Support for December Gold is now seen at $665.30, with resistance found at $688.10. Support for September Silver is seen at $12.635, with resistance at $13.440. December Gold closed at $681.90, up $9.10, and September Silver closed at $12.870, up $0.165.


Running Out of Gas!

Natural Gas futures soared to 6-week highs early in the session as storm activity in the Atlantic basin sparked a round of short-covering buying. Two tropical disturbances are being tracked by forecasters at the National Hurricane Center in Miami – one off the coast of Africa about 520 miles west-southwest of the Cape Verde Islands and another over the northwest Caribbean. Though neither storm has been upgraded to Tropical Storm status, traders will be watching developments carefully should these systems organize into stronger storms. In addition, cooling demand for the Midwest and East coast should remain strong as forecasters call for temperatures in the mid 80’s to low 90’s this week. Today’s rally sent prices above the 50-day moving average at $6.977 and through psychological resistance at $7.000, which triggered fresh momentum-based buying. Cash prices have moved higher with Henry Hub next day delivery up 60 cents this morning. However, bulls ran out of gas around midday, as one weather model predicted the depression near the Cape Verde Islands would move north away from the U.S. Gulf Coast, sending traders scrambling to sell out of existing long positions and knocking prices well off the session highs to end the day. The 100-day moving average at $7.526 looks to be the next resistance point for September Natural Gas, with support now seen at $6.684. September Natural Gas closed at $6.794, down 0.026.

After hitting 3-month lows on Friday, Cocoa futures rebounded to start the week, with trade and technical buying noted this morning. A return to some stability in the stock and commodity markets this morning has helped support Cocoa futures, along with higher prices in London. Origin selling has been light of late, especially once prices fell below the $2,000 per ton level. Technical traders will note that the 14-day RSI had fallen into oversold territory on Friday with a reading of 27.91, which may have contributed to some of the fresh buying seen today. Support for December Cocoa is seen at Friday’s lows of $1823, with resistance at $1923. December Cocoa closed at $1886, up $36.

Mike Zarembski, Senior Commodity Analyst


Traders Sour on O.J. Futures!

Orange Juice futures closed sharply lower this afternoon, after a private analyst came out with a larger-than-expected estimate for the 2007-08 Florida Orange crop. Citrus consultant Elizabeth Steger projected the Florida Orange crop at 198 million 90-pound boxes – well above the expected range of between 160 and 180 million boxes. In contrast, this year's crop came in at nearly 129 million boxes. The most active September contract briefly traded down the 10-cent limit after rumors of the estimate hit the ring in the last 30 minutes of the day session. Contract lows at 118.90 continue to be support for September O.J., while resistance is found at the 50-day moving average currently at 134.70. September Orange Juice closed at 122.00, down 9.70.

Though only recently becoming an official named storm, Tropical Storm Erin is already catching the attention of Cotton traders, as traders fear potential flooding and crop damage as the storm nears the Texas coast. At 10:30 AM Chicago time, Erin was located 250 miles east of Brownsville Texas, moving west-northwest at 12 mph according to the National Hurricane Center. Erin is currently expected to make landfall near the lower or middle Texas coast in the next 48 hours. Any damage to the Cotton crop would be supportive to new-crop Cotton futures, as the USDA is estimating US ending stocks to fall to 5.80 million bales versus 9.7 million bales this past season. However, concerns that U.S. Cotton exports will not meet USDA estimates are keeping any rally attempts in check. Technically, December Cotton remains range-bound between two widely watched moving averages, with support seen at the 100-day moving average at 5928, and resistance found at the 50-day moving average of 6260. December Cotton closed at 6018, down 36.

Mike Zarembski, Senior Commodity Analyst


Spillover Effect!

What do Cotton, Gold, Crude Oil, Corn, and Cocoa all have in common? Well, in early trade this morning, these five, along with nearly every other U.S. traded commodity future, are trading lower, as fears of an economic slowdown have traders liquidating commodity futures across the board as they attempt to increase liquidity. This morning’s action in the commodity markets is a good lesson for traders on how interrelated the global markets really are, where the fundamentals that may be affecting Cocoa or Wheat can take a backseat to overriding concerns about liquidity and the forced liquidation of positions by speculators in normally uncorrelated markets to cover losses elsewhere. With many major European Stock markets down over 2% so far today and S&P futures trading at lows last seen in March, it will be interesting to see how commodities react once the day session begins. Should the stock indexes make a recovery, will commodities follow? Stay tuned……

Looking at the daily chart for December Gold, we notice that even a market once thought of as a vehicle for “safe haven” buying cannot stage a rally. Prices are lower in early trade, hovering just above recent lows at $668.80, with a stronger U.S. Dollar against the Euro not helping the cause of Gold bulls. Prices have now fallen below the 50-day moving average, which may trigger fresh selling by momentum traders. The $668.80 level will be widely watched, and a close below this level could signal a test of the $650.00 before major support is seen. Resistance is found at the 20-day moving average of $681.80. In the early going, December Gold is trading at $672.00, down $7.70.


Commodities Crash, But For How Long?

It was hard to find much green on the commodity quote boards today as liquidation selling pummeled nearly every commodity sector. Some of the highlights (or lowlights): December Cotton closed down the 300-point limit, September Lumber was down 9.50, November Soybeans were down 40 cents, December Gold was down $21.40, October Live Cattle was down 2.07, September Crude Oil dropped $2.33, and the list went on an on. The continuing shakeout from the credit crisis has spurred a flight to liquidity, with traders and investors looking to seek refuge in short-term government debt. Fundamentals were largely ignored in many markets, as forced liquidation of positions took center stage with margin calls looming. However, as of 2:46 PM Chicago time, the S&P 500 futures have staged a bit of a rally, and if they can finish unchanged or higher, we may see a different outcome in the commodity markets tomorrow.

Soybean futures were hit hardest in the grain complex sell-off this afternoon, with the most-active November contract falling the 50-cent limit at one point in the session to its lowest levels since mid-May. The entire commodity complex had been under pressure today due to the continued rush for liquidity in the wake of recent financial turmoil. Also weighing on the Soybean products was the improved chances for rainfall in the Midwest, including previously parched sections of the region. U.S. weekly Soybean exports came in at 313,300 metric tons for the week ending August 9th, with 236,000 mt for the 2006-07 marketing year. Soy products were not immune from the sell-off, as December Bean Oil posted triple-digit losses on the back of sharply lower Crude and Malaysian Palm Oil futures, and December Soy Meal broke through near-term resistance at the 20- and 100-day moving averages. The next support point for November Soybeans is seen at the psychologically important $8.00 level, with resistance found at the 100-day moving average of $8.34. November Soybeans closed at $8.14 ½, down 40 cents.


Credit Crunch Crushes Fundamentals in Cotton!

After last Thursday’s limit-down move on heavy speculative liquidation, Cotton futures have staged a moderate comeback, with prices nearly 350 points above Thursday’s lows of 5560. Yesterday’s weekly USDA crop progress report showed that the U.S. Cotton crop continued to deteriorate, with 51% of the crop now rated good-to-excellent, down from 53% last week and below the 10-year average of 52%. The recent sell-off in Cotton prices may make U.S. Cotton more attractive to foreign buyers, which could improve U.S. export totals. Though Cotton prices have rallied since the May lows, some traders believe prices may need to rally further in order to “buy” acres for next season’s crop away from Corn and Soybeans. This has led to an increased speculative interest in the December 08 contract, which is priced just over 8 cents above this year’s new-crop December contract. Though the recent sell-off had liquidated a portion of the large net-long speculative open position, any further concerns of the recent credit crunch expanding may cause further long liquidation by commodity and hedge funds, despite improving fundamentals.

Looking at the daily chart, we notice December Cotton approaching the 100-day moving average. A weekly close above this level may be the key to further price appreciation, as many traders look at the 100-day moving average as a barometer of a bull or bear market. The 14-day RSI has moved above oversold territory but is still reading a rather weak 35.05. Major support is seen at the August 16th lows of 5560, with resistance found at the 20-day moving average at 6210. In early electronic trade, December Cotton is trading at 5908, up 40.

Mike Zarembski, Senior Commodity Analyst


Carry On My Wayward Traders!

Japanese Yen/currencies: It appears that an appetite for risk among traders and investors has returned in the currencies. September Japanese Yen futures are sharply lower this morning, as traders start to sell Yen and buy higher-yielding currencies such as the Australian and New Zealand Dollars, once again initiating the so-called “carry trade.” The resumption of this popular trade appears to be bolstered by stabilization in world equity markets, as well as assurances from central banks around the globe that they will step in to supply liquidity as necessary to the short-term credit markets. In the early going, September Japanese Yen is trading at 0.8591, down 0.0131, September Australian Dollar is trading at 0.8192, up 0.0134, and the September New Zealand Dollar is trading at 0.7154, up 0.158.

Chicago Wheat: Soft Red Winter Wheat futures continued their surge to near all-time high prices overnight, as several more nations are seeking Wheat purchases amid continuing tight world supplies. Taiwan, Japan and India are either looking to purchase or have already announced purchases of Wheat this morning. India is the second largest Wheat consumer behind China, and additional purchases from this region are strongly supportive to Wheat prices. In addition, there are concerns that Australia, the world’s third largest Wheat exporter, may experience warmer than normal temperatures this spring according to some forecasters, which has the potential to hurt crop yields. At the end of the overnight session, December Wheat was trading at $7.43, up 11 ¼ cents.

Sugar: October Sugar surged to near 2-week highs this morning, as Russia proposes to raise its raw Sugar duty from $140 per ton to $220 per ton. This news is expected to increase short-term demand as buyers obtain supplies ahead of the scheduled December increase. In early trade, October Sugar stands at 9.69, up 0.19.

Mike Zarembski, Senior Commodity Analyst


Record High For Chicago Wheat!

Chicago Wheat futures hit an all-time high this morning at $7.54 a bushel in the December 2007 contract, as strong exports and extremely tight world ending stocks have buyers scrambling to obtain supplies. Statistics Canada lowered that country’s Wheat production estimate to 20.322 million tons, well below the average pre-report estimates. Wheat futures in London and Paris also made new all-time highs today to add to the buying pressure, before profit-taking selling emerged once new highs were made. Prices fell sharply inter-day before a late short-covering buying surge near the close kept Wheat prices in the green at the close. Resistance for December Wheat is now seen at the new highs of $7.54, with support found at $7.15. December Wheat closed at $7.39, up 7 ¼ cents.

It was turnaround Thursday in the Cocoa ring today, as short covering buying propelled prices sharply higher after 6 ½-month lows were made on Wednesday. The only real fundamental news out this morning was the current arrival totals out of the Ivory Coast – the world’s leading Cocoa producer. Current arrivals totaled 1,186,000 metric tons, down nearly 10% from last year’s levels. However, traders report today’s rally was mostly technical in nature, with buy-stops being triggered above the recent highs of $1780 in the December Contract. $1815 is seen as the next resistant point for December Cocoa, with support found at Thursday’s lows of $1750. December Cocoa closed at $1792, up $38.

Mike Zarembski, Senior Commodity Analyst


Are New Home Sales Going to Surprise?

Treasuries: Traders will be watching the Bonds today with New Home Sales set to be announced at 9:00 AM Chicago time. With the expectation at 825,000, we will see if there is a rush to Bonds after the announcement, business as usual, or reason to get out of the Treasuries. Last month’s Housing Starts number did give an indication that we may get some good news today in the housing market, but building permit numbers were down from expectations a month earlier. In the early going, the 10-year Note is trading higher.

S&P e-mini: The S&P 500 is just coming off of its starting point for 2007. Although we did dip into negative territory for a while last week, the stock market has since gained some ground back to the positive side. The S&P never quite hit its lows for the year from back in March, but it did come close. Traders will be watching to see whether the market will consider where we have been support, or will it test the yearly lows from March? The S&P e-mini contract was trading down 3 points at 6:00 AM Chicago time.

Coffee: Coffee is holding its own of late. It could have continued to drop earlier in the summer, but instead managed to hold on around the 110-115 mark, and has remained more or less range-bound between 110-120 for the summer. Are we seeing a bottom forming or is Coffee due for a breakout to the downside in the next few weeks? In early trade, Coffee was slightly higher this morning.


Conab Increases Brazilian Coffee Estimate!

