Archive | June, 2009

Hog Market Commentary – 2009.06.29

by on June 29, 2009

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The USDA news late Friday was not enough to change traders’ minds that the market needs to see a further liquidation of animals to come in more in line with recent or current demand. This may leave summer pork supplies burdensome to absorb; especially if there is no improvement in the export market. Pork values were higher again on Friday which might slow the selling. The recovery in the ham market is seen as somewhat of surprise with talk in the mid-session on Friday of weakness in hams. All Hogs and Pigs as of June 1st came in right in line with expectations (down 2%) and should have little impact on the opening today. The time period covered for the report (March-May) had only a few weeks after the H1N1 virus hit and the industry saw only a slight decline in size. Traders viewed the trade estimates for the report as negative for the price trend right up front. Ideas that “if” the report were to show a drop of only 2-3% from last year in the size of the hog herd that there would be a “need” for additional liquidation of breeding stock and market animals for the months ahead which could increase the short-term supply and pressure prices. While the breeding herd is down 2.7% from last year, efficiency (pigs per liter) was up 2% to offset much of the lower breeding stock. As a result, the March to May pig crop came in at 99.7% of last year and is up 2.4% over two-years. Any movement in cash prices for live animals or feed costs which could adversely impact margins are factors which could cause an increase tendency for producers to liquidate. The August hogs closed sharply lower on the session Friday and managed another new contract low just ahead of a key USDA report. The market saw some early support from positive news from pork cut-out late Thursday but sellers turned more active with talk of weaker cash markets this week due to a slower slaughter schedule for the week. Slaughter on Friday was only 394,000 head which was well below expectations and suggests weak demand. This pushed the total for last week to 2.032 million head, down from 2.062 million last week at this time and down from 2.140 million a year ago. While slaughter was down 5% from last year for the week last week, pork production was down only 2.6% from last year due to hefty hog weights. The Commitment-of-Traders reports, released Friday, showed that speculators were fairly quiet for the week ending June 23rd with the exception of the index funds who were net buyers of 2,412 contracts to boost their net long position to nearly 56,000 contracts. Trend-following funds increased their net short position slightly to 25,206 contracts as compared with the record net short position of 29,480 back in July of 2007. The market remains oversold technically. The CME Lean Hog Index as of June 24 came in at 58.94, up 15 cents from the previous session and up from 57.80 the week before. Pork cut out values, released after the close Friday, came in at $55.28, up 42 cents from Thursday but down from $56.38 the previous week.

TODAY’S GUIDANCE: Traders had believed that there could have been more liquidation of animals over the past three months but since this did not occur, the market sees a more significant reduction of the supply herd this summer which will mean a larger than expected pork production period. Resistance for August hogs comes in at 58.27 and 59.70 with 55.90 as next downside target.

Cattle Market Commentary – 2009.06.29

by on June 29, 2009

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The market appears to have priced-in much of the poor demand news of recent months but continued weakness in beef prices despite a tighter supply and fears that we will see “extra” meat to absorb this summer in the form of liquidation of hogs has helped keep a negative tone for the market. August cattle probed lower on Friday trading down to Wednesday’s lows at one point, but managed to hold support and rally back towards unchanged on the day late in the session to settle only slightly lower. Some late in the week short covering may have lifted the market after a steep 3-day sell-off, but volume was low as traders looked ahead to the quarterly Hogs & Pigs report for some direction. Boxed beef cutout values were 60 cents lower in the morning which may have contributed to the early selling. Cash cattle traded at $82.00 in Texas on the day which was steady with the trade the previous week and up slightly from some trade earlier last week. Reports of hot weather causing cattle deaths in Nebraska last week as well as tight feedlot supplies helped to provide some support but the weather has moderated this week. The Commitment-of-Traders reports, released Friday, showed a massive short-covering event for the week ending June 23rd. Trend-following funds reduced their net short position by 11,392 contracts for the week to a net short of 7,077. Non-reportable traders (small specs and some producers) increased their net short position to over 20,000 contracts. Index funds were light net buyers. The estimated cattle slaughter came in at 130,000 head Friday and 27,000 head for Saturday. This was a little higher than expected and suggests good demand from the packer. Cumulative slaughter for last week reached 673,000 head, down from 675,000 last week at this time and down from 713,000 a year ago. Beef production was down 6.1% from last year. Boxed beef cutout values were down 60 cents at mid-session Friday and closed 76 cents lower at $138.93. This was up from $139.59 a week ago and down from $164.83 last year at this date. Last year, beef prices hit a peak for the year on July 10th at $173.80.

