Archive | July, 2009

Silver Market Commentary – 2009.07.31

by on July 31, 2009

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OUTSIDE MARKET DEVELOPMENTS: It would seem like the outlook for the global economy remains upbeat into the action today, as global stock prices overnight generally added to the recovery effort seen in the US markets on Thursday. In fact, the markets seem to be poised to discount a widely anticipated 1.5% decline in the US 2nd quarter GDP reading. While the US GDP reading will be a major focal point of the gold and silver trade this morning, the markets will also be watching the overall direction of the stock market. While Chevron (a Dow component stock) is scheduled to report earnings before the US stock market opening today, many traders doubt that the markets are going to take that much direction from the Chevron earnings. The trade will also see some potentially important news from a couple regional NAPM reports and from a US employment cost Index reading. At least in the early action this morning, it seems as if the US equity markets are set to come into the Friday trade with a ongoing favorable view on the economy and that in turn could mitigate the impact of the anticipated decline in the US GDP report.

SILVER MARKET FUNDAMENTALS: The September silver contract comes into the early action today sitting roughly 44 cents above this week’s lows and in a slightly positive bias. Clearly the silver market has taken a lot of direction from the equity markets this week and that focus might be expected to remain in place today. In fact, the silver market doesn’t seem to be that interested in more evidence of strong production from Silver Wheaton overnight. In fact, the record production readings from Silver Wheaton overnight were the second record production tally seen in the silver market within the last week. However, the silver market hasn’t paid that much attention to physical supply side news lately, with the market seemingly locked onto the prospect of ongoing investment demand. Investment demand in turn is seemingly locked onto the prospects of recovery and that should make the US GDP reading this morning an important release for the silver trade.

Gold Market Commentary – 2009.07.31

by on July 31, 2009

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

OUTSIDE MARKET DEVELOPMENTS: It would seem like the outlook for the global economy remains upbeat into the action today, as global stock prices overnight generally added to the recovery effort seen in the US markets on Thursday. In fact, the markets seem to be poised to discount a widely anticipated 1.5% decline in the US 2nd quarter GDP reading. While the US GDP reading will be a major focal point of the gold and silver trade this morning, the markets will also be watching the overall direction of the stock market. While Chevron (a Dow component stock) is scheduled to report earnings before the US stock market opening today, many traders doubt that the markets are going to take that much direction from the Chevron earnings. The trade will also see some potentially important news from a couple regional NAPM reports and from a US employment cost Index reading. At least in the early action this morning, it seems as if the US equity markets are set to come into the Friday trade with a ongoing favorable view on the economy and that in turn could mitigate the impact of the anticipated decline in the US GDP report.

GOLD MARKET FUNDAMENTALS: The gold market comes into the Friday morning action with a slightly positive early bias in prices that mostly looks to be a function of ongoing recovery hopes and certainly because of a weaker bias in the US Dollar. Most of the overnight fundamental news in the gold market would seem to have come from AngloGold Ashanti, which confirmed lower annual gold production. However, AngloGold also suggested that gold prices were likely to remain range bound in the coming months, but that gold prices might have the ability to rise to $1,000 an ounce sometime next year. The company also suggested that they still planned to finish unwinding their hedge book by 2014, and some traders think that a pattern of hedge unwinding throughout the gold mining industry will reduce the overhead resistance in the gold market. Other traders see the unwinding of hedge positions by the gold industry as a sign of an impending top, as bullishness among gold company executives is thought to be a sign of over extended bullish sentiment. With the gold market and a host of physical commodity markets this week, seemingly embracing the “recovery” bias, the US GDP report would seem to be a critical report and therefore traders should expect some increased price volatility around that report this morning.