Coffee futures came under pressure Monday as traders reacted to a rise in the estimate for the 2007-08 Brazilian Coffee crop. The report by Brazil's National Commodity Supply Corp., or Conab, issued after the close of trading on Friday estimated the Brazilian Coffee crop at 32.6 million 60 kg bags – up a half million bags from the April estimate. However, Brazilian Coffee exports were expected to fall to 25 million bags, down from 28 million bags in 2006. Coffee prices saw further pressure from trading in London, where the Robusta contract fell as traders looked at the prospects for this year’s Vietnamese harvest. The world’s largest Robusta Coffee producer is expected to produce a larger-than-expected crop, with some estimates calling for a harvest of over 1 million tons versus this year’s 930,000 tons. Large speculators continue to hold a net-long position in Coffee, with the most recent Commitment of Traders report showing large non-commercial traders net-long 25,843 contracts as of August 21st. This sets up the possibility for some fresh long liquidation selling should near-term support fail this week.

Looking at the daily chart for December Coffee, we notice prices holding below both the 20- and 50-day moving averages. The 14-day RSI has turned neutral, with a current reading of 44.80. Major support is now seen near the 115.00 level, with the next support point not found until the 113.00 area. Resistance is seen near the 50-day moving average currently in the 118.25 area. In early electronic trade, December Coffee is trading at 117.30, up 0.10.

Mike Zarembski, Senior Commodity Analyst


Sweet and Sour Sugar Fundamentals

World Sugar futures prices have moved sideways the past several sessions, as bulls and bears battle it out for control of the market. Making the bulls’ case is the announcement that Russia will raise the import duty for Raw Sugar, which should in turn raise near-term demand as importers obtain supplies ahead the imposition of the duty. Meanwhile, Brazil, the worlds largest producer of Sugar, is expected to see more of its cane crop go towards the production of Ethanol in the coming years, which would cut in to the amount of cane available for Sugar production. Bears counter with a report from the International Sugar Organization last week, which estimated a world Sugar surplus of 10.8 million tons through September of 2008, as production soared to a record 169.6 million tons. India, the world’s second leading producer of Sugar, is responsible for much of the surplus after producing a record 28 million tons this year. This comes at a time when China, the second largest consumer of Sugar, is expected to decrease it purchases as domestic production is predicted to increase.

Looking at the daily chart for October Sugar, we notice prices starting to form a symmetrical triangle pattern starting with the 8/16 lows of 9.08 and the 8/23 highs of 9.73. This pattern usually brings about a period of consolidation before the next move in prices. This morning’s current high of 9.56 is coming very close to moving above both the 20- and 100-day moving averages of 9.55 and 9.56, respectively. A weekly close above these key moving averages may spark fresh momentum buying, as short-term traders seek to cover short positions. The 14-day RSI has moved into neutral territory with a reading of 51.88. Major support is seen at the lows of 9.08, with recent highs of 9.73 looking to be stiff resistance. In early electronic trade, October Sugar is trading at 9.54, up 0.12.

Mike Zarembski, Senior Commodity Analyst


Hurricane Felix Moving Markets This Morning!

Crude Oil: Oil futures are currently trading lower in post-holiday trade, as bulls take profits with Hurricane Felix figuring now to bypass Mexico’s Oil rigs in the Gulf of Mexico. The category 4 storm is now on track to reach Nicaragua and Honduras later today. October Crude Oil is currently trading at $74.11, down $0.12.

Wheat: Chicago Wheat futures for December were up the 30-cent limit at the end of the overnight session, as India purchased 795,000 tons of Wheat yesterday – well above the 530,000 tons offered in last weeks tender. The increased purchase comes despite all-time highs in world Wheat prices. Australia, the world’s third leading Wheat exporter, is now expected to produce less than 19 million metric tons of Wheat this season, down from the June estimate of 22.5 million tons. At the end of the overnight session, December Wheat was trading at $8.05 ½, up 30 cents.

Coffee: New York Arabica Coffee futures are trading higher in electronic trade this morning, following higher prices in the London Robusta trade as traders fear Hurricane Felix will damage the Coffee crops in Honduras. This comes at a time when Coffee supplies are tight, with the International Coffee Organization looking for an 8-million bag deficit next season. In early trade, December Coffee was trading at 117.20, up 1.35.

Mike Zarembski, Senior Commodity Analyst


“Board” with Stocks and Bonds?

Can one futures market act as a barometer for the housing industry, the construction sector, and the Atlantic hurricane season? “Wood” you believe that Lumber can?

Traded at the Chicago Mercantile Exchange (CME), Lumber futures provide a risk management vehicle for producers like mills and wholesalers, as well as end users like home builders and retail dealers. Given the recent slump in the U.S. housing sector, many hedgers and traders see the Lumber futures market as a gauge of the overall health of this corner of the economy. Meanwhile, speculators often favor Lumber futures as a diversification tool, as well as a means of taking advantage of the seasonal trends of the market, including increased demand during the volatile storm season.

Lumber futures are yet another example of the exciting range of futures products now available to optionsXpress customers. Check out all the futures products now available for trading. There are more to come in the weeks ahead!

Mike Zarembski
Senior Commodity Analyst

Futures involve substantial risk and are not appropriate for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for an account.

Oil Higher Ahead of OPEC Meeting

Crude Oil futures closed higher to start the week with the second highest close ever for the lead month contract, as traders squared up their positions ahead of a meeting by OPEC ministers in Vienna on Tuesday. Though some OPEC officials have commented that the Oil market is well-supplied and current output is fine, there are a growing number of traders and analysts who believe that Saudi Arabia – the largest individual Oil producer in the cartel – will ask for an output boost of as much as 500,000 barrels per day. This possibility has some traders nervous, especially after the lead month October contract has posted five consecutive up days. However, bullish traders will counter that OPEC is currently producing above its official quota, and any increase will mostly be symbolic. Oil prices still include a “weather premium,” as this year’s Atlantic hurricane season could still produce a storm to interfere with Oil production in the Gulf of Mexico. Resistance is seen at the August 1st highs of $78.15, with support found at $73.48. October Crude Oil closed at $77.49, up $0.79.

Coffee futures soared to 3-week highs this morning, closing above two key moving averages as traders raise concerns over dry weather in Brazil. Early flowering in some Brazilian groves last month is increasing the need for ample moisture as the trees go through the blossoming stage this month. Also supportive to Coffee prices are concerns that Hurricane Felix may have caused more damage to Central American groves than previously reported. Brazilian growers continue to withhold supplies hoping for higher world prices later in the year. Technical traders noted that today’s rally took the December contract through the 20- and 50-day moving averages, which spurred some short-term momentum buying. This Friday is options expiration for October Coffee options, with traders noting decent open interest in the October 125 calls and 115 puts. December Coffee closed at 119.80, up 2.90.

Mike Zarembski, Senior Commodity Analyst


Humberto Fires Up Gasoline Bulls!

RBOB Gasoline futures rose to nearly 2-month highs this afternoon, as Hurricane Humberto knocked out power to three Texas Oil refineries today. The refineries affected can use up to 850,000 barrels of crude a day, and this comes just one day after the EIA announced that Gasoline inventories fell by 700,000 barrels last week. With Oil prices continuing to hover near the $80 per barrel level, follow-through buying was expected in the energy products, especially Gasoline. Traders noted buy stops being triggered once the October contract moved above recent highs of 2.0278. The next major resistance point for October Gasoline is seen at the July 10th highs of 2.1297, with support found at the 50-day moving average of 1.9684. October RBOB Gasoline closed at $2.0464, up 0.0304.

Cocoa futures declined for the second consecutive session, falling to one-week lows as drier weather in the Ivory Coast should allow growers to move Cocoa beans to port this week. Origin selling was seen, especially after speculators attempted to rally the December contract once prices moved above yesterday’s close at $1829. Lower prices in London and expiration of the September contract were also seen as factors in today’s sell-off. The International Cocoa Organization is estimating a world Cocoa surplus of 117,000 tons in the 2007-08 marketing year. Support for December Cocoa is seen at the 20-day moving average of $1801, with resistance found at $1872. December Cocoa closed at $1818, down $11.

Mike Zarembski, Senior Commodity Analyst


Bears Don’t Like Cold Beans!

Soybeans: Freezing temperatures in parts of the northern Midwest over the weekend have bean traders buzzing, as concerns mount that crop damage may have occurred in parts of Iowa, Minnesota, and Wisconsin. This news helped send November Soybeans to highs not seen in three years, with prices moving closer to the psychologically important $10 per bushel level. At the end of the overnight session, November Soybeans are trading at $9.71 ¼, up 16 ½ cents.

Stock Index futures: U.S. equity index futures have started the week on a down note following losses in Europe, as a major U.K. mortgage lender, Northern Rock Plc, fell to seven-year lows after customers continued to withdraw savings following a bailout by the Bank of England last week. This has sparked fears that the recent credit crunch has not been resolved and may spread throughout the world. In early trade, December S&P 500 futures are trading at 1476.00, down 9.00.

Coffee: Following a move to 9-year highs by the Robusta contract in London, Arabica Coffee futures in New York rose to one-month highs in early trade, as traders fear tight supplies ahead of the harvest in Vietnam – the world’s largest producer of Robusta Coffee – starting in November. High Robusta prices have caused some Coffee roasters to switch to using more Arabica beans in their blends. In early trade, December Coffee is trading at 122.75, up 1.85.

Mike Zarembski, Senior Commodity Analyst


Bull Market in the Making?

Poor Cotton – the market just can’t seem to get a break. This year’s Cotton production is down sharply due to high Corn and Soybean prices, which led many producers to switch away to more profitable planting alternatives. Now with record high Wheat prices, some Cotton producers may switch to planting Wheat instead of Cotton this fall. In fact, in some parts of the country, growers can double-crop Soybeans behind Wheat and have twice the production instead of just one Cotton crop. This possibility has traders starting to look at the December 2008 Cotton contract – the first new-crop trading month for next year’s production – with an eye on what may be the start of a major bull market. Currently, Dec 08 Cotton is trading at around a 9-cent premium to the Dec 07 contract, reflecting the potential for even fewer planted acres next year. This premium may have to expand even further if Cotton expects to win back some acres from the grain complex next year.

Looking at the daily chart for December 2008 Cotton, we notice prices holding well above the major moving averages, with current prices hovering near the contract highs of 73.50 made back in July. The 14-day RSI has reached overbought territory, however, with a current reading of 78.19. Should bulls manage to take out the contract highs of 73.50, the next resistance point is seen at 75.00. Current support is seen at the 50-day moving average of 69.91. December 2008 Cotton closed on Friday at 72.65, up 0.80.

Mike Zarembski, Senior Commodity Analyst


Coffee Starts to Heat Up!

Bulls awoke to the smell of a major Coffee rally this morning, as lead month December Coffee made 6 ½ month highs, with the dual threat of dry weather in Brazil and low domestic inventories sending bears scurrying to cover short positions. Buy stops were seen being triggered above the recent highs at 121.50, with additional buying found above the August 13th highs at 125.80. Support was also found across the Atlantic, as the London Robusta futures hit 9-year highs for the November contract. Origin sellers were scarce this morning, as growers await higher prices for their stocks, especially with the critical flowering period for the Coffee trees currently underway. 130.00 is now seen as the next resistance point for December Coffee, with support found at 121.50. December Coffee settled today at 127.80, up 6.90.

It’s all about the weather for Natural Gas traders, as forecasts calling for above-normal temperatures in the Midwest and a potential tropical cyclone near the Gulf of Mexico have combined to spark a buying frenzy to start the week. Much of today’s buying was seen as short-covering by large speculators, who are holding a net-short position totaling 72,138 contracts as of September 11th. Any further development of a tropical system near the Gulf of Mexico will be enough to spark additional buying, especially by traders who remember what occurred in the Natural Gas market after Hurricane Katrina struck in 2005. Temperatures are expected to be in the 80s and 90s in the Midwest this week, which should increase cooling demand and spur additional Gas usage. Technical traders will note that today’s rally sent prices above the 50-day moving average, which tends to draw momentum traders into the market. The next resistance point for October Natural Gas is seen at the 100-day moving average at $7.165, with support found at the 20-day moving average near $5.870. October Natural Gas closed at $6.653, up $0.374.

Mike Zarembski, Senior Commodity Analyst


Bulls Regaining Their Chocolate Craving

Cocoa futures are starting to rise again after a nearly month-long sell-off in August saw prices fall by over $300 per ton. Continued wet weather in the West African growing regions has made conditions ideal for the spread of Black Pod disease, a fungus that spreads quickly on Cocoa pods during periods of excessive rains and humidity and lack of sunshine. Growers in Ghana have reported more cases of the disease recently, and analysts are starting to figure in lower crop prospects for 2007-08 due to the mediocre weather conditions so far this season. In addition, continued civil unrest in Cameroon has hurt the Cocoa market in that country, which is also supporting the bullish case. Though speculative accounts are already holding long positions in the Cocoa market, the size of the net-long position is not as large as it was during the highs made in July, which may signal additional fresh buying entering the Cocoa market should the recent rally continue.

