Arabica Coffee's negative fundaments and the potential for aggressive hedge selling by South American producers on any significant rally may keep pressure on Coffee prices. Aggressive traders who are bearish on Coffee may wish to consider using any rally attempts to explore selling out-of-the-money calls in Coffee futures options. For example, with July Coffee trading at 179.10 as of this writing, the July Coffee 195 calls could be sold for 1.10, or $412.50 per contract, not including commissions. The premium received would be the maximum potential gain on the trade, which would be realized at option expiration in early June should the July futures be trading below 195.00. Given the potential risks involved in selling naked options, traders should have an exit strategy in place should the position move against them. An example of one such strategy would be to buy back the options sold prior to expiration should the July futures close above chart resistance seen at 193.00.

Fundamentals

After a decline of over $1 per pound during the past 8 months, Arabica Coffee futures prices have begun to consolidate, hovering just north of 175.00 in the most active July contract. Like many commodities, Coffee prices have hit headwinds from the continuing drama that is Europe, as well as a much stronger U.S. Dollar. Actual Arabica Coffee fundamentals have also been a negative weight on prices, as analysts are looking for potentially record production out of Brazil this season -- which if true, would help replenish tight supplies seen the past few seasons. Many speculators, both large and small, have been holding net-short positions in Coffee futures for several weeks, but have begun to lighten-up on their short positions as prices begin to consolidate. The most recent Commitment of Traders report shows the combined net-short speculative position was decreased by just over 2,700 contracts to stand at 11,208 contracts as of May 8th. Arabica Coffee may be seeing some spillover support from Robusta Coffee futures trading in London, where bullish fundamentals, including lower exports from Vietnam, have sent prices to 8-month highs. However, any rally attempts in Arabica futures may be capped by hedge selling, as producers may take advantage of any rally to hedge what may be a record harvest in South America.

Technical Notes

Looking at the daily chart for July Coffee, we notice prices beginning to consolidate starting in the middle of March. Since that time, we have traded in a relatively narrow 20-cent price range, but have made a series of lower highs and lower lows within the recent price boundaries. The market has been trading on both sides of the 20-day moving average (MA) lately, but remains well below the longer-term 200-day MA, which is currently hovering near the 224.00 price area. The 14-day RSI has turned neutral, with a current reading of 50.30. The May 9th low of 172.20 appears to be support for July Coffee, with the April 4th high of 193.00 appearing to be the next major resistance level.

Mike Zarembski, Senior Commodity Analyst

Stocks have come under pressure lately, after the lack of job creation all but stopped the economic recovery in its tracks. Outside pressure from Europe and China does not make matters any easier, as it appears that the US will have to go it alone. The pop, if any, that Facebook may provide, may be a temporary distraction for traders, but material problems will likely take precedence. Some traders may perhaps wish to consider entering into a bear put spread, -- for example, buying the June E-mini NASDAQ 2450 put and selling the June 2400 put for a debit of 10.00, or $200. The trade risks the initial cost and has a maximum profit of $800 if the June contract settles below 2400 at expiration.

Fundamentals

The recent slide in equity prices is no surprise to many, given the fact that the US recovery has seemingly ground to a halt and debt worries continue to haunt Greece. Even tech heavyweights like Apple that can seemingly do no wrong have seen their valuations scrutinized and their stock prices plummet. Some traders are now asking themselves whether Facebook, the poster child of Web 2.0, can pump some life into sagging equity prices. There are already many red flags surrounding the company and its advertising revenue stream. If established tech companies with proven revenue streams such as Apple and Google have failed to inspire shareholders, it is difficult to see a company with so many question marks provide a significant boost to the market. That being said, the hype surrounding the company and dumb money buying may provide a short-term sugar high.

Technical Notes

Turning to the chart, we see the June E-mini NASDAQ breaking support from the relative low close at 2589.50. There is little to no support until the 24.00 level on the downside. Prices also closed below the 100-day moving average, adding to the bearish momentum. The RSI indicator is now at oversold levels, suggesting that prices could see a bit of a technical bounce or stabilization in the near-term. Interestingly, momentum has been relatively flat during the slide in prices.