Energy Market Commentary – 2009.07.31

by on July 31, 2009

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a two-sided trade overnight with the market running into some profit taking on an early attempt to follow through higher after yesterday’s strong gains. But stronger global equity markets and a generally weaker Dollar are starting to provide a lift to oil prices ahead of the US session. But with crude oil back near the price levels reached earlier this month, the market is also looking a bit fundamentally overvalued considering the high level of oil stocks on hand and since a low refinery operating rate is likely to cause a further build in oil stocks in the weeks ahead, especially if imports remain high. A report showing weak oil demand in Japan, the world’s number three oil consumer, may also have some traders questioning the prospects for a recovery in global oil demand. On the other hand, the price direction in crude oil has been mostly influenced by the macro economic outlook being thrown off by the action in equities and the Dollar. Since these outside market influences have been positive in the overnight trade, it has certainly limited the profit taking interest in crude oil. In fact, the revival in macro economic optimism this week tied to better global corporate earnings, growth prospects in China, rising sentiment in Europe and lower US jobless claims has certainly stirred up expectations for a strong recovery in fuel demand. But in reality, overall oil demand remaining weak and the market may need further economic evidence that conditions are improving in order to push oil prices significantly higher. So we suspect today’s reports on 2nd quarter GDP and regional purchasing managers reports from Chicago and NY will be a critical influence on today’s trade. Given the bearish fundamental backdrop for oil, September crude oil could encounter more significant end of the month profit taking unless today’s economic news triggers a strong bullish reaction in equities and raises investor risk appetite enough to inspire fresh buying in oil up at these price levels. Unless a steady flow of news continues to validate the macro economic optimism that has been building this week that also propels equity markets higher, we have doubts that crude oil will be able to hold up at these price levels.

GASOLINE: After an early attempt to follow through higher from yesterday’s sharp move the gasoline market has encountered some light profit taking in the early overnight action. Although gasoline supplies remain ample and fuel demand anemic, ideas that macro economic conditions are set to improve and revive gasoline consumption has been a key factor sweeping the market higher. Optimism for a recovery in fuel demand has also raised speculation that refinery outages and closures could start to tighten gasoline supplies and this outlook has also provided a lift to gasoline prices. But with the current fundamental setup for gasoline not particularly supportive since fuel demand this summer has remained anemic, we suspect it will be critical that macro economic optimism continues to grow in order to support a higher trade in gasoline. Outside market action overnight has remained bullish and so far that has limited the selling interest in gasoline. But in order to prevent more extensive end of the month profit taking and clear the way for September gasoline to retest the June highs, today’s economic news will likely need to support the bullish macro economic view.

HEATING OIL: Heating oil has also seen a choppy trade overnight with the market under a light pressure from profit taking. The heating oil market has been able to recuperate the majority of losses suffered earlier in the week as a revival in macro economic optimism has raised hopes for a quicker recovery in fuel demand. Gains in equity markets overnight along with the weak action in the Dollar could provide heating oil with additional upside capacity even though this market has one of the weakest fundamentals of the energy complex with distillate stocks at 25 year highs and demand readings continuing to slump. But if a bullish fuel demand outlook holds up, speculation that lower refinery operations will help ease the supply glut has also been a supportive factor. Therefore, today’s economic news could be critical in influencing sentiment towards fuel demand and that along with the direction in equities will likely determine in direction in heating oil this session. We suspect this market will need a steady flow of bullish demand side news to support a move back to highs seen earlier in the month. Otherwise, a breakdown in macro economic sentiment could trigger extensive profit taking.

TODAY’S ENERGY MARKET GUIDANCE: With the overnight action indicating energy market maybe a bit vulnerable to month end profit taking, today’s economic reports will be a key influence on market direction as bullish surprises may be necessary for the bull camp to retain control. But if equities manage another upside thrust, oil prices are likely to follow.

Wheat Market Commentary – 2009.07.29

by on July 29, 2009

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NEAR-TERM MARKET FUNDAMENTALS: While there has been some seasonal buying based on ideas that a harvest low is already in place from the winter wheat crop, traders see the weak trend for US wheat exports as an issue to limit advances. Traders also indicate that supply issues continue to lean to the bear camp. Concerns over the potential impact of El Nino weather and of weak India monsoons in the long run have been eased by talk from private traders that good rains in Australia in the next few months could even result in a record crop. Good rains in Argentina last week and news from a key scientist in India that “food” grain output in India could reach last year’s level have added to the talk of better than expected production. Russia’s Agriculture Ministry expects this year’s grain harvest to reach 85 million tonnes as compared with 108.1 million last year, and traders see this as a possible reason to expect less fierce competition from the region for the coming season. Egypt has ordered the re-export of 45,000 tonnes of Ukrainian and Australia wheat which was found to be unfit for human consumption. December wheat closed moderately lower on the session yesterday and near the lows of the day. Fund short covering was noted early in the session, and a move to a new low for the dollar helped support, but a reversal to higher on the day for the US dollar and weakness in other commodity markets helped pressure wheat into the close. Improving crop conditions for the spring wheat crop added pressure to the market. Weather conditions remain favorable for harvest for the winter wheat crop and for development of the spring wheat crop with 74% of the crop rated good to excellent from 59% as the 10-year average. The North Dakota crop is now rated 86% good to excellent from 64% as the 10-year average. 1986 was the highest rated crop in the past 23 years at 87% good to excellent.