Looking at the daily chart for December Cocoa, we notice prices moving above the 50-day moving average in early trade. This appears to have sparked additional momentum buying and triggered buy stops above the $1907 resistance level. In fact, prices are now trying to test the 100-day moving average at $1940 – a close above this key indicator could shift momentum further into the bullish camp. However, the 14-day RSI has moved into overbought territory with a reading of 79.17. The next major resistance point is seen at the July 31st highs of $1982, with support at the 20-day moving average of $1830. In early trade, December Cocoa is trading at $1938, up $38.

Mike Zarembski, Senior Commodity Analyst


Inflation Fears Spur Run-up in Commodities

Soybean futures continue to their strong price surge, with deferred months trading above the $10 per bushel level, as concerns about tight inventories and reports that China will lower import duties have traders in a buying mood. The USDA reported U.S. Soybean export sales totaled 513,600 metric tons for the week ending September 13th, in line with expectations. Dry weather conditions in northern Brazil may affect Soybean plantings, with forecasts calling for the dryness to persist possibly through the early parts of October. With the Soybean harvest about to begin in earnest, there is little sign of harvest pressure selling so far, which is surprising given the relatively high price at which November futures are trading. Support is also found from the rise in overall commodity futures prices, especially with a weak U.S. Dollar and inflation concerns in light of the Fed’s shift in focus from fighting inflation to preventing a weakening of the U.S. economy due to the housing slump. $10 is seen as the next resistance point for November Soybeans, with support found at $9.52 ¾. November Soybeans closed at $9.89, up 18 cents.

Cocoa futures soared to 7-week highs this morning, as continued weakness in the U.S. Dollar against the British Pound and fresh technical buying propelled prices higher. Concern about the spread of Black Pod disease in the West African growing regions was fundamentally supportive to the market. In addition, the December March Spread continues to widen with the December contract now trading at a $25 premium to the March contract, which traders are taking as a sign that near-term demand is strong. An overall rally in commodity prices was also a factor in today’s gains. $1982 is seen resistance for December Cocoa, with support found at $1830. December Cocoa closed at $1971, up $71.

Mike Zarembski, Senior Commodity Analyst


Traders Getting Juiced Up Over Metals

Gold: Continued U.S. Dollar weakness and near-record high Oil prices have traders and investors flocking to the Gold market, with spot Gold hitting 27-year highs in Asia this morning. The run-up is causing fresh buying in Gold futures, with the December contract trading as high as $747.10 in early morning trade. With traders still looking for further interest rate cuts by the Federal Reserve this year, speculation that inflation will accelerate is helping the cause of Gold bulls. Currently, December Gold is trading at $743.60, up $3.70.

Platinum: October Platinum soared to nearly 2-month highs during trade in Tokyo, as a weak U.S. Dollar makes Platinum more affordable for non-Dollar buyers. Johnson Matthey Plc. reported that world Platinum demand has risen by 1.2% so far this year, with Europe accounting for just over 1/3 of global demand. In early trade, October Platinum is trading at $1338.50, up $9.90.

Orange Juice: November Orange Juice futures rallied to highs not seen since mid-August, as traders begin to cover short positions before next month’s first official estimate of Florida orange production. Low FCOJ stocks and a declining tree count in Florida are also supportive to prices. However, slack retail demand is keeping a lid on further gains. In early trade, November Orange Juice is trading at 126.20, down 0.20.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, September 21, 2007
(All times in U.S. Central Time)


7:30 AM: Retail Sales for July (MoM) (consensus 0.0%)


Russian Tariffs May Sweeten Sugar Bulls’ Outlook

Sugar: Sugar futures are moderately higher this morning as speculation that Russia will raise import duties this week is sparking a bid on raw Sugar futures. This news may be enough for October Sugar futures to finally move above stiff resistance at 10 cents per pound before the October contract expires on Friday. In early trade, October Sugar is trading at 9.92, up 0.04.

Precious Metals: Both Gold and Silver futures are trading sharply lower this morning, as a moderate rally in the U.S. Dollar and lower Oil prices have traders taking profits in the metals sector. In the past six weeks, December Gold has gained nearly $100 per ounce, so a moderate correction is not surprising. In early trade, December Gold is trading at $730.40, down $8.90, and December Silver is trading at $13.395, down $0.245.

Orange Juice: November FCOJ futures continue their climb, hitting six-week highs in early trade as speculative buying and weather concerns have supported prices. Traders are watching two tropical disturbances – one near the Windward Islands, the other near the Cape Verde Islands – for possible tropical storms formation. Orange juice stock in cold storage fell to 760.37 million pounds in August, down from 888.84 million pounds last year. In early trade, November Orange Juice was trading at 132.50, up 1.75.

Mike Zarembski, Senior Commodity Analyst


Oil’s Well for Crude Bulls Again

Energy futures: November Crude Oil rebounded above the $80 per barrel level in the early going as traders gear up for another decline in U.S. Crude inventories. This morning’s weekly EIA energy stocks report is expected to show Oil supplies fell by between 1.8 and 2.2 million barrels last week. Traders will also be watching the inventory figures for Cushing, Oklahoma – the delivery point for NYMEX Crude Oil futures. Recent inventory declines and solid demand are responsible for the continued backwardation of the WTI Oil market – wherein near month contracts trade at a premium to deferred month contracts. Backwardation signals that users are willing to pay a premium for immediate supplies. Gasoline inventories are expected to show a moderate increase of between 100,000 and 300,000 barrels. Distillates – which include Heating Oil – are expected to show a 1 million barrel gain. In early trade, November Crude Oil is trading at $80.11, up $0.58.

Coffee: Profit-taking selling hit the December Arabica Coffee futures market in early trade, after an 8-month high was reached yesterday. Dry weather in the main Coffee growing regions of Brazil has been chief among the reasons for the recent price rise. However, origin sellers came out on yesterday’s rally, leading weak bulls to start to book profits on their long positions. Brazil’s Coffee exports have started to increase, with the Green Coffee Exporters Council reporting exports totaling 1.214 million bags so far this month, up from 915,873 bags last month. In early trade, December Coffee was trading at 129.95, down 3.15.

Dollar Index: Short covering buying emerged in December Dollar Index futures, as bears sought to book profits ahead of this morning’s release of U.S. durable goods orders for August. The consensus is for a decline of 3.5% last month, as buyers of big-ticket items held back their purchases due to uncertainly in the U.S. economy. In early trade, the December Dollar Index was trading at 78.450, up 0.255,

Mike Zarembski, Senior Commodity Analyst


ICE Coffee Rally Turns Cold

December Coffee futures posted sharp losses this morning on speculative selling after yesterday’s run-up to 8-month highs failed to hold. Origin selling was seen near yesterday’s highs of 135.00, which stopped the bullish momentum in its tracks and caused some moderate speculative selling. Today, however, speculators were running for the exits during European trading hours on the ICE electronic platform. Sell stops were seen being triggered below 130.00 in the December contract, with little roaster buying to stop the declines. Coffee exports out of Brazil have increased this month, with higher prices drawing producers to the market. Support for December Coffee is seen at 126.80, with resistance found at 133.25. December Coffee closed at 128.60, down 4.50.

Another new-all-time high was made in Chicago Wheat futures this afternoon, with the December contract trading as high as $9.17 ¼ for the lead month contract, as talk of further Wheat tenders and continued dry conditions in Australia sent bears running for the exits. Algeria purchased Hard Red Winter Wheat, and traders report Morocco, Jordan, Iraq, and Pakistan as potential buyers in the near future, despite high prices. World Wheat stocks are at multi-decade lows, with little recovery expected out of Australia as drought has ravaged crops again this year. New all-time highs were reached in Kansas City and Minneapolis Wheat as well. Chicago Wheat futures ended the session up the 30-cent limit in all months through May of 2008. December Wheat closed at $9.17 ¼, up 30 cents.

Mike Zarembski, Senior Commodity Analyst


Traders warming up to hot chocolate

Cocoa futures have made impressive gains the past several sessions, after breaking out from a 5-plus week long consolidation pattern. Increasing concerns about the spread of black pod disease has sparked traders’ interest in Cocoa, with the main crop of the Ivory Coast now feared to have been afflicted. If the disease does become widespread, this could seriously undermine the potential surplus expected for the 2007-08 marketing year. Following a global Cocoa deficit for the 2006-07 season, a bumper crop was anticipated this year to help offset tight supplies and higher world prices -- especially for high quality Cocoa. A weaker U.S. Dollar is also supportive to Cocoa futures prices in New York, as arbitrage traders buy New York Cocoa futures vs. the London market. However, with prices now well past the $2000 per ton level, if the spread of black pod turns out to be minor, prices could be in for a steep drop as speculators rush for the exits.

Looking at the daily chart for December Cocoa, we notice prices trading well above the major moving averages, as well as the 20-day moving average starting to move above the 50-day average. This bullish sign signals that short-term momentum favors Cocoa bulls. However the 14-day RSI has moved well into overbought territory with a reading of 81.63. Trade may turn volatile this morning, as large traders position themselves for the start of the fourth quarter. The next resistance point for December Cocoa is seen at $2054, with support found at the week’s low of $1973. In early trade, December Cocoa is trading at $2040, up $9.

Mike Zarembski Senior Commodity Analyst


Happy Fourth Quarter Everyone!

Copper: A potential strike at Southern Copper Corp. in Peru has sparked a rally in Copper futures this morning, as traders fear a slowdown of production if workers do indeed walk off the job tomorrow. Copper demand continues to outpace production, as demand from China – the world’s largest consumer of the red metal – continues unabated. The London Metal Exchange reported Copper stocks fell by 100 metric tons to stand at 130,675 mt. In early trade, December Copper is trading at 366.40, up 2.40.

Coffee: Traders awoke to the smell of a Coffee rally to start the quarter, as both London and New York Coffee futures were trading sharply higher on fears of potential crop damage in Brazil due to dry weather. Recent weather forecasts have taken rain out of the picture for the main Coffee-growing regions of Brazil this week. In early trade, December Arabica Coffee is trading at 134.55, up 5.90.

Japanese Yen: December Yen futures are on the defensive this morning, as higher world stock indexes over the past several sessions are providing confidence for traders to re-establish Yen carry trades. The Yen is especially weak against the New Zealand Dollar, as the wide interest rate differentials make this pair a favorite for carry trade speculators. In early trade, December Yen futures are trading at 0.8730, down 0.0067.

Mike Zarembski, Senior Commodity Analyst


Hot Coffee!

Speculators both large and small were active buyers in Arabica Coffee futures to start the fourth quarter, as a lack of meaningful rainfall in the Coffee-growing regions of Brazil has traders fearful of possible crop damage due to the lack of moisture. Large non-commercial traders were already holding a sizable net-long position before today’s buying spree, with the most recent Commitment of Traders report showing 38,080 net-long positions being held by these traders, up 8,800 contracts as of September 25th. Some origin selling was seen during today’s rally, but not enough to absorb the buy-stops and momentum buying seen this morning. According to private consultants, just over 1/3 of this year’s Brazilian harvest has been sold, with producers continuing to hold onto stocks hoping for higher prices. Should rainfall materialize in the next several days, however, a decline in futures prices may persuade origin sellers to lock in prices while they can. 140.00 is seen as the next resistance point for December Coffee, with support found at 126.50. December Coffee closed at 134.85, up 6.20.

World Sugar futures opened October on a sour note, as speculative accounts were in liquidation mode this morning. Traders reported a large sell order in March Sugar, with trade buyers doing some moderate scale-down buying. The harvest continues in the central-south region of Brazil, with only light precipitation expected this week. Thus far, there’s no news out of Russia as to whether the Sugar import duty will be raised to protect domestic producers who are expected to produce a larger Sugar Beet harvest this season. 9.85 is seen as support for March Sugar, with resistance found at 10.25. March Sugar closed at 9.93, down 0.22.

Mike Zarembski, Senior Commodity Analyst


Commodities Crack

Cocoa futures were pummeled this morning, as overall weakness in the commodity sector in the wake of a rebound in the U.S. Dollar inspired speculative liquidation in the Cocoa market. A weaker British Pound against the U.S Dollar led to arbitrage selling in the New York market to start the session. Trade and origin selling followed, moving the market through support points at $2000 and $1980, and triggering speculative sell-stops along the way. Buyers were scarce as prices fell, with major support at the 100-day moving average of $1948 giving way to spark fresh short-term momentum-based selling. Buyers were found just above the $1900 area in the December contract, which put an end to the day’s losses. $1900 is seen as psychological support for December Cocoa, with resistance found at $1948. December Cocoa closed at $1917, down $113.