Rob Kurzatkowski, Senior Commodity Analyst

Though the fundamentals continue to look bearish for Cotton futures, technically the market appears to be oversold, and a short-covering rally may not be out of the question. One strategy to consider given the aforementioned scenario is the purchase of a calendar spread in Cotton futures options. For example, with July Cotton trading at 80.02 and December Cotton trading at 77.30 as of this writing, the 77 put calendar spread could be bought (buying Dec 77 puts and selling July 77 puts) for a net debit of 3.65, or $1,825 per spread, not including commissions. This strategy may involve some decision-making by traders, who may wish to roll forward the short leg of the spread near expiration to help defray the initial cost of the long side of the trade.

Fundamentals

My how the mighty have fallen! That is the theme for the Cotton futures market where after trading at its highest levels since the Civil War in 2011, prices have fallen by nearly 70% from historic highs, as global supplies are at record levels. Last week, the USDA released its supply/demand outlook for this coming season, and the numbers were not pretty. In the U.S., government statisticians estimated the U.S. Cotton crop at 17 million bales for 2012, which is up nearly 1.5 million bales from last year, as improving weather conditions in Texas should be supportive to increased production this season. This production increase is expected to increase U.S. Cotton carryover to 4.9 million bales, or nearly double last year's ending stocks totals. Globally, the world is awash in Cotton, with global ending stocks expected to reach 73.75 million bales, which if accurate would be a record. Cotton bulls' greatest hope would be for increased demand, especially from China, due to lower Cotton prices. The USDA does expect U.S. Cotton exports to increase by 600,000 bales this marketing year, but this still would not be sufficient to make a dent in the global surplus. Though the northern hemisphere growing season has just begun and traders may start to place some risk premium into prices should weather conditions turn for the worse, any rally attempts may draw in fresh hedge selling, potentially placing a cap on prices this year.

Technical Notes

Looking at the daily chart for July Cotton, we notice prices collapsing after the release of the USDA supply/demand report last week. Prices are now well below both the 20 and 200-day moving averages, and momentum as measured by the 14-day RSI has moved into oversold territory, with a current reading of 22.27. Though we are now trading off the worst levels of last week, the steep sell-off occurred on higher than average trading volume and may be a sign of capitulation by long holders. If true, this may actually trigger a bit of short-covering buying as weak bears book profits. Last Friday's low of 77.16 looks to be near-term support for July Cotton, with resistance found near 86.55.

Mike Zarembski, Senior Commodity Analyst

Equity markets have not been able to shake the weight of influence from outside markets. Greece's indecision, resulting in the inability to pass austerity measures, continues to haunt Europe and the global economy. Today's retail sales figures may show whether or not consumers are as positive with their checkbooks as the sentiment data would indicate. Technically, momentum seems to be with the bear camp, which would like to see prices take-out 1345 and 1335 on the downside. Some traders may perhaps wish to consider entering into a bear put spread, like buying the June E-mini S&P 1340 puts and selling the 1300 puts for a debit of 10.00, or $500. The trade risks the initial cost and has a maximum profit of $1,500 if the June E-mini settles below 1300 at expiration.

Fundamentals

Equity prices have been hammered in recent sessions amid growing signs that the US recovery is slowing down. One area of particular concern is the inability of the US economy to create sufficient jobs to maintain economic momentum and get the US on the path to long-term economic health. The seemingly never-ending European debt crisis and Chinese economic slowdown have also negatively impacted the US economy. It is of interest to note that over the past several years, whenever economic indicators have turned positive, energy costs have begun to soar, which may be a major contributor to the inability of the US to create jobs, as businesses are forced to quickly pare costs. In all of the recent doom and gloom, the lone bright spot seems to be the US consumer remaining somewhat upbeat. Friday's Michigan Sentiment data showed a better than expected reading of 77.8, trumping the consensus estimate of 76.0 and April figure of 76.4. It is, however, difficult to see consumer confidence continuing to strengthen if the economy is not able to create jobs.

Technical Notes

Turning to the chart, we see the June E-mini S&P confirming a double-top pattern, suggesting prices could come down to test the 1300 mark. After confirming the pattern, the market has consolidated. Some traders may wish to be on the lookout for a move below 1345 to offer further validation of a bearish reversal. Recent lows have tested the 100-day moving average, which could add to the negative technical momentum in the event prices breakout out of the consolidation.

Rob Kurzatkowski, Senior Commodity Analyst

After trading as high as a $1.10 July premium to the December futures, the old-crop/new-crop spread has started to weaken, currently trading at an 81-cent July premium. With an expected increase in the 2011-12 ending stocks estimate and a potentially early harvest, we may see this premium begin to shrink, as buyers await "cheaper" new-crop supplies. Some traders who are turning bearish on Corn may perhaps wish to explore bear spreads in Corn futures - for example, buying December 2012 Corn and selling July 2012 Corn. Those who choose to trade this bear spread would want to see the July premium to the December futures narrow.