TODAY’S GUIDANCE: The market seems too cheap but demand remains very week. While beef production was down 6% from a year-ago last week, beef prices are still at $138.93 which is down from $164.83 last year at this time.

Cocoa Market Commentary – 2009.06.24

by on June 24, 2009

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While cocoa didn’t seem to find too much support from yesterday’s bullish currency action, the market seems to be having a much stronger positive reaction in the overnight trade suggesting a near-term low has been set. The Dollar has followed through weaker overnight and that is likely attracting more buying interest from investors seeking an inflation hedge. With the Pound up sharply, it also appears that arbitrage related buying is likely supporting the NY cocoa market. NY cocoa also seems to be gleaning some price support from a firmer London cocoa trade and talk of industry buying. While more of a technical bounce looks likely, we have doubts that funds will become aggressive buyers again unless macro economic conditions improve the demand outlook for chocolate. With equity markets continuing to waffle, yesterday’s reports on housing and manufacturing didn’t seem to significantly revive economic confidence, leaving the cocoa market lacking the strong macro economic optimism seen earlier in the month that was partly responsible for lifting cocoa prices to four month highs. The industry situation continues to leave traders without a strong buying incentive since growing conditions in West Africa are generally good and there doesn’t seem to be a significant crop problem developing. Expectations for a recovery in chocolate demand this year seemed to be a key factor behind the May/June rally in cocoa and unless the economic news over the balance of the week can revive this bullish demand side sentiment, we suspect a technically based price bounce in cocoa may be short lived.

TODAY’S GUIDANCE: With the market becoming oversold on the break, it’s not too surprising to see September cocoa build on gains in the overnight trade given the bullish currency action. A close back above the 100-day moving average at $2,518 in September cocoa will start to improve the market’s chart setup. But unless fund investors turn active buyers again, a technical bounce in cocoa may end up being short lived. After the swift sell-off seen last week, it might take a sustained and sharp decline in the Dollar and continued gains in the Pound along with a better macro economic view in order to lure strong fund participation back to the cocoa market.

TODAY’S MARKET IDEAS: On a purely technical basis, a close back above the 100-day moving average at $2,518 in September cocoa suggests a move back to the $2,615 to $2,661 price range may be possible.

Coffee Market Commentary – 2009.06.24

by on June 24, 2009

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A slowdown in the selling and a steady open interest for the first time in a while has helped stabilize the coffee market back near the April consolidation. September coffee is already down as much as 18.6% off of the June highs as an aggressive long liquidation trend from speculators and funds has helped pressure. September coffee in London posted a contract low overnight but managed to move back up near the highs with talk of the extreme oversold technical condition helping to support. Ideas that the total coffee supply is on the rise with the Brazil harvest and talk that the high end of the market (Colombia premiums) has stabilized and that more Colombia coffee will be available with a larger crop this fall has helped drive the market lower. Indications from the head of the International Coffee Organization that Colombia production is expected to jump to near 12 million bags this season from under 10 million last year combined with talk that next year’s coffee crop from Brazil could be as high as 60 million bags from near 40-43 million this year added to the bearish tone. The coffee market pushed lower on the session yesterday and down to the lowest level since late April as the firm tone in other commodity markets and a sharply lower dollar failed to attract much in the way of new buying interest. Some light trade house selling and ideas that the Brazil harvest could be a little higher than initial believed helped to pressure. A continued long liquidation trend from fund traders was noted as another bearish force. Vietnam prices are also in a downtrend and pushed to near 27-month lows this week. The Brazil weather outlook remains near ideal for harvest as dry conditions could keep harvest active and there are still no significant cold weather scares on the horizon. Colder weather is expected into the weekend in coffee growing regions of Brazil but no damaging frost is expected. US exchange stocks were down 24,123 bags to 3.642 million with 42,056 bags pending review.

TODAY’S GUIDANCE: The market is now extremely oversold and downside momentum appears to be slowing. Close-in support for September coffee comes in at 118.40 and we would not be surprised to see a recovery bounce to 124.00.