After hitting 27-year highs yesterday, Gold futures were ripe for a correction – and correct they did. Gold prices fell over $20 during the worst stretches of the session, as a commodity-wide sell-off hit Gold and the precious metals sector particularly hard. A rebound in world equity markets and a recovery in the U.S. Dollar made Gold investments less attractive to non-U.S. buyers. Moderate sell-stops were seen being triggered below support at $740.00. Despite the heavy selling seen today, technical damage was minimal, with the widely watched 20-day moving average holding and the long–term uptrend remaining intact. Continued speculation that the U.S. Federal Reserve is in an easing mode is fanning fears of rising inflation, which if uncovered in economic data going forward would be supportive to the precious metals sector, and Gold in particular. The next support point for December Gold is seen at $727.00, with resistance found at $747.00. December Gold closed at $736.30, down $17.80.

Mike Zarembski, Senior Commodity Analyst


Can a Currency Be Too Strong?

Euro Currency: December Euro Currency futures fell to 3-week lows in early trade, as European finance ministers attempt to talk down the Euro out of concerns that the currency has gotten too strong against the Dollar and the Japanese Yen. This has caused speculators long the Euro to start booking some profits. In early trade, December Euro Currency futures are trading at 1.4052, down 0.0106.

Cocoa: New York Cocoa prices are supportive this morning, defying bearish fundamentals of a rise in Ghana’s Cocoa production forecast and a sharply higher U.S. Dollar against the British Pound. In addition, the Cocoa harvest in the Ivory Coast has begun, which may spur some origin hedge selling on any rally attempts. In early trade, December Cocoa was trading at $1835, up $19.

Crude Oil: The sell-off continues in the Crude Oil market, as traders expect a build of U.S. Oil inventories last week. According to a Bloomberg survey of analysts, U.S. Oil stock rose by 1.5 million barrels last week, as refinery usage declined due to seasonal maintenance. As a reminder, this week’s EIA energy stocks report will be out on Thursday at 9:30 AM – instead of Wednesday – due to the Columbus Day holiday on Monday. In early trade, November Crude Oil is trading at $78.57, down $0.59.

Mike Zarembski, Senior Commodity Analyst


Sugar Prices Become Sticky

Sugar futures have been stuck in a narrow 1-cent per pound trading range since August, as a large world surplus has capped most rally attempts, and the increased use of Sugar for fuel in light of rising Oil prices have drawn out buyers below the 10 cent area. India is holding onto a large Sugar surplus, with the International Sugar Organization estimating almost 11.5 million metric tons available for export. This news alone is keeping buyers at bay and encouraging commercial selling on any rally attempts to the 10.25 to 10.30 area. However, lower world prices for raw Sugar are encouraging producers to switch more cane production towards fuel usage, with Brazil expected to dedicate a bit more than half of its cane output to the production of Ethanol. With the fundamentals at an apparent stalemate, the focus shifts to speculators’ positions in the market. The most recent Commitment of Traders report shows both large and small non-commercial traders are net-long a combined 73,386 Sugar contracts as of October 2nd. This sets up a battle between speculators and hedgers to see who will blink first and allow prices to move out of the recent multi-month range.

Turning to the daily chart for March Sugar, we notice how tightly the three major moving averages have become as market volatility has declined sharply. The 14-day RSI is firmly in neutral territory with a current reading of 41.35. With speculators net-long Sugar futures, an attempt to move prices below major support at the bottom of the trading range around the 9.35 area may spark a rash of sell-stops as longs throw in the towel. An attempt to rally prices above the 10.36 resistance area should be met with stiff hedge selling, but if producers decide to hold back in hopes of higher prices, a rally above 10.36 could encourage large specs to add onto existing long positions, meaning a test of the 11-cent area would not be out of the question. In early trade, March Sugar is trading at 9.80, up 0.05.

Mike Zarembski, Senior Commodity Analyst


Bears Freshly Squeezed as O.J. Rallies to 4-Month Highs

Orange Juice futures surged this morning as speculative buying emerged ahead of Friday’s USDA crop production report. Traders expect a rebound in Florida Orange production for the 2007-08 crop year, with current estimates calling for production to total between 170 and 200 million 90-lb. boxes, well above the 129 million box harvest this past year. Traders report fairly heavy technical buying, with buy stops triggered above near-term resistance at 139.00 and 144.00 in the November futures. Prices surged as high as 147.00 before selling emerged to cap the day’s gains. Options volume was heavy as traders position themselves before the government’s first official estimate of the 2007-08 crop. 149.25 is seen as the next resistance level for November Juice, with support found at the 100-day moving average of 133.90. November FCOJ closed at 141.60, up 4.55.

Short-covering buying sparked a rally in Corn futures this afternoon, as traders square up positions ahead of Friday’s USDA Crop report. Traders are looking for an increase in U.S Corn production, with average estimates calling for a 13.5 billion bushel crop versus last month’s estimate of 13.308 billion bushels. Average yields are expected to have increased as well, with traders looking for a nearly 2 bushel per acre gain from last month’s 155.8 bushels per acre USDA estimate. Additional support for Corn today came from gains in pit mates Wheat and Soybeans. Despite today’s rally, December Corn remains well below the major moving averages, with resistance found at the 50-day moving average at $3.52. Support is seen at the recent lows of $3.35. December Corn closed at $3.47 ¼, up 4 ¾ cents.

Mike Zarembski, Senior Commodity Analyst


Bubblin’ Crude

Crude Oil rose to a new all-time high today, topping the $86 mark for the first time ever. The Turkish government and the Iraqi Kurds have been butting heads of late, and the repercussions of this cross-border spat is being felt in the Crude market. With the Kurdish rebel bases located near major pipeline systems, fears of a supply disruption in Crude Oil are running high. Of course, the market is constantly on the lookout for supply threats around the globe, so it’s hard to tell if this latest dustup has already been priced into the Crude market as a risk premium during the recent climb. The Crude Oil inventory report comes out on October 17th.

Over in the beverage market, bulls are not drinking Coffee. Dropping below the 20-day moving average (which was support earlier last week), java is most certainly a bear drink today. Although Coffee did manage to stay above psychological support at 130, it could slip back to the 120 area should it fill the gap that was created last month before the 20-day mark. The only area where we could see some other support is around the 127 mark, right above the gap-up.

Mike Tosaw, Director of Education


More Fed Watching

Dow Jones – Stocks mounted a comeback in late trading yesterday, as optimistic traders hoped that the Fed would once again slash rates at the end of the month. Housing starts were at the lowest levels in 14 years, and the CPI report showed that inflation is tame for the time being. Meanwhile, S&P also downgraded a host of sub-prime debt last year. The release of the Fed's Beige Book – which showed slower growth in the 3rd and 4th quarters – really sparked the equity markets late in the day. All of this unimpressive economic data leads many to believe that the Fed will take action, especially given Ben Bernanke's recent comments about the housing sector being a drag on the economy and the inability of the Fed to insulate investors from risk. The late rally stopped what could have been a technical breakdown on the December Mini-Dow chart yesterday, as the market was able to hold above support at 13830. Momentum is showing positive divergence from RSI, suggesting a possible recovery in the coming days. The RSI is showing oversold levels in early trading, which may be a prelude for a Friday bounce. Traders will keep an eye on the 9 and 18-day SMA, which are very close to crossing on the downside. Support comes in at 13830 and 13550, while resistance can be found at 14085 and 14237.

Bonds – The Bond market was strong yesterday and in overnight trading, as disappointing economic data keeps rolling in. Bonds have not been the defensive play recently because of a weak greenback and investors choosing to look elsewhere – mainly commodities – to address their inflation concerns. The weak Dollar has played a key role in all of this, with large treasury market players China and Japan seeking alternatives. The belief that a rate cut is coming and fresh sub-prime fears in the minds of fixed income traders have boosted December Bond prices by more than a point and a half over the last two days. December Bonds also have some positive technical factors going for them. The slow stochastic indicator showed an upward crossover, and the momentum indicator has outpaced the RSI. Also, the market looks as though it may be confirming a breakout from the wedge pattern it has been forming since the beginning of September, which could push prices above recent highs of 114-08. Support comes in at 111-05 and 110-00, while resistance comes in at 112-10 and 113-00.

Coffee – Coffee is trading lower overnight on weak technicals and ample rains in Brazil. Brazil is forecast to receive light to moderate rainfall, which will aid budding in the new crop. Forecasts for two cold fronts expected to hit the growing region within the next week and a half helped to slow the price decline yesterday. With neither front expected to be particularly severe, traders have opted to take profits and adopt the wait and see approach before reacting. Technically, Coffee remains weak and is currently trading below the 128.00 support area. Traders are paying attention to the key 125.00 support area which if violated could send prices below 120.00, possibly toward the mid-teens. Resistance can be found at 133.25 and 138.50. Momentum stands at a weak -1.80 and the RSI is a neutral 36 percent coming into trading. The RSI has dipped into oversold territory, suggesting that the decline may stall or even get a bounce at 125.00.


Coffee Stays Below the Averages

Coffee cooled off today, with the December contract dropping 2.8% to finish at 125.90. The Coffee market has seen considerable volatility lately, with prices falling nearly 9% over the last four days – the high just a few days ago (10/14) was at 139.42.

Looking at the chart, Coffee is currently below both its 15- and 25-day moving averages, and has broken through the 128 support level established on September 30th. The next level of support below this is around 120. In order to get to that level, it must drop another 5 points, or 4%. Today the low was put in at 122.3, so it's not out of the question.

Mike Tosaw, Director of Education


Hot Chocolate

Cocoa – Cocoa prices jumped sharply on news that black pod disease is spreading, and many farmers may not be able to contain the outbreak because the government agency that would normally provide financial assistance has had its funds frozen. World Cocoa output is expected to easily surpass demand by around 100,000 metric tons, provided the outbreak does not worsen beyond expectations. If the fungus problem becomes more widespread, the chances of a smaller crop of low quality increase significantly. It will be interesting to see if large Cocoa users such as chocolate makers react by purchasing current stocks to offset the possibility of higher prices in the future. December Cocoa confirmed a double bottom on the daily chart on Friday, which measures an upside move to 1980. The market is a bit overbought at the moment and is heading toward resistance at 2000, which could slow down further advances. Momentum remains strong, but is starting to lag behind both price and RSI. Support comes in at 1915 and 1890, while resistance can be found at 1980 and 2000.

Wheat – Wheat finished close to limit-up in the front month December contract on expectations that exports will remain strong. There is also a consensus building among traders that Australia will once again downsize its crop due to the severe drought there. Wheat is sharply lower this morning on a broad sell-off in commodities, with traders now thinking that yesterday’s rally was overdone. The recent run-up in energy prices has driven freight prices to new highs, which may curtail imports. The current winter Wheat crop is sprouting well ahead of schedule, but reports from southern Kansas and parts of Texas suggest planting may be behind in these states due to heavy and no rains, respectively. December Wheat remains bearish on the daily chart, and a close above 855 may be needed to swing short-term technicals higher. Momentum is showing some bullish divergence from RSI, suggesting some short-term firming or even strength. Support comes in at 790.25 and 760.50, while resistance can be found at 855 and 880.

Australian Dollar – The Aussie rallied to 23-year highs on overall Dollar weakness and strong commodity prices. The USD finished weaker against all of the majors except the Yen on expectations that the Fed will lower rates on Wednesday. Australia’s economy relies heavily on exports of raw materials – namely industrial metals – so the broad commodity rally was certainly a driving force for the Aussie. The December Aussie did give back a good chunk of early gains on the late-day Copper sell-off. High interest rates may keep the Aussie attractive going forward, but commodity liquidations and technically overbought levels may make hamper further advances. The December contract had a weak close, forming a bearish gravestone doji pattern on the daily chart. Momentum is showing bearish divergence from the RSI and price action which, in addition to the bearish chart pattern and overbought levels, suggests a negative short-term bias. Support comes in at .9050 and .8800, while resistance can be found at yesterday’s intraday highs of .9246.

Rob Kurzatkowski, Commodity Analyst


Coffee Perks Up After Friday's Losses

Coffee was hit by a bearish wave on Friday, dropping the price from 122 down to the 118 level. Although unable to make a full recovery, it did manage to get back to around the 120 level with a close at 119.95. With the overall trend the last few weeks going to the downside, traders will definitely be keeping an eye on the pot over the next few weeks.