Fundamentals

It looks like it will be a tough year for Corn bulls, as the potential for a record crop this season continues to weigh on prices. In its May crop production & supply/demand report, the USDA raised its estimate for 2011-12 ending stocks to 851 million bushels, which is up 50 million bushels from the April report and nearly 100 million bushels above average analyst estimates. This huge disparity between the government and private forecasts was due to the projection of an early U.S. Corn harvest this season. If accurate, this would lead to end-users having access to new-crop supplies possibly as early as August, which would help to elevate potentially tight supplies at the end of the marketing year and potentially take some of the "premium" out of old-crop futures prices. New-crop futures also received some bearish news, as the USDA raised its outlook for this year's harvest to 14.79 billion bushels, with an expected record average yield of 166 bushels per acre. Globally, 2011-12 Corn carryout estimates were raised by nearly 5 million metric tons (mmt) to 127.6 mmt, as the USDA raised sharply its Brazilian Corn crop estimate to 67 mmt, vs. 62 mmt last month. Many analysts were expecting a more moderate increase to 62.7 mmt. Cash-connected traders were surprised by the numbers, as cash prices have been trading at a premium to front-month futures, which signals that physical supplies are tight. Some traders believe that any dip in prices may increase export demand, particularly from China, which would negate much of the USDA's expected gains in ending stocks. All this bearish news sent lead-month July Corn to its lowest price levels of the year, as large speculative accounts continued to shed their long positions. With old crop Corn still trading at an 80-cent premium to the new-crop December futures, we will need to see strong export sales to help justify the premium, especially with a early harvest looming in buyers' minds.

Technical Notes

Looking at the daily chart for July Corn, we notice prices falling to lows not seen since March of 2011, as the market is starting to reflect the belief that the U.S. will produce a record Corn crop this season. Prices are now well below both the 20 and 200-day moving averages,, and momentum as measured by the 14-day RSI is weak, with a current reading of 33.00. The most recent Commitment of Traders report shows large non-commercial traders are holding a net-long position of over 160,000 contracts as of May 1st. Though this position is thought to be much smaller since this week's sell-off to 2012 lows, it is still a formidable position, and any further weakness may be exacerbated as this long position is liquidated. The March 2011 low of 568.25 is the next support point for July Corn, with resistance found at the April 30th high of 634.75.

Mike Zarembski, Senior Commodity Analyst

Some traders who are expecting Oil prices to continue to fall in the near-term but who potentially may wish to go long Oil if prices continue to fall may perhaps want to explore a diagonal ratio spread. This spread involves buying a near-the-money put in a closer to expiration month and selling multiple further out-of-the-money puts in a farther out contract month. For example, with July Crude trading at 97.00 and August Crude trading at 97.29, the July 95 puts could be bought and 2 August 87 puts sold for a credit of 0.45, or $450 per spread, not including commissions.

Fundamentals

Apparently Crude Oil prices can move in both directions, as a nearly $10 decline during the past few trading sessions has many analysts questioning the sustainability of the Oil bull market that began in early 2009. The bearish arguments are many, including ample global supplies, rising value of the U.S. Dollar, and a move away from "risk" assets due to continued economic concerns out of Europe. Earlier this week, Saudi Arabia's Oil minister Ali Naimi was quoted as saying that "Oil prices are too high," which was interpreted by some analysts as a sign that OPEC may raise its output quotas at its next meeting in June. Here in the U.S., Oil inventories are more than ample, with Oil inventories standing at their highest levels since August of 1990. Inventories are especially burdensome in Cushing, Oklahoma, which is the delivery point for NYMEX WTI futures. In Cushing, Oil supplies are at record levels at just over 44 million barrels. This increase of Oil moving into Cushing looks to be tied to the eventual reversal of the Seaway pipeline that will allow Oil to move from Cushing to the Gulf Coast and then be shipped to the East Coast. Continued uncertainty in Europe due to elections of anti-austerity parties in both Greece and France has increased the likelihood that any agreements to aid the fiscally troubled Euro countries may be in jeopardy, which in turn has sent some traders fleeing away from commodities and into what are considered safe haven investments. Large and small speculators were heavily net-long Crude Oil futures, holding a combined net-long position of over 320,000 contracts as of May 1st. It is this long liquidation selling that has triggered the steep decline during the past few sessions, as weak longs finally threw in the towel on their positions, with few willing buyers emerging at current price levels. Before becoming too bearish on Oil prices, however, we should remember that a "risk premium" may still be needed, especially given the potential for disruptions out of the Middle East and West Africa.