CASH NEWS AND TENDERS: Japan is tendering for 144,000 tonnes of wheat. Basis levels were steady to 2 cents higher at the Gulf, but it was down sharply at the Pacific Northwest terminals.

WEATHER: US weather remains favorable for spring wheat crops in the Dakotas, and cooler weather with rains are expected to ease stress in Montana.

TODAY’S GUIDANCE: With outside market forces turning more negative and a reversal up in the US dollar, the path of least resistance remains down. Prices do not seem cheap enough to entice better demand. The El Nino scare for Australia and the monsoon scare for India may not amount to production issues at all, and there is even talk of record high production in Australia this season.

Soybean Market Commentary – 2009.07.29

by on July 29, 2009

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NEAR-TERM MARKET FUNDAMENTALS: China stock markets took a steep drop today, correcting nearly 5% after the recent run higher. Weakness in energy markets and a setback in Malaysian palm prices overnight added to the negative tone. China’s second attempt to sell close to 500,000 tonnes of soybeans from their reserve ended without any bids, so the government is now in a position of needing to lower the price or offer some type of subsidy to their crushers. Talk that China may have bought nearly 120,000 tonnes of US soybeans yesterday helped to provide support. However, traders see the possibility of a record crop in the US, sharply higher production from Brazil this season and increased plantings from Argentina due to wheat difficulties as reasons to expect hefty world oilseed supply ahead. Heavy rains across Missouri, Arkansas, Louisiana, Kentucky, Tennessee and even southern Illinois and Indiana this week could help boost yield prospects in fringe areas of the Midwest. The Midwest looks to remain cool and moist, with possibly a few dry spots over the next 10 days. November soybeans managed to close 20 1/2 cents higher on the session yesterday despite weakness in corn, crude oil, gold and a move from lower to moderately higher on the day for the US dollar. Rumors that China may have been buying 1-2 cargoes of US soybeans for November delivery and talk that India is still shopping for soybean oil on the world market and that much of the business may end up in the US helped support. Concerns that the CFTC hearings in Washington could spark fund selling kept the trade choppy early, but a surge higher in meal prices pulled soybeans higher. Rumors that India may not export meal due to monsoon rain concerns helped boost that commodity. August soybeans gained sharply on November as tightness concerns persisted and there was talk of tightness in deliverable supply.

CASH NEWS AND TENDERS: Basis at the Gulf held steady yesterday after recent weakness.

WEATHER: The lack of heat in the forecast and a continued flow of precipitation look nearly ideal for the developing crop. There are still no threatening heat forecasts, but after another 10 days of cool and moist weather in the Midwest, heat may be ideal as long as there is no stress. Big rains across the south this week could boost yield prospects.

TODAY’S GUIDANCE: The reversal in the US dollar, concerns over regulatory change which might limit speculators, excellent weather and a sharp break in the China stock market are all seen as negative forces today. Without weather problems into the middle of August, the odds of a record crop keep increasing. Heavy rains across the southern Corn Belt and delta region should help boost production prospects and a lack of threatening weather in the Midwest may keep buyers on the sidelines short-term.

TODAY’S MARKET IDEAS: Selling resistance for November soybeans comes in near 937 3/4 with 858 3/4 as next downside objective.