Coffee prices have dropped about 14% since reaching the 140 plateau about three weeks ago. At this point, the price is below both the 15- and 25-day moving averages, and the trend in the past few weeks has been moving down fast. Support in September was around the 120 area. Take away Friday's activity below 120, and you might have a loose interpretation of support right now. However, stochastic indicators still do not give us a reversal indication, remaining above the 20 mark.

It is often thought that whenever we are in a rough economy that people still use certain products like toothpaste, soda, and yes…Coffee. The perception of the economy is negative right now based on the Fed lowering rates .75% in its last two announcements. Using that indication, people may not want to buy the new car, but they may want to continue to enjoy a cup of Coffee – a small luxury. The perception of a slumping economy may be an indication of upcoming increased demand in Coffee.

Mike Tosaw, Director of Education


Corn Exports Show No Letup

Corn – Corn futures posted solid gains yesterday on strong export data. Unlike the rest of the CBOT grain complex, the stabilization in the U.S. Dollar and rising prices did little to curb demand in Corn. Market chatter suggests that a host of factors may lead Soybean acres to increase significantly and take away from Corn acres in 2008, including attractive Bean prices, record Corn fertilizer costs and crop rotation. The ethanol hype over the past few years has also caused farmers to over-plant Corn, which has done ecological damage in the Midwest and may make the region more prone to drought conditions. Longer-term meteorological models suggests the La Nina weather pattern is picking up in the Pacific, which could cause dry conditions in both North and South America in the upcoming crop year. March Corn found support at the 9-day moving average over the past two trading sessions, showing that the market has maintained short-term positive momentum. Momentum is showing positive divergence from both price action and the RSI. Corn remains at overbought levels on the RSI, which may leave the market susceptible to profit-taking pressure. The bearish crossover on the stochastics on Monday was negated by the indicator lines crossing back up as a result of yesterday's move. Nonetheless, the indicator remains above the 80 percent mark, which gives further indication of overbought conditions. Support comes in at 430.25 and 411, while resistance may be found at contract highs of 443.25 and 465.

Coffee – Coffee fell for the second consecutive day on lack of buying interest in commodities and indications that Brazil's output may be larger than previously thought. The drought conditions in the key Coffee-growing regions may make much less of an impact on the 2008 crop than earlier projections, according to a joint report released by Fortis Bank and VM Group. The report is showing the possibility of a 50 million bag crop, trumping earlier estimates of 44 million bags. At this point, it is still too early to tell how the inclement weather has affected the crop in the infant stages of growth. Commodity fund activity was very light, with the inflationary GDP deflator figure being offset by a strong Dollar. In general, softs have gotten a lift from fund buying in recent weeks, as investment managers have diversified away from commodities that have made explosive moves over the year, such as metals and energies. Some of the selling may also be attributed to profit-taking ahead of year end, as well as the technically overbought conditions. The RSI, SMI and slow stochastics are giving overbought readings, with the latter two indicators showing bearish crossovers. The daily chart shows two consecutive spinning top candlesticks, which points to indecision among traders and may suggest a short-term reversal of the recent uptrend. March Coffee is still trading above the major moving averages and has not yet shown major evidence of a reversal, despite the claim made by the oscillators. Momentum has been resilient in the face of yesterday's sell-off. Support comes in at 132.50 and 131.25, while resistance can be found at 135.25 and 136.75.

Dow – Stocks finished higher in another choppy trading session yesterday. Buyers stepped in despite the first ever losses posted by investment banking powerhouses Bear Stearns and Morgan Stanley due to writedowns related to subprime loans. Leading indicators were weaker than expected at -0.4 percent, initial claims rose more than forecast and the revised GDP deflator showed a higher rise in prices than the preliminary release, all of which were equity bearish. Traders may key on the deflator figure, which paints a truer inflation picture, as it is shows an unfiltered view of the change in consumer prices, whereas the CPI data leaves out certain consumer staples. Online retailers are expected to have a stronger holiday season that previously believed, a fact that helped spark a rally in both tech and retail stocks. After the bell, RIMM posted strong earnings, which doubled last year's profits for the same period. The market will digest more inflation and income data with the release of the PCE incomes, spending and inflation figures at 7:30 AM CST. The March Mini Dow chart remains in a tight consolidation pattern, suggesting more downside may lie ahead. The 9-day moving average crossed the 18-day, which is a negative signal in the near-term. Momentum is showing positive divergence from the RSI, which conflicts with the chart to show a bullish bias. The RSI is quickly approaching oversold levels, which may support the market going into the New Year. Support comes in at 13185 and 12900, while resistance may be found at 13535 and 13645.

Rob Kurzatkowski, Commodity Analyst


Crude Briefly Flirts with the Century Mark

Crude Oil – Oil futures started off the New Year with a bang, with prices eclipsing the intraday $100 mark for the first time. Geopolitical tensions rocked the market early and the ISM manufacturing report showed an inflationary prices paid component, which was the driving force after the NYMEX floor open. Supply concerns were very much on the minds of traders, and are likely to spill over into today’s trading as well. Looking at the newswires, several major financial publications reported that global petroleum supplies have reached a peak, meaning the world has used half of the petroleum on the planet. The stories only acted to spur on an already emotional trading session. Commodities were higher in general on inflation worries, with Feeder Cattle, Sugar and Coffee the only markets to take a pass on the rally. Today’s trading figures to be very volatile with the release of the EIA petroleum inventory numbers, which are expected to show a decline of 1.8 million barrels for the week. The enthusiasm over the cold blast hitting much of the eastern portion of the country may dissipate given the warmer forecast for the winter as a whole. The slowdown indicated in the ISM manufacturing number may give some traders cause for a retreat, as it showed a larger-than-expected drop in manufacturing activity, but at the same time showed inflationary pressure. This could lead to a pause in the Fed’s recent wave of rate cuts. February Crude had a technical breakout, closing above previous contract highs of 98.12, and traders will look for the market to establish further closes above this area to confirm the breakout. The market remains very overbought, registering 92.67 percent on the RSI. Support comes in at 97.18 and 94.73, while resistance may be found at 100.94 and 102.25.

Soybeans – The grain markets jumped sharply on news that the Chinese government will be imposing hefty duties on exports of grains in an effort to bolster domestic reserves. The protectionist move will likely lead to even stronger U.S. export demand and pressure already tight global stocks. Adding to supply squeeze, the recent upswing in petroleum prices is expected to spur more bio-fuel demand. On the weather front, the La Nina patterns strengthened, opening the door for hot, dry conditions across the Midwest this crop year. The Bean market may be susceptible to profit-taking pressure in the near-term after rallying sharply over the past few trading sessions. The March Bean chart remains bullish with yesterday’s breakout above previous contract highs. The RSI is registering an overbought reading, opening the door for profit-taking. Momentum continues to outpace RSI, leading to a positive short-term bias. Support comes in at 1225.50 and 1202.50, while resistance can be found at 1267.25 and 1285.75.

Orange Juice – Freezing temperatures across Florida’s citrus-growing region sparked yesterday’s OJ rally. Traders will be closely monitoring the length of time that temperatures remain below the freezing point. Six hours is generally viewed as the breaking point, with frosts lasting longer generally causing significant damage. Even if the weather fears evaporate over the next day or so, the market may benefit from the overall bullish sentiment in physical commodities. On the other hand, traders may be tempted to simply dump Juice contracts if the weather warms, preferring to jump into one a booming market like energies or precious metals. March FCOJ was unable to hold early day rallies and, as a result, formed a spinning top formation on the daily chart. Momentum continues to outpace RSI, suggesting that the short-term bias is moderately bullish. Support comes in at 145.05 and 141.30, while resistance can be found at 152.25 and 155.75.

Rob Kurzatkowski, Commodity Analyst


And the Market Volatility Continues

Dow – The Dow almost let early gains slip away in yesterday’s trading session, but in the end managed to post a modest gain of almost 13 points. The afternoon plunge was led by disappointing auto sales figures for the month of December. The battered U.S. auto industry was hit hard by tighter lending standards and the rising price of gasoline. Stock traders have been gun shy over the past few trading sessions on worries that the rising cost of petroleum could further dampen the U.S. economic outlook and negate any positive impact that could result from the recent rate cuts. Today’s focus will shift to the labor market after the release of non-farm payrolls at 7:30 AM CST. The report is expected to show the labor market slowing and adding only 75,000 jobs in December, down from November’s 94,000 new jobs. The unemployment rate is forecast to rise to 4.8 percent and hourly earnings are expected to fall to 33.6 from 33.8. The tight labor market and rising cost of gasoline may curb American consumers’ appetites for non-necessities like electronics. Right now, the long- and short-term outlooks on the Dow chart give vastly different views. The spinning top candlestick formed by yesterday’s price action indicates that the market may bounce in the near-term. But the weekly Dow chart (see cash index chart below) shows a more ominous outlook, as the market may be in the midst of forming a head and shoulders reversal pattern. The neckline of 12,787 has acted as support the last three times the market traded down to it, but a violation of this area could spark sell-offs to Fibonacci retracement support near 11,515. Momentum is showing bearish divergence from the RSI, setting a short-term negative bias. Support comes in at 13083, 13022 and 12967, while resistance can be found at 13198, 13254 and 13314.

Sugar – Sugar futures surged on reports that Indian production of the sweetener will fall well short of lofty expectations. Bullish sentiment in commodities as a whole and a bullish petroleum inventory report fueled strong speculative buying. Index funds are expected to step up their buying over the next week to mimic the DJ-AIG Commodity Index, which suggests that spec buying could remain strong in the near-term. The fund activity resulted in shorts getting squeezed out of the market and triggered a large number of buy stops. Today’s bias may shift to the bears, as the market has already run through a good number of buy stops and new buyers may be hesitant to enter the market without some pullback. Longer-term fundamentals have improved on a recent increase in South American demand and lower-than-expected Southeast Asian production, but overall the market remains well-supplied. The March Sugar chart shows a breakout from the recent congestion pattern on late buying. The March contract seems to have established 10.70 as near-term support, springing higher after violating the area briefly yesterday. The momentum indicator is outpacing the RSI, pointing to a possibly bullish short-term bias. Support comes in at 10.90, 10.54 and 10.35, while resistance can be found at 11.45, 11.64 and 12.00.

Gold – Gold continued its historic march to new highs yesterday, bolstered by stronger commodity prices and a slumping Dollar. Traders are beginning to talk about the Fed being backed into a corner, almost forced to lower rates despite inflationary pressures. Commodity prices have rallied over the past several years, mainly due to forces outside of the U.S. economy, such as China’s explosive growth. Prices of raw materials may continue to climb in the event of a U.S. recession, sparking global inflation. In this scenario, Gold and other precious metals may begin to appreciate at an even quicker pace than energy prices. This view could be tempered by the opinion that a U.S. recession could easily spill over into the global economy, trimming the demand for raw materials in the very same developing economies that have been driving the commodity bull market of late. The February Gold chart remains bullish, but oversold. The market has almost reached its objective price of 890 after breaking out of the wedge consolidation pattern on the daily chart. Support comes in at 866.20, 859.50 and 843.00, while resistance can be found at 875.80, 882.50 and 892.20.

Rob Kurzatkowski, Commodity Analyst


Commodities Strong Across the Board

Wheat – Wheat futures fell sharply yesterday on expectations that Friday's USDA report will show an increase in the forecast crop size for Argentina and Australia. A private forecast indicates that after several years of drought, Australian production may rise to record levels due to the La Nina weather pattern. While the pattern may adversely affect the U.S. crop due to dry conditions, the back end of the pattern produces good rains for the Aussie crop. New crop contracts have made solid gains versus the old crop recently, significantly tightening the spread that at one point was almost two dollars between the March and December contracts, but the Aussie and Argentinian outlooks may dampen hopes of another bull run in 2008. December Wheat recently broke out of a bullish wedge formation, signaling the possibility of higher prices. Yesterday's reversal pattern on the daily chart, along with a bearish divergence between the momentum and RSI indicators, may lead to the conclusion that this was a false breakout. With this morning's move to the downside, the momentum indicator is resting on the 0 line and further selling could cause the indicator to slip into the red for the first time in almost two months. Support comes in at 813.50, 807.50 and 797.25, while resistance can be found at 829.50, 839.75 and 846.00.