Technical Notes

Looking at the daily chart for July Crude Oil, we notice prices holding just above the 50% Fibonacci retracement level, as buyers seem to be emerging as fresh lows are being made. The market is holding near the 200-day moving average, trading on both sides of this key long-term indicator. The 14-day RSI has held just above oversold levels, with a current reading of 31.83. The December 16th low of 93.45 looks to be the next major support level for the July futures, with resistance found at the April 10th low of 101.77

Mike Zarembski, Senior Commodity Analyst

Gold has certainly lost its luster with traders in recent session! The US economy, which was showing encouraging signals, now seems weaker. Also, the fact that Greece has continued to drag its heels and failed to approve austerity measures could result in worsening EU debt conditions. Some traders may perhaps wish to consider selling a bear call spread - for example, selling the June Gold 1650 calls and buying the 1680 calls for a credit of 2.50, or $250. The maximum profit on the trade would be the initial credit and the risk is $2,750.

Fundamentals

Gold futures have followed the broad commodity market lower, as investors' funds pour into US Dollars. The uncertain economic future of Europe has resulted in the greenback being the safe haven bet for investors. The week began on a sour note, after France elected a far left candidate to take over the presidency of the nation. France had been one of the few bright spots for the embattled EU, and there are fears that a leftist president could slow a potential recovery. The failure of Greece to push through austerity measures reinforces the fact that investors simply cannot trust the nation to make the needed sacrifices to remain solvent. Commodity markets as a whole have been pummeled in recent sessions, especially energies, which are suffering because of inventory builds and the prospects of slower growth.

Technical Notes

Turning to the chart, we see the June Gold contract breaking through the 1600 level on the chart, which was technical and psychological support. Prices are now in danger of making a run at the relative low close of 1540.90. Failure to hold that near-term low could trigger widespread selling. The RSI is nearing oversold levels, which could offer the market support in the near-term. Prices bouncing off intraday lows yesterday resulted in a lower wick forming on yesterday's candle, hinting at prices possibly gaining some traction.

Rob Kurzatkowski, Senior Commodity Analyst

The Euro's recovery from Monday's spike low of 1.2957 has put a strong support point into the market, and some traders who are bearish on the Euro may wish to wait until this key level is taken-out on the downside, preferably on a closing basis, before exploring selling the June Euro.

Fundamentals

Like a cat, the Euro seems to have nine lives, as the currency once again has failed to sell-off sharply, despite rather bearish news. Over the weekend, election results in both France and Greece favored anti-austerity candidates, putting into question any current bailout efforts and which may eventually set the state for Greece leaving the Euro. In addition, elections in the German state of Schleswig-Holstein, were not favorable for the political party of German Chancellor Angela Merkel, potentially leading to more internal opposition to Germany's hard-line stance towards reforming the spending habits of struggling Euro members. These election results may move EU leaders towards more stimulus measures, such as lowering interest rates to near zero, a bias towards more increased government spending in order to help spur economic growth. Both these factors would normally be bearish towards the Euro, but after an initial sell-off subsequent to the election results being announced, the front month June futures rebounded back above 1.3000. Some of the rebound in the Euro was tied to a positive German factory orders report that dampened some of the bearish momentum for the Euro. In addition, the large net-short position being held by speculators may have resulted in a sell-the-rumor and buy-the-fact reaction after the elections, as the outcome really was of little surprise to many analysts. Going forward, some traders may wish to focus on the Euro's reaction to what is deemed "bearish" or "bullish" news and wait for a positive correlation between the news and outcome to explore positioning in the direction of the market move.

Technical Notes

Looking at the daily continuation chart for the Euro futures, we notice that the rebound on Monday from over 3-month lows did not last long, as Tuesday's sell-off has once again put the Euro on the defensive. The 14-day RSI is weak, with a current reading of 34.89. Should Monday's low of 1.2957 give way, there is little support seen until the 2012 low of 1.2627 made on January 13th. The next resistance area is seen at the 20-day moving average, currently near the 1.3157 area.

