Sentiment Shifts, Fundamentals Unchanged

By Matthew Bradbard | September 22, 2008 | 11:41 AM | 0 Comments

Sentiment has shifted, the fundamentals have not changed! The US financial panic dominated the markets last week. If the moves by the US government succeed in breaking the cycle of selling and stop the scramble for liquidity, commodities in general, should benefit. We are not suggesting that the pace of appreciation that we had previously experienced is back, but we should at least get a relief rally from oversold levels. Look at our recent article as we predicted this 2 weeks ago.

The difficulty in this environment is that the fundamentals and technicals are inconsequential, as the moves are largely being influenced by outside forces as the global deleveraging continues. The good news is that the demand, although it may slow, will not vanish and the supply side is still relatively contained for a range of commodities. To find out exactly how we are positioning our clients in commodity futures and options.

Contact us today at 1-888-920-9997.

Energies

November crude oil closed $1.45 higher last week, but the trading range was approaching $13 from high to low. Interest in commodities has emerged again as investors are jittery about the stock market, with oil closing back above $100/barrel, $12 off the week’s low. Early last week we traded just above $90 which was the lowest levels seen since February. If we stay above $100 for the next few sessions, the argument can be made that an interim low has been established and we could see a recovery after we have seen prices come off almost $60 from their highs just over 2 months ago. Currently we are cautiously optimistic on the prospect of higher prices, with support at $90 and resistance at $103 followed by $106. We would not expect any significant movement higher until we regain the $122 level in November.

RBOB in November was down 5 ½ cents, but closed 28 cents off the lows on the week ending at 2.5443. After 3 positive consecutive days we should start to see the momentum shift as long as oil can maintain at least these levels. Last week’s inventory report put US gasoline supplies at their lowest level since 1990, which was largely ignored because of other events. A rally back to 2.75 or the 200 day moving average is expected. November heating oil was only down 1 ½ cents last week to close at 2.9173. Prices should be able to move back to the 20 day moving average at 3.0279 in coming sessions. We see a double bottom just below 2.69 and would expect prices to find their way back to 3.20/3.25 in coming weeks. For both distillates, traders could be buying dips with stops below the recent lows.

November natural gas closed above the 9 day moving average, but is still below the 20 day moving average. Prices were up 14 cents on the week and we registered the second positive week in the previous eleven last week. $7.50 remains as support and if we take out last week’s high at $8.59 we should see a further advance. As we have been saying for the past few weeks we are looking for a move back to $9.50/10.00 on the December contract and we own $10 calls for clients to try to take advantage of that move. We are looking to liquidate for approximately $7000 and we have accumulated them over the last 2 weeks for roughly $2000.

Currencies

The December Euro was 233 ticks higher last week and the seasonal trade we advised as of 2 weeks ago has already reached its objective, trail stops and don’t let a winner turn into a loser. We would expect prices to find their way back to 1.46/1.48 in coming sessions and potential to make a run at the 50 day moving average at 1.4880.

The December Swissie was 177 ticks higher last week and continues to move in the same direction of the euro, but just at a smaller scale. As we predicted last week prices should find their way to .9100 and from here we would imagine the advance to continue to .9250/.9350. The 20 day moving average at .9000 should serve as support, but expect some instability as last week there were 2 days with over 230 tick trading ranges.

After 8 losing weeks the December Australian dollar put in an impressive showing gaining 155 ticks last week. On the weekly chart one should notice the bullish engulfing candle as we have a target now of .8400/.8500 in coming weeks. On pullbacks .8100 should support.

The December Japanese yen reacted viciously to the equities market and the flow of investor’s funds as risk aversion ebbed and flowed like a violent tide. The yen was down 90 ticks last week and gave back about ½ of the previous 4 week’s gains. Assuming the recent high and low Friday’s low serves as a 61.8% Fibonacci retracement. We have clients positioned long by purchasing the December 94.50/97.00 bull call spreads for approximately $1000. On a break of .9300 in December we will most likely buy out right calls, get long the futures, and buy back the .9700 calls on the spread as we expect prices over the next 1-2 months make their way to .9700/1.0000 level.

The last 3 weeks buying has emerged between .9250./9300 as investors are determined to defend that level. Last week was no different as the Loonie gained 101 ticks to close back above .9500 which was the first time this level has been re-visited in the month of September. If prices are able to get above the .9600 level we should get to .9725; the 100 day moving average this week. Much of that will be dependant on what type of movement we get from the metals and energies.

The December British pound had its second consecutive positive week following seven losers as prices were 411 ticks higher. After a 25 cent fall prices have regained 8 1/2 cents in the past 2 weeks which has taken us to resistance levels at the 38.2% Fibonacci retracement level. For now support comes in at 1.7850, if we take out last week’s high at 1.8302 we should get back above 1.8500 this week.

The December dollar index was 111 ticks lower and is now 3 full cents off the recent highs. After multiple failed rally attempts traders that had been seeking shelter in the dollar found the exit doors and went back into securities and metals. What was resistance just weeks ago now serves as support at 77.50, but on a trade through that level we should find next support at 76.50. 79.50 should contain any rallies and we would continue to sell rallies as we had voiced in previous commentaries. We never trusted this rally and although it is entirely possible to see a 2 sided trade in the short term we expect the lows to be re-visited down the road. If we do see the dollar trade fall apart commodities should benefit.

 

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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions. Calculations of profit and loss have not factored in commissions and fees.