Sugar – Sugar continues to climb this morning, aided by rising fuel costs and solid commodity prices. Commodity index fund activity remains strong in the Sugar market, with funds adding positions to more closely match the DJ-AIG index. Morgan Stanley indicated that 53 percent of Brazil's crop has been diverted to ethanol production, giving traders hope that exports will be smaller that previously forecast. Although Oil prices dropped sharply yesterday, energy costs remain close to historic levels, which may result in higher ethanol use. Also in play, several sources have already indicated that Brazil may raise the ethanol component of its domestic fuel blend and India is also behind schedule harvesting its Sugar crop. The recent bullish turn in the fundamentals and relatively cheap prices have attracted investors to Sugar, but traders may move forward cautiously given the recent strong showing, which may open the door to profit-taking in the near-term. The March Sugar chart shows no sign of a letup after breakout out of a bullish consolidation pattern last week. Momentum is sharply outpacing the RSI indicator, which is bullish in the near- to mid-term. Support comes in at 11.28, 11.20 and 11.12, while resistance can be found at 11.45, 11.54 and 11.63.

Gold – The strength in commodity prices this morning has helped push the Gold market to new all-time highs, with the February contract trading as high as 879.30 as of the writing of this report. Today's pending home sales figures are expected to come in very weak, which could prompt the FOMC to lower interest rates when it meets later this month. Gold fundamentals remain very bullish and the ideal inflation scenario for precious metals bulls may be forming, with commodity prices rallying and interest rates falling. The Dollar continues to stumble in its bid to rally from all-time lows and the weakness in the U.S. currency will only add to the bullishness in the market. February Gold is breaking out of a bullish consolidation pattern on the chart. If the pattern is confirmed prices may rally to the target of 890 set by the wedge formation validated several weeks ago. Momentum remains bullish and is outpacing the RSI, which remains in overbought territory. Overbought conditions may do little to halt a strong bull run, but may bring about more consolidation and cause the market to labor going forward. Support comes in at 855.60, 849.00 and 844.50, while the market may find resistance at 879.30 and 885.70.

Rob Kurzatkowski, Commodity Analyst


Surprise Rate Cut Buzz is Short-Lived

Dow – Continued economic uncertainty and a downward earnings estimate revision from Apple have pushed stock index futures lower pre-open. Yesterday’s surprise three quarter point rate cut from the Fed managed to temporarily soothe investors’ worries, but many traders viewed the move as several weeks too late. Stocks tumbled in Europe, as central bankers at the Bank of England and European Central Bank only hinted at future rate cuts while traders were banking on similar emergency action from the two. Today will likely be another volatile session, compounded by the fact that there are more big names – Motorola, eBay, Pfizer and General Dynamics among them – reporting quarterly earnings. There has been some pre-market chatter suggesting that all of the previously mentioned companies may post disappointing figures or revise future earnings downward. The panic selling seen yesterday caused the March Mini Dow to break through near-term support. The cash index fell below the key weekly support area of 12,100, which would be seen as bearish over the near term if the market is unable to rally beyond the figure. One positive that can be taken from yesterday’s sell-off is that the cash Dow did come close to reaching the downside target of the head and shoulders pattern created on the weekly chart. The move suggests that the market may be in store for more of a harsh, quick correction than an extended slump. Support comes in at 11500 and 11250, while resistance can be found at 12400 and 12550.

Sugar – The Sugar market has been on the same wild ride as stocks in recent days. After spiking as high as 13.09 in the March contract, the market has since dropped 150 points. The ICE exchange restricted a large Sugar trading company from Brazil from placing orders, which led to some panic selling as rumors swirled of a large block sell order. Fundamentally, world supplies of the sweetener remain on the high side, suggesting that the recent upward move may have been due to “hot money” entering the market and needing to find a home, as well as funds trying to balance commodity portfolios. The extreme volatility the market has seen over the past three sessions seems to have scared away some traders and resulted in a relatively tight range this morning. The pattern on the daily chart suggests a bearish engulfing reversal with wild price moves typically seen in “boom and bust” markets. March futures did manage to hold above support at 11.30, which is somewhat encouraging for bulls. Momentum has taken a sharp turn lower and is continuing to drop even as the RSI has stabilized. Support comes in at 11.30 and 10.75, while resistance can be found at 11.70 and 12.45.

Bonds – The Bond market is sharply higher again this morning, as traders begin pricing in the next rate cuts from the Fed. The three quarter point cut was already partially priced into the market, although it came a week earlier than traders were expecting. Mounting sentiment suggests that fixed income traders are banking on further expansionary policy from the central bank in the near future if the economy does not show some signs of improvement. The treasury market has seen solid inflows of funds due to the sell-off in equities, and further selling in overseas markets could attract further inflows of cash. Traders have been averse to corporate paper and bonds, making U.S. government debt obligations more attractive. Yesterday’s gains signaled a breakout above recent highs of 120-12 in the March Bond contract. Momentum is outpacing the RSI indicator, which points to the possibility of even more upside to the market. March Bonds are now approaching overbought levels, which could inhibit upward price movement and trigger some profit-taking. Support now comes in at 120-12 and 119-07, while resistance may be found at 122-16 and 113-08.

Rob Kurzatkowski, Commodity Analyst


Stock Enthusiasm Carrying Over

S&P – Stock index futures are pointing to a higher open, sparked by yesterday’s late bargain hunting rally. Some of the panic the market has seen over recent sessions has dissipated for the time being and investors are hoping the recent actions by the Fed will help the battered financial sector recover from the subprime crisis. Yesterday’s swift turnaround was fueled by traders trying to capitalize on some suddenly cheap stocks and the technically oversold conditions. Today figures to be another volatile day for the market, although the ranges in the indexes will likely be smaller than we have seen over the past two sessions. Initial claims – scheduled for release at 7:30 CST – are forecast to show 320,000 jobless claims for the week, a rise of 19,000 over last week. Existing home sales may continue their slide after a surprising jump in November. The report at 9:00 AM CST is expected to show home sales at 4.95 million versus the November figure of 5.00 million. Given the fact that the Fed has acted as swiftly as it did, traders may not focus on today’s economic releases as intently as usual. The market may begin to move away from its “bad news is good news” approach due to the sharp rate cuts. The March e-mini S&P has improved significantly on the daily chart, but the contract would probably need to take out resistance areas at 1390 and 1420 to swing over to the bulls' favor. A recovery from technically oversold conditions on the RSI could leave the door open for further selling pressure if the market is unable to gain upside traction. Momentum has stayed relatively flat, even as the market has made tremendous recoveries over the past two sessions, indicating that the near-term bias remains in favor of the bears. Support comes in at 1320 and 1270, while resistance can be found at 1390 and 1420.

Crude Oil – Spurred by the recovery in the equity markets, Crude Oil futures are higher today after falling in five of the last six trading sessions. The move higher has been tempered by the fact that today’s EIA inventory figures are expected to show a build of roughly 1.75 million barrels of Crude Oil and expectations that gasoline inventories will rise for the eleventh straight week. Energy traders would like to see more signs of life in the U.S. economy before swinging the bias back to the bulls. Recent events on the economic front and the lack of geopolitical confrontations have sucked the air out of the Oil market. The March contract is still trading near the key support area around 86.50, and a solid close below this level could bring a new flood of selling pressure. If the market is unable to make a push above the $90 mark over the next few sessions, it would probably further embolden energy bears and force many remaining bulls out of the market. Momentum has remained flat this morning, suggesting bias remains to the downside in the near term. Support comes in at 86.50 and 85.00, while resistance can be found at 90.00 and 91.90.

Cotton – Cotton futures have rebounded in early electronic trading after the market made a limit move lower. A slowdown in the global economy may decrease import demand from China, which has been a real driver for the market. Overbought levels on both technical indicators and the COT report helped spark the sell-off, which began last Friday. Cotton was also sucked into the wave of commodity selling due to the poor state of the U.S. economy. Speculation that farmers will begin planting more Wheat to try and capitalize on the historically high prices could act as support for the Cotton market over the longer term, but traders may not be ready to accept prices above the 70.00 mark until more concrete data is released by the USDA. The inability of the March contract to hold above last July’s highs was discouraging for technicians and may have contributed to the selling pressure over the past few sessions. It is critical for prices to hold above the 66.00 mark, as a solid close below this level could signal the beginning of a downtrend. Momentum has stayed in positive territory and the RSI has come down significantly from overbought levels. Support comes in at 66.00 and 63.25, while resistance can be found at 70.00 and 72.50.

Rob Kurzatkowski, Commodity Analyst


Gold Continues to Shine in 2008

Gold – The Gold market continues to trade near record highs, buoyed by weakness in global equity markets and the U.S. Dollar. South African mines were forced to shut down in response to the country's largest utility threatening to cut power to miners, sparking a new wave of buying. The shutdown is only expected to close several mines completely for a day, but what is not known is how long it will take miners to get back to full capacity. The market has been on such a tear recently that almost any news on the U.S. economic front can be seen as bullish. If the economy sputters, traders can argue that the Fed will continue lowering rates, devaluing the greenback and opening the door for future inflation. On the other hand, if indicators pick up, the argument can be made that inflation will kick up sooner rather than later and make precious metals a good hedge opportunity. If the FOMC defies the markets and leaves rates unchanged later this week, it could adversely impact the precious metals market in the near term. April Gold broke out to a new contract high close on Friday, but traders would like to see a close above the previous high of 922.50 to offer further confirmation. Momentum is outpacing the RSI, which is bullish in the near term. The 9-day RSI and stochastic indicators are now at overbought levels, so it will be interesting to see how the market behaves in the near term. Support comes in at 908.60, 901.00 and 890.50, while resistance can be found at 926.70, 937.20 and 944.80.

Dow – Stock index futures are poised to open lower as a result of a sharp sell-off in European shares. Banks have been hit especially hard on the heels of the Societe Generale rogue trader fiasco. The scandal hit at a time when portfolio valuations are still difficult to calculate due to the continuing subprime crisis, which has caused another exodus in financials. Additional rate cuts by the Fed later this week have become less certain now after the surprise cut last Tuesday, which has impacted trading. Oil company shares have been impacted in European trading due to price weakness in the commodity and fears that the slowing economy may keep demand in check. Today's new home sales figures are expected to show a decline to 645,000 in December from the November figure of 647,000, according to median estimates. It would not at all be surprising to see the number come in closer to the 635,000-640,000 range. March Mini Dow futures continue to trend lower, and a close above 12,500 may be needed to renew bullish sentiment. Momentum is outpacing RSI, suggesting the market may begin to find some strength in the near term. Support comes in at 12,120, 12,005 and 11820, while resistance can be found at 12,420, 12,605 and 12,720.

Sugar – The Sugar market has rallied sharply in early morning trading, defying a statement by the chief of the International Sugar Organization (ISO) that prices will remain depressed. The group forecasts another year of record production from Brazil, but this may be at least partially offset by indications that the EU and India will trim production. The market is moving higher despite weaker Crude Oil and Corn prices, both of which are key outside markets for the sweet commodity. Today's rally may be a result of short covering after March futures held key technical support levels last week. The daily chart appeared to be forming a technical reversal before holding the key 11.30 mark. A move above the recent high close of 12.45 may result in a continuation of the uptrend. Support comes in at 11.54, 11.13 and 10.86, while resistance may be found at 12.22, 12.49 and 12.90.

Rob Kurzatkowski, Commodity Analyst

Hot Chocolate

Cocoa – Cocoa futures are trading higher for the sixth consecutive trading session, bolstered by tight supplies and rough weather conditions. The seasonal Harmattan winds from the Sahara have been fiercely blowing over the main growing region during a dry past week. If the arid conditions persist, the likelihood of a very small midcrop increases dramatically, which could lead to tight supplies over the summer. Ivory Coast arrivals set to begin October 1st are up by over 60,000 tons over the 2006-07 crop year, but the pace has slowed recently. There are also indications that supplies from neighboring Cameroon may be tight. Cocoa has gotten some outside market support due to the slumping Dollar, which may continue if the greenback is unable to stabilize. March Cocoa is close to testing recent highs of 2237 and prices may need to break above these levels to get some renewed buying pressure. The market is approaching overbought conditions on the 9-day RSI, which could put some downward pressure on the market in the near term. Support comes in at 2193, 2173 and 2161, while resistance can be found at 2225, 2237 and 2257.

Wheat – Wheat finished limit up in the front month March contract on a slumping U.S. Dollar and lower shipping costs, both of which could keep export demand strong for the old crop. Wheat received quite a bit of outside market support, as there was a broad rally in commodity prices. Old crop supplies remain very tight and the recent tightening of spreads between old and new crop seem to have reversed over the past few trading sessions. Widening spreads can be attributed to the weak greenback and lower shipping costs, as both of these factors would indicate the possibility of strong short-term demand, but it is unknown if these conditions will persist. Export controls by Russia and Argentina have also aided prices and opened the door for more U.S. exports. The limit move pushed March Wheat toward the recent high close of 962.50. A breakout above this recent high could spark buying and bring about a test of the $10 mark. Momentum has turned sharply higher and is outpacing RSI, suggesting a bullish near-term bias. Support comes in at 943, 923 and 913, while resistance can be found at 973, 983 and 1003.