Cotton Market Commentary – 2009.06.24

by on June 24, 2009

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The market has managed to absorb the improved weather for the West Texas cotton crop from last week and we would not be surprised if crop conditions improve into next week. After a good rain into the weekend, it will be a long time until the crop needs more rain and the hot and sunny forecast is considered somewhat negative. The market seemed expensive on the run to nearly 64 cents in May but the set-back to near 55 cents may have attracted some new business. The weakness in the dollar yesterday was seen as a potential positive force but the market has followed the stock market more than anything else recently. December cotton inched lower after choppy and two-sided trade early yesterday but managed to close strong. A lack of direction from the stock market and continued talk that last week’s rains had a significant and positive impact on the crop in Texas helped to limit the advance. There was some buying interest near 55.00 which is a half way back support point of the March-May rally but a sluggish tone to the demand outlook helped to limit the buying support. The collapse in the US dollar helped provide underlying support. A continued slower demand outlook could push December down to near 53.00 before finding the next near-term support. The Texas crop was rated only 30% good/excellent as compared with 33% last week and 40% as the 10-year average. A higher percentage of the crop is from Texas this year as other delta and Deep South producers switched more land to other crops this year. Traders await next week’s update from the USDA on planted acreage and most seem to be looking for a further revision lower.

TODAY’S GUIDANCE: Key support for December cotton comes in at 55.00 and 52.95 with 57.06 and 58.12 resistance.

Sugar Market Commentary – 2009.06.24

by on June 24, 2009

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On Monday, the August sugar in London was at the lowest level since April and New York second month sugar moved to a near 3 year high yesterday as aggressive fund and speculative buying emerged to support. There was a lack of commercial selling overhead and the trade quickly assumed that a large commercial trader was ready to accept delivery of July sugar and ship to India. India tightness after the poor crop for the 2008/2009 season of just 14.7 million tonnes has provided solid support to the market and traders recall quickly that a large commercial took delivery of 16,579 contracts in the May delivery and this was seen as a positive factor at that time as the market knew that the sugar had a home. Given the technical break-out yesterday, tightness in India, a slow start to the India monsoons and the market working off of a world production deficit this season and next; it won’t take much in the way of positive news from outside markets to spark more buying. October sugar moved to a new contract high and July sugar is back near the May highs with yesterday’s rally as aggressive buying from speculators and funds helped to support strong gains on the session. The outlook for a world production deficit for the coming year and a slow start to the India monsoon season were noted as positive forces. Ideas that the recent set-back in prices was enough to correct the overbought condition of the market and may have also sparked buying from India helped to drive the market higher and a firm tone to the energy markets added support.

TODAY’S GUIDANCE: Close-in support for October sugar comes in at 16.80 and 16.42 with 17.40 as next upside objective. Beyond that, the May 2006 highs at 18.00 could be considered as another target.

Currency Market Commentary – 2009.06.23

by on June 23, 2009

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DOLLAR: While the Dollar was showing signs of a possible upside breakout in the prior trading session, the overnight action makes it clear that the Dollar just doesn’t have the resolve to forge a return to the June highs. In fact, we suspect that the Dollar bulls will need a weak Durable Goods reading and a soft New Home sales report on Wednesday morning to even rise above the 81.30 level in the September Dollar Index. While we think that the Dollar bulls will generally prevail in the near term, there just doesn’t appear to be a definitive theme operating in the currency markets overall. While the Pound, Canadian, Swiss and Euro would all seem to be poised to gain in the face of near term weakness in the Dollar this morning, the fear of even more slowing evidence from the US economic front later this week, seems to have knocked all of the currencies off balance. We do suspect that the Dollar will see a temporary decline off the US existing home sales data this morning, with a near term targeting on the downside pegged at 80.48. However, on a dip this morning, to the aforementioned downside target, we would suggest that aggressive short term players consider getting long the Dollar for a Wednesday morning recovery bounce.

EURO: It would appear as if the Euro is poised to win by default in the coming trading session. Perhaps the Euro sees the latest German sentiment readings as a supportive development and we assume that the US existing home sales data will add to that slight bullish tilt. However, with the outlook for the US economy expected to generally remain suspect, we are not sure that the September Euro is poised to see sustained aggressive gains in the coming trading sessions. Therefore in the first half of the trade today, we can’t rule out at least a temporary recovery bounce back above the 140.10 level in the September Euro. In fact, the technical trade probably sees the entrenched down trend pattern in the June Euro, as the overall prevailing force in the Euro and given a broadening of the slowing fears later this week, we would not be surprised to see the September Euro eventually fall below 137.50 level before Friday’s close.

YEN: The Yen might be the only “quasi” trend in the currency markets in the coming trading sessions. However, the trend in the Yen probably won’t be definitively bullish this morning, as the flight to quality angle could be temporarily dented in the wake of the scheduled US data flow this morning. However, we would suggest that aggressive short term traders look to buy the September Yen on a slight dip this morning back down to 104.68.