Corn Market Commentary – 2009.07.29

by on July 29, 2009

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NEAR-TERM MARKET FUNDAMENTALS: The lack of heat in the forecast for the Midwest is seen as ideal for the tail end of the pollination process, but traders still have concerns with the cool weather as crops are behind a normal schedule. However, speculators may not be patient enough to trade the market from the long side hoping for an early end to the growing season. Traders believe that normal weather after pollination could result in a massive yield for the US. Demand for ethanol and demand for livestock feed for the coming season are in question with weaker energy prices and another sharp break in hog prices this week. Senator Grassley from Iowa is questioning the Obama Administration’s position on imported ethanol tariffs given that the nominee for ambassador to Brazil has expressed interest in dropping the tariffs. December corn closed moderately lower on the session yesterday. Strength in soybeans helped support the market early, but a reversal from lower to higher for the US dollar, the nearly ideal weather outlook, weakness in energy markets and a sharp drop in metal markets helped contribute to the bearish tone. Concerns over the potential knee-jerk reaction of fund traders during CFTC hearings to limit speculative limits for energy and agricultural markets may have helped pressure the market as well. Crop conditions deteriorated slightly in the past week, but 70% of the crop is in good to excellent condition from 63% as the 10-year average, and 80% of the Iowa crop is still rated good-to-excellent. Pollination is still running late, with 55% silking vs. 76% as the 5-year average. If we assume a drop in harvested acres of 500,000 due to late plantings and use a yield forecast of 160 bu/acre, ending stocks would come in near 2 billion bushels, with a stocks/usage ratio of nearly 16%, up from 1.09 billion and 8.7% projected for the June USDA report.

CASH NEWS AND TENDERS: Gulf basis levels were steady yesterday.

WEATHER: The lack of heat in the forecast and a continued flow of precipitation looks like nearly ideal crop weather for the developing crop, especially with late pollinating corn in the eastern Corn Belt. The only area which may have some concerns about not enough moisture is still in the northwestern Corn Belt. If anything, the extended models may show too much cool weather across the Belt, which could keep development slow.

TODAY’S GUIDANCE: The weather outlook remains as the dominant bearish force for the market, and it appears way too early to worry about September/October weather. CFTC hearings on limiting speculation will be monitored closely again today, and with index funds holding 315,142 contracts net long, changes could be significant. Outside market forces are turning more negative. Until there is a more credible threat to supply, the trend looks to remain down. Selling resistance for December corn comes in at 338 1/2 and 347 3/4 with 305 and 302 as next downside targets.

Currency Market Commentary – 2009.07.28

by on July 28, 2009

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DOLLAR: The Dollar has managed another new low for the move overnight and that would seem to suggest that the trade remains mostly up beat toward the economic outlook. In fact, some Press sources overnight actually declared an end to the recession and that mentality seems to be applying fresh liquidation pressure to the Dollar. With the US scheduled to float a private Home price survey reading early this morning and that news to be followed by a US Consumer Confidence reading, the trade should have plenty of information to push the Dollar down toward the 78.00 level. However, as in the equity markets the trade is fully embracing the recovery view and data against that view could quickly pull the September Dollar Index back to the recent consolidation highs up around the 79.25 level. In short, we think the bear camp retains the edge but that the Greenback will have to see a clean sweep of at, or better than expectations type data points to extend on the downside. In other words, the bear camp is now spoiled and it will probably require every data point to extend on the downside.

EURO: While the Euro has managed a fresh new high for the move overnight, we get the sense that the Euro is starting to lose some upside momentum. However, the Euro will continue to turn more off US data points, than Euro zone data and for the time being, it seems as if the trade will continue to look for more risk outside of the Dollar. Up trend channel support in the September Euro is 141.85 today and as long as the US scheduled data is not patently upsetting, the odds of more new highs for the move in the Euro look to be good. However, it would not be a favorable sign to see the September Euro fail to hold above an even more critical pivot point at 141.56 this morning.

YEN: While the Dollar looks to remain weak and that could weigh on the Yen, the September Yen seems to have found a measure of support at the 105 level. Perhaps the Yen trade is speculating on some form of impending bottom in the Dollar in the wake of the string of potentially critical events today. There would seem to be little in the way of resistance on the Yen charts until the 106.20 level in the September Yen. Pushed into the market we would favor a quick look at the long side of the Yen.