S&P – Stock futures are higher this morning on renewed confidence and expectations that durable goods orders will rise. In his State of the Union Address last night, President Bush indicated that he wants Congressional legislators to put aside partisan politics and put together a stimulus package quickly. There has been some skepticism on how quickly such a package could be put into action because of the vastly different way in which the two political parties want to offer aid to consumers. Durable goods orders, released at 7:30 AM CST, are expected to rise 1.5 percent after falling the previous 4 months, which could hint that there is some life left in the economy. Consumer confidence is expected to fall to 87 percent, but it would not at all be surprising to see the figure come in closer to 85 percent due to the bad press the economy has gotten recently. Traders are betting that Wall Street will be able to bully the FOMC into a half point rate cut on Wednesday, lowering borrowing costs. March e-mini S&P futures were not able to make much headway technically, despite rallying strongly yesterday. 13,900 remains the barrier that the market may have to cross in order to gain a bullish bias. Support comes in at 1323.75, 1293.00 and 1275.75, while resistance can be found at 1371.75, 1389.00 and 1419.75.

Rob Kurzatkowski, Commodity Analyst

Great Grains

Wheat – Dwindling stocks have left Wheat importers scrambling to lock up supplies, resulting in another limit up session for the grain. Yesterday’s close marked the sixth consecutive limit up session for the prized hard-red spring variety traded on the Minneapolis Grain Exchange. Supplies of Spring Wheat are at the lowest levels since 1978 and the USDA is forecasting a 30 percent decrease in the size of the protein-rich variety. The situation is not expected to get better anytime soon due to dry conditions in Canada and Argentina. Producing nations have been exporting at breakneck speed, evidenced by the strong U.S. export sales figures over the past two months. The MWH8 contract is limit up in electronic trading, breaking the $15 per bushel mark and bringing the Chicago and KC contracts up right along with it. March CBOT Wheat broke through previous contract highs and closed above the $10 mark for the second consecutive session. The market is now eying $11, which may offer some resistance and finally slow things down. The MWH8 future has gained over 75 percent over the past three months, versus gains of just over 25 percent in the KWH8 and WH8 (see chart below). This suggests a possible “short squeeze” under way in Minneapolis, with shorts being forced to buy back positions on top of new money hitting the market.

Cocoa – Cocoa futures are extending recent rallies with strong gains overnight. Relatively under-priced compared with a number of other markets, Cocoa has managed to attract a fair amount of the fund money leaving other commodities. The attractiveness of Cocoa can be evidenced by the market's resiliency on this past Friday and earlier this week, while the rest of the commodity markets were dragged down by the Gold sell-off and renewed strength in the greenback. Growing regions in the Ivory Coast and Ghana have not seen any significant precipitation in recent weeks, which, coupled with the Harmattan winds, may lead to a small midcrop of sub-par beans. Expectations that the next crop year may yield a record harvest could somewhat temper the bullish enthusiasm, and the market may labor if and when it approaches 2500. March Cocoa made new contract highs of 2405 in electronic trading, but has initially rejected advances beyond 2400. Due to the overbought technical conditions, traders may be inclined to take profits if the market is not able to rally beyond the 2400 mark by the pit close. A sharp reversal may see the market test support at 2237 or possibly the 2174 Fibonacci retracement support. Support comes in at 2332, 2310 and 2290, while resistance can be found at 2416 and 2433.

Rob Kurzatkowski, Commodity Analyst


A Platinum Record

Platinum – April futures are up another eye-popping 54 dollars in early trading on worries that supplies will remain tight. South African utility company Eskom will limit electricity use to 90 percent for mines through 2012, setting up a potentially significant supply squeeze considering world stocks are already at historically low levels. Palladium futures may also get a lift from the news, as industrial users of Platinum may begin substituting due to the rocketing costs. The problem for the industrial consumers is that Russian exports of Palladium are inconsistent, forcing them to weigh the low cost benefit versus normally reliable supply from South Africa. Today’s release of the import and export price data suggests higher inflation, bolstering demand for precious metals as an inflation hedge. The Empire State Index showed a decline of 11.7 percent versus expectations of a 7 percent increase, which has sent equity futures tumbling and may lead to more inflows of funds into commodities. Technically, there is very little to say about the April Platinum chart. We continue to make new highs daily and, because the market is at historically high levels, it is difficult to gauge where resistance may come in. The RSI is extremely overbought at 90 percent, but is being outpaced by the momentum indicator, suggesting the trend is not weakening.

Copper – Copper futures did an about-face this morning, rallying almost 8 cents. Chinese imports of the yellow metal rose to 239,000 tons in January from 224,553 tons in December. LME warehouse stocks have been dwindling, but much of this inventory seems to have shifted to Shanghai, which showed a rise of 10,493 metric tons for the week. The weak Empire State Index reading was more than offset by the inflationary import and export prices. Base metal traders have largely taken their focus off of the U.S. economy – economic data is weak and the housing market is about as bad as it can get, so expectations are not very high. Rising aluminum prices due to the South African power situation have also offered outside market support for Copper. The March Copper chart continues to form a bull flag consolidation pattern, suggesting prices may test contract highs of 3.75. The market initially rejected 3.60, which sparked some technical selling, but did not do any major chart damage. 3.55 was the measured move objective for the inverted head and shoulders bottom, and 3.60 was previously the trigger line for the double top pattern in last October and a relative high made on October 29th, which is why this area has offered stout resistance. A solid close above the 3.60 mark may bring more buyers into the market and squeeze out shorts. Momentum continues to outpace the RSI indicator, suggesting a bullish near-term bias. Support comes in at 3.4350, 3.3825 and 3.3085, while resistance can be found at 3.5615, 3.6355 and 3.6880.

Coffee – The Coffee market has been a runaway train of late, breaking out of an extended slumber on supply concerns. The market opinion is that the upcoming crop year will be much less productive for growers, who will struggle to meet rising demand. Soft commodities have underperformed versus other commodity markets such as metals, grains and energies, leading many traders to believe that the sector has the greatest growth potential, especially with legitimate supply concerns in Cocoa and Coffee. After finally breaking through resistance at 146.25, it has been a straight rise in the May contract. The 9-day RSI is giving an extremely overbought reading of 90 percent, which could open the door for some profit-taking. Momentum continues to outpace the RSI, suggesting the trend has not weakened. Support comes in at 151.00, 146.25 and 142.00, while resistance may be found at 160.00 and 165.00.

Rob Kurzatkowski, Commodity Analyst


Commodities a Mixed Bag

Gold – Gold futures continue to soar thanks to a falling U.S. Dollar and the broad sell-off in the Asian equity markets. The $1,000 mark is now within reach for the April contract, sparking speculative buying that has added to the “flight to quality” effect in the market. All three major U.S. inflation gauges – CPI, PPI and the Chain Deflator – are indicating that both consumer and producer prices are rising at a brisker pace than previously believed, and the inflationary scenario is likely to continue in light of soaring commodity costs and expectations of further Fed rate cuts. Despite the bullish news for precious metals, Gold may remain vulnerable to profit-taking pressure in the near term due to technically overbought conditions and some traders rethinking strategy when and if spot prices reach $1,000. The April Gold chart remains bullish, with the market closing at new record highs each of the past three sessions. Momentum continues to outpace both the RSI indicator and prices, suggesting the trend may still be strengthening in the near term. Support comes in at 968.00, 960.90 and 955.70, while resistance can be found at 980.20, 985.50 and 992.50.

Cocoa – Cocoa futures have succumbed to profit-taking pressure and are lower, despite reports from Cameroon that exports of beans were down 41 percent for the week. It is officially called a trucker strike, but in reality trucks are being blocked from moving by anti-government factions that may lead to further supply disruptions. Cocoa fundamentals remain strong with increasing chances that the mid-crop will be small and poor in quality, which has attracted strong fund buying. There are reports that some farmers have prematurely harvested a portion of their crop to capitalize on high prices, adding even more potential mid-crop problems. May Cocoa remains technically overbought, and the bearish crossover in the stochastics points to the possibility of still more downside. The crossover conflicts with the momentum indicator, which is showing slight bullish divergence. Support comes in at 2740, 2703 and 2668, while resistance can be found at 2812, 2847 and 2884.

Crude Oil – The Oil market has given back some of last week's gains over the past two sessions, with traders now thinking that OPEC may leave output unchanged. Many traders were previously banking on a production trim at the cartel's Wednesday meeting, which has prompted this most recent rally in the energy markets. Trading has been out of tune with fundamentals suggesting that the U.S. has ample supply, as illustrated by inventories rising for seven consecutive weeks. Trading may remain choppy ahead of Wednesday's meeting and release of inventory data. The market may be weak over the next two days, with longs lightening up positions in the event that OPEC doesn't make any adjustments. Technically, April Crude remains very bullish on the daily chart and the activity over the past two sessions may just be profit-taking. Prices seem to have comfortably settled above the $100 mark after initial rejections. Momentum is screaming higher, easily outpacing both price and RSI, suggesting near-term strength. Support comes in at 101.11, 100.39 and 99.43, while resistance can be found at 102.80, 103.77 and 104.50.

Rob Kurzatkowski, Commodity Analyst


OPEC Keeps Supplies Steady

Crude Oil – Crude Oil is higher this morning after a majority of OPEC ministers decided to keep output unchanged. This week's trading is a far cry from the bullishness that had been prevalent over the past two weeks, as illustrated by yesterday's sharp drop ahead of the cartel meeting. The petroleum market – like many commodity markets of late – has become detached from supply and demand fundamentals, with fund and investment money becoming the driving forces behind the push beyond $100 a barrel. The market is expecting a build of 2.3 million barrels of Crude Oil this week and a larger build may bring about a test of the century mark. The Crude chart is indicating that the market may be vulnerable to profit-taking pressure. After the spinning top formed by Monday's trading, the market formed a large down candle, which tested near-term chart support in the 99.00's. Another close below 100.00 could be bearish psychologically and a close below 97.00 would be considered bearish near-to-medium term. Momentum is showing bullish divergence from the RSI this morning, but is not particularly strong. Support comes in at 97.81, 96.11 and 93.35, while resistance can be found at 102.27, 105.03 and 106.74.

Cotton – The Cotton market is limit up once again this morning after being the lone bright spot during yesterday's broad commodity sell-off. Near record Crude Oil prices have many traders believing that demand for the fiber will rise, as synthetic fabric prices are likely to climb. There may be an acreage battle brewing this year due to the rising cost of Wheat, which may steal acres away from Cotton and pressure supplies. A positive outlook from commodities guru Jim Rogers has also helped attract spec buying. Many former and current floor traders are beginning to point the finger at the ICE exchange, which has made several moves that are perceived to have hurt both speculative and commercial shorts. The exchange expanded limits and raised margins twice in a 24-hour period, which put shorts on call and essentially forced them out of the market. Also, the elimination of floor trading in futures has some critics pointing out the fact that option traders and hedge funds are determining price and direction in a market that has traditionally been driven by commercials, making a strong argument that some markets are simply not suited for electronic trading. The technically overbought conditions, along with the possibility that traders do not want to get locked into a position ahead of Tuesday's USDA report, may make the market vulnerable to profit-taking. Given the high volume of fund positions, sell-offs may be as dramatic as those seen in the Wheat market in recent weeks.

Gold – The Gold market is unable to get any footing this morning after falling almost $18 an ounce yesterday. The market flirted with the 990 area the previous two sessions and some longs may have become frustrated that prices did not test the $1,000 mark. Yesterday's broad sell-off in commodities – namely energies – and stabilization in the Dollar also helped spur long liquidation. The fundamentals for the precious metals market have not changed, as the equity markets remain weak and inflation risks remain. This may just be the healthy near-term correction the Gold market needs after five consecutive positive sessions. Yesterday's sell-off caused little if any chart damage and April Gold remains in a strong uptrend. The market has recovered from overbought conditions on the RSI, which is being outpaced by the momentum indicator, suggesting near-term strength. Support comes in at 953.00, 939.60 and 921.00, while resistance can be found at 985.00, 1003.60 and 1017.00.