Mike Zarembski, Senior Commodity Analyst

Soybeans have been the lone market keeping the grain complex afloat this spring, due to feverish buying from China. The market is pricing a very large reduction into global stocks, which could lead to disappointment if inventory levels are on the high side of those estimates. It is dangerous when one commodity keeps an entire sector afloat. Corn and Wheat have very weak fundamentals, suggesting a large inventory estimate could trigger a large scale sell-off, especially if it is paired with a weaker export sales figure. Some traders may perhaps wish to consider entering into a bear put spread if the July Bean contract breaks 1450 on the downside - for example, buying the July Soybean 1400 puts and selling the 1350 puts for a debit of 10.00, or $500. The spread risks the initial cost and has a maximum profit of $2,000 if the July futures contract closes below 1350 at expiration.

Fundamentals

China has continued to buy Soybeans from US farmers after South American crops were severely damaged by drought conditions. This could severely stress US old crop supplies, especially if there is anything other than ideal growing conditions. The end result could be the lowest stocks-to-usage numbers since the 1960's. The market has priced-in a substantial reduction in inventory levels for this Thursday's USDA report. The average analyst estimate calls for inventory levels to drop to just below 53 million tons, which would be a reduction of 23% from the prior report. It seems as though the only thing that can cool the market would be a slowdown in purchases from China.

Technical Notes

Turning to the chart, we see the July Soybean chart turning almost parabolic. Prices easily passed resistance at the 1450 level and are now retracing a bit to retest the level. The next significant resistance level comes in near 1650, which is the record high from 2008. In order for the market to maintain positive technical momentum, prices must successfully hold the test of the 1450 level, which coincides with the uptrend line. The RSI indicator has recovered from overbought levels, but still remains on the upper end over neutral. Momentum is nearing the zero line, hinting at possible weakness. It is of interest to note that the RSI indicator peaked in March and has failed to keep pace with prices since then. This can be seen as negative, but timing the signal can be very difficult.

Rob Kurzatkowski, Senior Commodity Analyst

Wheat futures may have some difficulty overcoming both bearish seasonal and fundamental factors, with any price rallies offering an opportunity for traders to explore bearish trading strategies in Wheat futures options. One such strategy would be a synthetic short position, buying an out-of-the-money put and selling an equal number of out-of-the-money calls in the same contract month. Ideally, you would want to do this trade for a net credit to increase the potential price range of the position becoming a wining trade. For example, with July Wheat trading at 605.50 as of this writing, the Jul 570 put could be bought and the July 650 call sold for a net credit of 1.50 cents, or $75.00, not including commissions. At expiration in late June, the trade would be profitable as long as the July futures are trading below 650.00 plus the amount of the credit received.

Fundamentals

Wheat prices have failed in their attempted to rebound, with short-covering buying tied to rallies in other "feed" competitors such as Corn and Soybean Meal, stymied by bearish fundamentals for the market. Here in the U.S., the winter wheat crop is progressing nicely, with the USDA rating the crop at 64% good/excellent, vs. only 34% at this time last year. Now that we have entered the month of May, many traders may start to take any "freeze" weather premium out of prices, as warmer weather moves into the Winter Wheat Belt. Globally, the world is still awash in Wheat, and supplies are expected to be ample to meet demand this year. However, for the 2012-13 season there are some concerns that global Wheat production will decline, as cold weather in the major Wheat growing areas of Europe this winter has lowered analysts' potential production estimates. The International Grains Council has lowered its estimate for 2012-13 Wheat production to 676 million metric tons (mmt), which is down from its earlier forecast of 681 mmt. However, it has been Wheat's use as a "feed" grain that has kept prices closely tied to that of Corn, as tight supplies and high prices made Wheat competitive as a feed grain this past year. With U.S. Corn production predicted to be a record, it may be difficult for Wheat prices to sustain any major rally attempt should Corn prices decline this coming year. In the near-term, historic trends normally point to lower Wheat prices as we move into the summer months, as harvest pressure hedge selling can set the tone for the market -- at least until fall planting begins.

Technical Notes

Looking at the daily chart for July Wheat, we notice prices trading in a relatively narrow $1 price range since November of last year. During this time, we have seen the range begin to tighten, with prices making lower highs and lower lows along the way. Prices have continued to test the 100-day moving average, but have had little success moving above this key indicator. The 14-day RSI is weak, with a current reading of 37.44. The recent high of 655.50 is acting as strong resistance, as this was the daily high for three consecutive days earlier last week. Support is seen at 590.00.

Mike Zarembski, Senior Commodity Analyst