SWISS: The Swiss continues to have a mostly bullish setup on the charts and we suspect that the trade will attempt to extend the upside push early in the trade today. However, an extending consolidation pattern just under the 94.00 level is starting to give off the impression of lost momentum. In our opinion being long the Swiss at current levels is like being long the stock market at the recent highs. In conclusion, the Swiss needs almost a clean sweep of up beat economic information today to extend and perhaps simply maintain current levels. Aggressive traders might sell a move above 94.00, using a risk at 94.28.

POUND: The bull camp will suggest that the Pound has maintained an up trend pattern on the charts. We would suggest that the Pound has lost momentum and that the 165.85 level has become some type of recovery/no recovery pricing zone. Like the Euro, Swiss and equity markets, the bull camp in the Pound is fully embracing the recovery view and to see another upside breakout in the Pound probably requires a definitively supportive flow of US information today. We would suggest that traders go with a breakout of 165.50 and 164.30, but we favor selling strength in the Pound directly ahead.

CANADIAN DOLLAR: The Canadian continues to claw its way higher on the charts and to a degree we think that the Canadian deserves the rise because of classic fundamental developments. In fact, unless the equity markets come under noted and sustained pressure and or the US data flow is somehow discouraging, we suspect that the Canadian is going to continue to favor the upside. Solid support is seen at even numbers of 92.00.


Bond Market Commentary – 2009.07.28

by on July 28, 2009

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The Treasury market comes into the action today slightly above the prior session’s lows and seemingly catching a slight bid. While some minor weakness in equity prices yesterday and the sharp drop off in the Dallas Fed Manufacturing readings from the prior session are probably behind the minor bounce in prices this morning, the bull camp faces an uphill battle of supply in the action today. In fact, the Treasury will auction $42 billion in 2 Year debt today and that will be followed by $39 billion in 5 Year Notes on Wednesday. It is also possible that the bull camp is betting on another sharp decline in a private home price survey reading, as the favorable existing and new home sales gains recently reported are likely the result of another round of significant price reductions. In other words, the outlook on the economy is likely to be revived a bit today and without the flow of supply today the bull camp would seem to have a distinct edge. In fact, with the trade generally expecting weak economic vibes from both Consumer Confidence and Case-Shiller reports, that should give the bull camp the initial edge. However, with the auction results expected around mid session today and some favorable Asian equity market action seen overnight, there are some countervailing influences to the bull case in the marketplace this morning.

With September Bonds sitting almost 5 full points below the early July highs, there would seem to be a moderate amount of optimism on the economy already factored into current prices. Some might even suggest that Treasury bond prices sitting 6 points below the July highs and 25 points below the December 2008 highs, the market is also pricing in at least a portion of the looming supply avalanche. With recent auctions either going well or mostly better than expected, one has to give the edge to the bull camp today. One caveat, if the auctions don’t come off well, that result could literally slam the equity markets and in turn rock Treasury prices. Therefore, we suspect that Bonds and notes are due for a bit of a bounce today, with the Treasury Secretary becoming the man behind the curtain, with respect to twisting foreign central bank arms.

September Bonds look to have initial resistance up at 116-12 off the numbers, with higher resistance potentially tested up at 118-00 in the face of a favorable auction result. Similarly, initial resistance in September notes is seen at 116-16, with higher resistance tested up at 118-00 in the event that the auctions come off well. While we don’t expect the auction to see poor demand today, slack demand for the 2 year Notes could set the stage for a slide in September bonds back below 114-00, a discouraging auction result could produce a more significant slide in September notes down to 114-26.

Stock Market Commentary – 2009.07.28

by on July 28, 2009

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

While some Asian markets continued to march higher overnight, overall international equity market action has mostly remained mixed into the US Tuesday morning trade. The market will continue to see earnings news today but the earnings influence is probably going to continue to wane and the interest in the direction of the economy from the scheduled numbers is probably going to increase. With the US scheduled to see a Case-Shiller home price survey, ahead of the opening this morning, a Consumer Confidence reading shortly thereafter and then a potentially critical kick off to another US Treasury auction cycle later on there will be no shortage of potential market moving events today. While some international markets seem to be capable of discounting the extended string of daily gains on the charts, we think that is an issue, that is not only limiting the upside capacity but that the overbought condition is also increasing the odds of a coming over valuation correction. In fact, we think that current prices have already set a very high bar for the data and the coming US Treasury auctions but the lack of a bearish catalyst, has allowed the bull camp to retain control. In fact, we would suggest that the stock market will need some early help from a favorable Case-Shiller report just to restart the upward bias today, as a favorable home price survey will be needed to fully confirm that the US housing market has indeed turned the corner.

