The G Manifesto

Commodity Trading: “Half empty or Half full?”

For April 6th– April 10th 2009
By: Matthew Bradbard
http://www.mbwealth.com

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As G-20 leaders met last week to deal with the global crises there seems to be a growing sense that the worst of the financial crisis may have past. We couldn’t disagree more and think there are still rough times ahead. The FASB approved a change in accounting standards that gives banks more flexibility in how they value distressed assets. Some say the new rule will increase bank profits by as much as 20% and will apply to most companies in Q1, but it may just be another cute way to cook the books. It is naïve to think that because these toxic assets aren’t on the books that they just vanish into thin air. Until we flush the system and world leaders recognize that this problem, which took years to develop may take years to work out, we will continue to live in fantasy land. I’m not a pessimist or an optimist, I’m a realist. That being said there will be plenty of opportunities to profit and we will seek to identify them for our clients.

Energies

The US Department of Energy said crude oil supplies were up 2.8 million barrels last week, supplies of gasoline were up 2.2 million barrels while heating oil supplies were up 300,000 barrels. May crude oil closed up 26 cents on the week, but that alone doesn’t say a great deal being prices had a $6.64 trading range. Crude oil has now moved higher for 7 consecutive weeks and I still find myself trying to convince investors that an interim bottom was made. Support is seen at the 20 day moving average at 50.20 with resistance at the high from 3/26 at 54.66. May heating oil was lower last week by just over 1 penny. Support comes in at the 20 day moving average at 1.3475 with resistance between 1.5125 and 1.5175. Heating oil should continue to follow the direction of crude, we have no trading suggestions currently. Some clients have expressed interest in getting long RBOB and short heating oil but we have yet to commit funds. May RBOB was higher by 65 ticks last week, after an early week slump prices surged 15 cents/gallon. Support comes in between 1.3550 and 1.3600 with resistance at 1.5500. Continue to use dips such as we saw last week to become a buyer of 20 cent call spreads for July and August.

The US Department of Energy said underground supplies of natural gas were unchanged last week at 1.654 trillion cubic feet. Supplies are now up 32% from a year ago. May natural gas closed up 4 cents but prices still remain under $4.00. For the week prices consolidated in a 30 cent range and if I didn’t know better formed a base for a move higher. If the lows hold at 3.60 we should see a trade back up, resistance at the 20 day moving average this week at 3.98. On a move through that level we anticipate a move to 4.50 and potentially 5.00 in coming weeks.

Currencies

The ECB reduced interest rates last week from 1.50% to a record low 1.25% but not the 1.0% that the market had priced in so the market rallied with June gaining 258 ticks. Support comes in at 1.3270 with resistance at 1.3725. We could see some follow thru higher this week, but we would still be looking to sell rallies anticipating a move back below 1.30. We would however caution to wait for a sell signal as opposed to just jumping in.

The BOJ’s Tankan survey of business sentiment fell from -24 to a new record low of -58 in the Q1of 09’ the sixth consecutive quarter of decline. The June yen was lower by 233 ticks last week to its lowest levels since 10/21. Prices have given back 700 points in the last 2 weeks with a close back below par. Support is seen at .9925 with resistance at par followed by 1.0200. We advise the sidelines. The BOJ is expected to leave rates at 0.10% this week.

The Aussie was higher by 267 ticks last week but after a 9 cent advance in the last 4 weeks this market may be ready to take a breath. Support is seen at .6925 with resistance between .7200 and .7225. Look for the RBA to cut rates 50 basis points to 2.75%.

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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.