SWISS: The September Swiss seems to have built a solid base on the charts just below 92.00 and that support zone should support the Swiss for a possible return to the 94.00 level in the coming trading sessions. In fact, we suspect that the September Swiss will see a rise above 93.03 in the early going today, but that the market will lack the resolve to punch up to 94.00 level perhaps until Wednesday afternoon.

POUND: Like the Canadian, the Pound remains off balance and vulnerable to more selling pressure ahead as the Green shoots of recovery view has seemingly been replaced with concerns of more slowing. In fact, the markets seem to be in need of some additional assistance to shake off the slowing influences and that assistance doesn’t look to be forthcoming in the action today. Therefore, we suspect that the September Pound is poised for a near term slide back down to consolidation support on the charts at 161.85 and perhaps even a further slide later this week down to 160.00.

CANADIAN DOLLAR: With another new low for the move overnight, it would seem like the near term trend remains down. Not surprisingly the Canadian continues to correlate tightly with the overall macro economic view in the marketplace and that would seem to leave the bear camp generally in control for at least another trading session. Aggressive traders should look to sell an Existing home sales inspired bounce in the September Canadian Dollar this morning.

TODAY’S MARKET IDEAS: Slowing fears might not be definitive enough this morning to leave the Dollar and the Yen in control, but as the week progresses we suspect that Dollar and Yen bulls will prevail.

Bond Market Commentary – 2009.06.23

by on June 23, 2009

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Apparently fears of slowing have taken root in the marketplace after a forecast calling for lingering slowing, sent the stock market into a tailspin on Monday. While the markets have doubted the recovery prospects since the early June peak in equity prices, a sharp downside extension in equity prices yesterday seems to have enhanced the fears of slowing even further. Clearly a thin slate of scheduled data over the prior two trading sessions has allowed the bull camp in the Treasury market to fan the talk of slowing. With the trade partially anticipating a potentially supportive statement from the FOMC on Wednesday afternoon, which hints at the prospect of increased Treasury buying efforts, the bull camp would seem to be drawing on at least two different bullish themes. However, while the September Bonds have regained the 116-00 level again and that seems to have rekindled talk of an up trend pattern, the bull camp will have to weather an existing home sales reading this morning and a $40 billion 2 Year Note auction. Unless the Treasury market views the Existing home sales reading as an anomaly this morning, that report should temper some of the existing bullish bias. However, with the culmination of the 2 day FOMC meeting, Durable Goods and New Home sales all due out on Wednesday, the market looks to have a major price decision directly ahead. While we have to leave the edge with the bear camp in a longer term perspective, a number of slack economic forecasts have rekindled near term suspicion toward the recovery and there is also hope of increased Fed buying ahead and that seems to have given the bulls the edge for now.

We have to think that the bias in the market will remain up at least into the FOMC statement on Wednesday afternoon, especially if Durable goods come out negative as predicted by the trade on Wednesday morning. While the trade into the June lows might have been factoring in the prospect of change in the Fed’s rate policies, that seemed premature at the time and if the numbers don’t consistently show positive progression ahead, we doubt that the Fed is going to risk snuffing out the fledgling recovery effort with a premature hiking of rates. In the short term, the bull camp looks to have the edge and that should allow the market to continue to carve out some positive action on the charts. In fact, the charts almost seem to have forged an uptrend channel, with higher highs and higher lows off the June lows.

Given that both Bonds and Notes have maintained a consistent net spec short positioning in the COT reports, there is probably further technical short covering action being mixed into fresh speculative out right buying. Given the anticipation of additional quantitative easing steps from the Fed, we can’t rule out a return to the 118-00 level in September Bonds, especially if the 2 year Note auction later this morning goes off solid.

With the near term bullish bias, we suspect that September Notes have the capacity to rise above the 116-12 level in the coming 36 hours of trade. In conclusion, the Treasury market is seemingly poised to get a quasi perfect storm of near term bullish information, with the majority of the buying potentially seemingly being generated off a “buy the rumor” mentality toward the Fed’s Wednesday afternoon policy statement.

Stock Market Commentary – 2009.06.23

by on June 23, 2009

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The stock market was unable to bounce off the big range down effort in the prior trading session and that would seem to leave the path of least resistance pointing downward again today. We doubt that a positive reading from Existing home sales report will discourage the downward track in prices this morning, as the trade is currently accepting of the slowing view. In fact, one almost gets the sense that a negative economic outlook from the World Bank fostered a large portion of the washout on Monday. In looking ahead, it seems that the market is going to embrace the “glass is half empty” view, perhaps because the market overall probably needs the Fed to leave the ultra easy money policy in place. While the recent action in the Treasury markets could eventually prove supportive to equity prices, the stock market hasn’t seen a 5 full point bounce in Treasury bonds as supportive Development yet. Therefore, it might take even more gains in the long end of the Treasury market (lower yields) to ensure the recovery and push some money back toward the equity markets. For the time being, the edge is set to remain with the bear camp, especially if the market can’t add significantly to the early attempt to bounce today in the face of a positive US Existing home sales report this morning.