S&P 500: Surprisingly oil prices and oil sector stocks aren’t under pressure this morning, in the wake of reports that the CFTC might reveal a report that suggests speculation has resulted in increased volatility. In fact, the market is not showing any vulnerability off the speculation rumor mill and with an ongoing pattern of higher lows and higher highs on the charts, it would seem like the bull camp is set to retain control again. However, unless the markets can suggest that the US housing market had indeed turned the corner, off the latest Case-Shiller readings, we will continue to favor short side plays.

DOW: We continue to think that the Mini Dow is overbought and vulnerable to a setback, but without a specific increase in anxiety, from a distinctly negative scheduled report or from the upcoming Treasury auction results, the bull camp probably won’t lose control of this market. However, we do think that the market is sitting at a level where the reports have to be conducive to the bull camp or prices will recoil. While the September Mini Dow has solid and initial support at 9,000 on the charts, the failure to hold above 8,991 could be considered a more significant failure. Some traders are already suggesting that the Mini Dow has violated a close-in uptrend channel support line, with the weak action since yesterday’s highs.

NASDAQ: The Nasdaq would seem to be losing a bit of upside momentum over the past three trading sessions. While the bull camp will suggest that the market has gained a critical support level of 1600, we see the rate of gain since the middle of July as an extreme over reaction, especially when one realizes that the next jobs report could show continued deterioration in the US employment sector. As suggested already, pushed into the market we would favor the short side, but so far the bear camp hasn’t been able to find a distinctly bearish catalyst to take control of this market away from the bull camp.

TODAY’S MARKET IDEAS: We continue to think that the market is factoring in too much optimism but there doesn’t seem to be much in the way of anxiety swirling in the marketplace.

Commodity Outlook – 2009.07.24

by on July 27, 2009

As of this writing (07.22.2009) the stock market sits right at some of its highest levels since last October. Clearly the market has seen a further repair of the financial crisis as a historically beneficial yield curve pours profits into the banking sector. It also seems as if corporate America has managed to deflect the impact of the recession by aggressively cutting costs, and that in turn has allowed a long list of companies to post better than expected quarterly earnings.

With the US Federal Reserve Chairman recently suggesting that the economy was working toward recovery, there would also seem to be justification for the optimism in the equity markets. However, given that the Fed Chairman also indicated that unemployment might continue to rise into the end of the year, it would seem like the “real recovery” has yet to surface. In addition, with less than a quarter of the suspect stimulus program employed and a number of financial entities still showing worrisome credit charges in their quarterly earnings reports, there would still seem to be some troubling times ahead.

COT Combined Position - 2009.07.24
With the government seemingly poised to dictate fair fundamental pricing in energy and perhaps in other critical physical commodity markets, it is possible that all commodity markets might be faced with an artificial slide in prices in the coming weeks. Frankly, an aggressive effort to push speculators out of the commodity markets would probably result in a number of physical commodities pushing below their cost of production, and that in turn would discourage future production and ultimately create real shortages and much higher prices than would have been seen without the “corrective guidance” from the government.

Corn COT - Futures and Options CIT - 2009.07.24
From a short term, macroeconomic perspective, we see a correction in the stock market coming in the lead-up to the next unemployment report and also in the wake of the “much better than expected” US corporate earnings cycle. It is also possible that the most recent move to new lows in the Dollar will spark complaints from EU countries, and that in conjunction with a slight correction in the stock market could rekindle a temporary return of flight to quality buying of the Dollar.

September S&P 500 - 2009.07.24

Lastly, in looking at the fundamentals of the energy and grain markets, there are a preponderance of bearish fundamental factors and trends in place. That could mean that a wide cross-section of physical commodity markets is poised to fall in the coming weeks. In the event that concern for the economy coincides with some type of forced liquidation of a large index fund out of the corn market, one should not rule out a quasi-deflationary debacle in oil, grains, sugar, copper, silver, gold, platinum and natural gas.

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