Rob Kurzatkowski, Commodity Analyst


Crude Jumps to New Record

Crude Oil – April Crude Oil futures have rallied to a new record high on an unexpected drawdown in U.S. inventories and a new record low for the greenback against the Euro. Much of yesterday's broad rally in commodities can be attributed to the Dollar trading at all-time lows, attracting a huge inflow of funds from equity and fixed income markets. Even though Crude inventories fell for the first time in eight weeks, the market continues to completely disregard fundamentals, which are anything but bullish. Gasoline inventories are at 14-year highs and the drawdown in Crude Oil inventories can largely be attributed to increased refinery activity. While OPEC did not officially cut production quotas, the feeling among many traders is that some member states will begin to pull back their own production, fearing slow demand may lead to oversupplies. The April Crude chart remains bullish but vulnerable to selling pressure due to overbought conditions. Support now comes in at 101.06, 97.61 and 95.66, while resistance can be found at 106.46, 108.41 and 111.86.

Cocoa – A weaker Dollar and supply worries have sent the Cocoa market sharply higher in early trading. Rains in drier parts of the Ivory Coast, along with technically overbought conditions, have caused some consolidation in recent sessions, but fundamentals remain bullish. Cocoa, Coffee and the grain markets are the few markets that actually have extremely bullish fundamentals, while the rest of the commodity market seems to be banking on a weaker U.S. currency, inflationary pressures and speculation that fundamentals will shift. This disconnect between supply and demand fundamentals and prices may make some commodity markets vulnerable to selling pressure in the weeks and months ahead, which could adversely affect fundamentally strong markets, such as Cocoa. Technically, May Cocoa appears to be breaking out of the bullish consolidation pattern on the daily chart, but the initial rejection of Tuesday’s contract high of 2845 is somewhat troubling. Momentum remains strong and is outpacing the RSI, which remains technically overbought. Support comes in at 2729, 2681 and 2651, while resistance can be found at 2836 and 2885.

S&P – The stock market is set to open lower on continuing worries over the mortgage sector. Thornburg Mortgage, Inc. received a default notice for failing to meet a margin call issued by JP Morgan, and a bond fund managed by the Carlyle also failed to meet several margin calls. To make matters worse, banking giant UBS has reportedly shed a good chunk of its mortgage assets in what was widely regarded as a fire sale. UBS is expected to have write-downs of close to $20 billion due to the mortgage crisis. Due to the credit crunch, banks have been very tight with lending, which has exacerbated the problems in the housing market. This could have banks suffering the effects of the crisis much longer than previously thought. High inflation and a weakening consumer sector have even the most optimistic market observers worried. Equities may continue to suffer, as investors struggle to find stocks that have value in the current environment. March e-mini S&P futures have broken the downside of the bearish wedge formation and formed a bear flag on the daily chart, suggesting the possibility of further declines. The contract low close of 1309.25 is an important point for the market, as a new contract low may bring about long liquidation. Support comes in at 1322.25, 1308.75 and 1297.50, while resistance can be found at 1347.00, 1358.25 and 1371.75.

Rob Kurzatkowski, Commodity Analyst


Gold Loses Some Luster

Gold – Gold is trading lower for the third consecutive session on heavy profit-taking. The Dollar strengthened against the Euro Friday and in early trading today, which may have sparked some selling from European traders. The lower Euro and lower energy prices have kept the precious metals markets from gaining any fresh upward traction. Coming on the heels of new highs just below the $1,000 mark, the sell-off may be a healthy sign for the market, as advances beyond this critical level followed by heavy selling would likely be a huge psychological blow for traders. Friday will be a big day for traders in both the equity and commodity arenas with CPI data on the horizon, as further confirmation of a rampant inflationary environment could bring strong buying. The recent selling has not caused any major chart damage yet, but declines beyond the 950.00 mark in the April contract could spark a more extended confirmation. The RSI peaked prior to Gold making record highs, which is a bearish signal over the mid-term. Momentum has dropped more sharply than prices, opening the door for further weakness. Support comes in at 966.60, 958.90 and 948.80, while resistance can be found at 986.30, 998.30 and 1005.90.

Cocoa – A broad sell-off in commodities – particularly softs – has sent the Cocoa market lower in early trading. Cocoa has not seen the solid buying coming on dips, as it had over the previous few weeks. Traders seem to have lost some of their enthusiasm for softs and grains in light of speculation that prices may have risen too much too quickly. Growing regions in Ghana and the Ivory Coast have gotten much needed rain of late, although only sporadically. The Cocoa market has not sold off as much as other soft commodities, signaling that many traders may believe fundamentals are still relatively strong. The May chart appears somewhat bullish, forming a sideways-to-lower consolidation pattern. Two rejections of the 1845 area do not bode well for the market technically, and advances beyond this level may be needed to bring buyers back. The RSI is only now starting to recover from technically overbought levels, underscoring the fact that the market may have risen too sharply in recent weeks. Momentum has dipped, although to a lesser extent that the RSI and prices. Support comes in at 2692, 2646 and 2617, while resistance can be found at 2767, 2796 and 2842.

S&P – Stock futures labored to stay near unchanged levels in overnight trading. Friday’s non-farm payroll number gives further confirmation that the economy is nearing recession, if it hasn't arrived there already. There were rumors circulating prior to the release of the report that the Fed would make another emergency rate cut if the report showed a contraction in the labor market. This did not materialize, but Fed Fund futures are now pricing in a high probability of a ¾ basis point cut. Banking stocks are once again feeling the bulk of the heat this morning on more reports of margin calls issued to major credit market players. A flurry of important economic data is scheduled for release on Thursday and Friday, with retail sales and Michigan consumer sentiment set to give traders a better idea of how the recent downturn has impacted the American consumer. Positive data could give the market a much needed lift on value buying from investors. Friday’s chart setup was a bearish continuation after confirming a bear flag pattern on the March e-mini S&P chart. Support comes in at 1277.00, 1261.50 and 1241.00, while resistance can be found at 1313.50, 1334.00 and 1349.75.

Rob Kurzatkowski, Commodity Analyst


Crude Lingering Around 110, Gold Hits 1,000

Crude Oil – Crude Oil jumped to $110 a barrel yesterday despite the weekly EIA inventory report showing a much larger build than expected. The Oil market has been driven primarily by the freefall in the greenback, which is now trading at 12-year lows against the Yen and all-time lows against the Euro. Fresh overseas money seems to be coming in daily to take advantage of the battered currency, with the bulk of overseas traders establishing long positions. This is the driving factor behind Crude's recent detachment from supply and demand fundamentals. The market does appear to be a bit top heavy, which could make it vulnerable to profit-taking, especially if the dollar manages to find some near-term footing. The April Crude chart remains bullish, but the angle of the up move has steepened sharply, which could be a harbinger of a near-term correction. The RSI is overbought, as are the stochastics, suggesting near-term vulnerability remains. The question for the market now is whether new shorts will attempt to test the waters after getting burned so many times before. Support comes in at 107.94, 105.96 and 104.83, while resistance can be found at 111.05, 112.18 and 114.16.

Gold – The sharp decline in the U.S. Dollar relative to the major currencies has sparked a fresh wave of buying in Gold. The April contract traded at $1,000 an ounce, which remains the high of the session to this point. The historic levels in Crude and now Gold have offered strong outside support to other commodity markets, which could spark a new round of margin calls among shorts. This may force shorts out of the market, further fueling the solid buying the market has seen. If the April contract is able to hold current levels, it would signal a new breakout on the chart, which could be especially strong if we are able to close above the key psychological $1,000 mark. Momentum is outpacing the RSI indicator, suggesting further strengthening. Support comes in at 966.30, 952.20 and 934.80, while resistance can be found at 1015.10 and 1029.30.

Cocoa – Warehouse workers in the Ivory Coast extended a strike for increased pay and better working conditions, sparking a wave of buying. A weakening Dollar, along with the short squeeze, has exacerbated the buying situation. Shorts now appear to be moving to the sidelines for the time being, leaving no resistance for buyers. Commercial short hedges in the softs markets have been discouraged by the wild price action since the ICE’s move to electronic trading. Many short hedgers have either moved into the options market to avoid margin calls or simply left themselves un-hedged for the time being, leaving futures trading to the speculators. The May contract may be signaling a breakout if we are able to sustain current levels. Today’s early move has driven prices beyond the 2845 resistance area. Support comes in at 2714, 2656 and 2561, while resistance can be found at 2961 and 3020.

Rob Kurzatkowski, Commodity Analyst


Worldwide Woes

S&P – European and Asian markets slumped in overnight trading, dragging down U.S. stock index futures before the bell. Recent data seems to confirm recent fears that the U.S. slowdown is spilling over to outside markets. Germany's Ifo Business Confidence Index saw its largest drop since the 9/11 attacks, falling to 97.5 from 101.3 points for the month of June; Citigroup trimmed earnings forecasts for the UK banking sector by 40 percent; and, National Australia Bank, Australia's largest lender, wrote off A$830 in U.S. mortgages, causing shares to plunge. Back in the States, traders are expecting today's 10:00 AM EST report on New Homes Sales to show a drop to 505,000, which could lead to more woes in the troubled lending sector. Weak home sales figures and skyrocketing foreclosure rates have prevented a recovery in banking shares. Mortgage rates have also climbed on expectations that the Fed may begin tightening rates by year-end, suggesting housing prices may not bottom in November-December of this year, as many had expected. One positive that can be taken amid all of this dismal data is the fact that the U.S. economy was the first to feel the impact of the credit crunch and, in theory, could make the quickest recovery. Banks have already written off enormous sums of bad debt and seem to be erring on the side of caution when giving their earnings outlooks. Another positive implication of a slowdown overseas is the possibility of rapidly decreasing inflation. Consumption of raw materials – namely food and energy – may slow significantly, aiding a U.S. recovery. In addition to New Homes Sales, the Durable Goods Orders report will be released at 8:30 AM EST, and is expected to show a contraction of 3 percent. September e-mini S&P futures bounced off of the 38.2 percent Fibonacci retracement resistance area on Wednesday, suggesting traders may not be confident in the market's chances of a recovery. The 9-day moving average may be on the verge of crossing the 18-day average to the upside, which could be seen as positive in the near term. The market is at a turning point in the short term. Crossing the 1293 mark – which is both chart and Fib resistance – could swing the market in favor of the bulls, while a close below the 1240 support area could lead to further declines. Momentum is showing strong bullish divergence from both price and RSI, suggesting a positive short-term bias. Support comes in at 1241.50, 1229.25 and 1207.50, while resistance can be found at 1275.50, 1297.25 and 1309.50.

Crude Oil – Oil futures have edged slightly higher in the early going this morning on comments from Israel and Nigerian militant group MEND. Israel upped its rhetoric, saying that military options are available if negotiations with Iran fail. This is hardly fresh news, but may have shaken the resolve of some Oil bears. Traders seem to be more focused on suggestions from MEND that it will attack major pipelines that feed two of the nation's four major refineries. Today's trading may have a slightly bullish bias due to prices dropping rapidly over the past two weeks and concerns that supplies may be disrupted. The bullish enthusiasm may be somewhat subdued due to worries that a global economic slowdown may continue to trim demand. Also, the odds of an attack on Iran prior to the November election are fairly slim, as Israel could have a falling-out with U.S. over what might be seen as sabotaging the election and disrupting Oil supplies. September Crude Oil technicals remain bearish, at least in the near term. The 18-day moving average is in danger of crossing through the 50-day to the downside, which may be seen as bearish over the mid-term. Price action over the past two sessions, while positive, suggests that prices are consolidating before moving lower. If the price of the September contract falls below the $120 mark, the market may see more downside. Momentum is moving lower this morning, despite the rally, hinting that bulls may not be very confident in their opinion. Support comes in at 123.86, 122.23 and 120.94, while resistance can be found at 126.78, 128.07 and 129.70.

Cocoa – Cocoa prices have gotten a boost from a weaker Dollar and a stronger British pound, leading to arbitrage buying. Cocoa has plummeted this month on improved growing conditions in the Ivory Coast. Traders were expecting that some of the problems that had plagued the midcrop may also hamper the main crop, leading prices ahead of themselves. The government in the Ivory Coast is also stepping up efforts to spay crops, which would decrease the likelihood of black pod and other diseases. The real story in Cocoa may be the fund activity, with many funds bailing out of their positions, sparking this plummet. The market has been a favorite of many hedge funds and the sharp drop in energy and grain prices may have forced many funds out of Cocoa to meet margin calls and de-leverage their positions. Technically, September Cocoa remains weak. The chart pattern shows the market consolidating around the 2750 area, which could mean more downside lies ahead. Fibonacci support at 2654 may be a key area going forward. If prices are unable to stop their slide at 2654, prices could test April lows. Support comes in at 2725, 2706 and 2678, while resistance can be found at 2772, 2800 and 2819.

Rob Kurzatkowski, Commodity Analyst