S&P 500: In our opinion, the S&P rarely bottoms after forging a big range down washout, especially when the market shows almost no bounce into the close of that session. As suggested already, the last COT positioning reports suggest that the S&P is indeed vulnerable to moderate long liquidation pressure. Our estimate for a near term low in the September S&P is seen down at 882.00 and perhaps even 875.30 if the scheduled data is worse than expected over the coming 36 hours of trade.

DOW: With another new low for the move in the September Mini Dow overnight, following a big range down washout in the prior trading session, that would seem to leave the trend pointing downward. We continue to think that the September Mini Dow is poised for a slide down to 8,170 in the coming two trading sessions. In fact, instead of the market being cheered by the coming Fed statement, one almost gets the sense that the stock market will be disappointed because the Fed still needs to continue with its ultra easing posture. In fact, if the Wednesday morning US data is soft, that could set the tone for a slide down to even lower support of 8,128 in the September Mini Dow.

NASDAQ: With the September Nasdaq unable to reject a big range down washout in the prior trading session and the trade in general seemingly prone to embrace longer term bearish economic forecasts, the path of least resistance remains down. In fact, news that Apple has sold over 1 million iPhone 3GS units was simply lost in the shuffle of negative views of the last 24 hours. Near term downside targeting in the September Nasdaq is seen at 1402.25 over the coming 48 hours of trade. In fact, with the last COT positioning readings, the Nasdaq and the S&P would seem to be more vulnerable to long liquidation than the Blue Chip sector of the market.

TODAY’S MARKET IDEAS: The trade is buying into the fears of a lingering recession and until there is some headline event to alter that bias, the bear camp looks to control.

Commodity Outlook – 2009.06.22

by on June 22, 2009

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The most widely anticipated depression in history has failed to materialize. In fact, by most accounts the financial crisis is contained and the global economy is attempting to get into position to recover. Unfortunately for the equity markets and a host of physical commodity markets, the recovery might not be set to materialize as quickly as recent prices might have been suggesting. In addition to classic short term overbought indications, a couple of other big picture economic developments seem to have conspired to trip up the rotation of capital toward stocks and physical commodities.

Economic Indicator Comparision

First of all, seeing equity prices forge a pattern of nine straight weekly gains and then seeing them attempt to extend the gains for another five weeks without much success seems to have confirmed the idea that expectations were indeed ahead of reality. Secondly, we also have to wonder if a temporary spike in T-Note yields above 4% didn’t siphon off some capital from equities. In short, the markets seem to have encountered a technically overbought condition in “macroeconomic sentiment”, but with some banks repaying TARP funds and the Fed seemingly content to downplay inflation and remain accommodative with policy, we don’t expect the push toward recovery to be dealt a serious blow. Certainly it could be difficult to recover quickly and without some starts and stops (because of the damage done to the consumer in most developed countries), but one only has to look to rather impressive growth figures in China and India to see that some areas of the world are indeed capable of bouncing back quickly and perhaps robustly.

S&P 500 COT Net Position - 2009.06.22
We also have to point to residual strength in energy prices as a sign that inflationary expectations continue to be more easily revived than many analysts had expected. However, in the near term we expect some additional back and fill action in the equity markets and in those commodity markets that initially rushed to factor in a recovery in 2009. In the end, we would expect stock prices to find a solid bottom before the end of June, as money on the sidelines gets pulled into the market by the June correction. Our pick for a bottom will come once the headlines begin to seriously question the “green shoots of recovery” theme again. That theme has become a clich‚ and is rightly hated by many market participants, but we would suggest that is exactly the type of evidence that traders should be looking to for direction, as economic numbers aren’t going to become positive overnight. In other words, the “second derivative of slowing” argument was apparently correct thinking in calling off the “unending deflationary pattern,” and the return of a minor pattern of better economic readings ahead will probably cause stocks to rally, the Dollar to weaken and a host of physical commodities to regain their footing again.

Our pick for a key June low in the September S&P is 894; our pick for a June low in August crude oil is $65.90; and our pick for a June low in September copper is $2.17.

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