Commodity Trading: Are the Stress Tests causing you Stress?
Commodity Trading: Are the Stress Tests causing you Stress?
For April 20th– April 24th 2009
By: Matthew Bradbard
Click Here for Pit Bull: Lessons from Wall Street’s Champion Day Trader
According to several news sources the US government will issue a report on April 24th that explains its stress test on 19 of the largest financial firms and then release the actual results of those tests on May 4th. What these tests should confirm is that we have issues in our banks and in order to get our economy back on track these banks will need to be recapitalized, start lending and some may need to fail. In order for conditions to get back to a state were we can see growth, those are the first things that need to be done. We cannot proceed forward with a broken system as the financial institutions are the lifeblood of the economy. Not only would this increase the health of the economy but it too would instill the much needed confidence and perhaps the risk appetite of the investor may well return.
Energies
The US Department of Energy said crude oil supplies were up 5.6 million barrels last week, supplies of unleaded gasoline were down 900,000 barrels while heating oil supplies were down 700,000 barrels. June crude oil closed down $1.98 unable to stay above the 20 day moving average at $53.20. Resistance comes in between 53.30 and 54.00 with support first at 51.50 followed by 50.00. If prices are unable to take out 54 early in the week we expect a trade down to 48.50. June heating oil was lower by 6 ticks closing at the 20 day moving average. 1.47/1.48 should serve as resistance with support coming in at 1.4225 followed by 1.40. On a move lower in Crude expect the low 130’s. June RBOB was higher by 88 ticks last week. Support comes in at the 50 day moving average at 1.3870 with resistance at the high from 3/26 at 1.5626. On a trade above those levels look for buy stops to be triggered. We advised clients to buy July 1.54/1.74 calls spreads last week; paying just over 650 points with a target of 950/1000 points.
Click Here for Pit Bull: Lessons from Wall Street’s Champion Day Trader
The US Department of Energy said underground supplies of natural gas were up 21 billion cubic feet last week to 1.695 trillion cubic feet. Supplies are now up 35% from a year ago and up 22.5% from the five-year average. June natural gas closed up 15 cents as the lows have held for the last 2 weeks. Since the first of the year prices have fallen by 37% so we feel a bounce is overdue. The stochastic on the daily chart has started to trend higher on an increase in volume which should lead a trade over $4.50 in coming sessions. We maintain positions for clients in June futures and options. 3.65/3.70 on June is our buy zone as we expect the low from 4/13 at 3.64 to hold. Resistance is seen at 4.20; the 50 day moving average which prices have not been above since mid-July. Look at the weekly charts before ruling out a buy at these levels.
Currencies
The Euro started last week strong, but on light volume as Europe was closed only to give back those gains ending the week 163 ticks lower. Our target at the 50 day moving average was reached and as we suggested last week, look to book profits from recent short positions. The trend will remain down but the easy money on shorts has been made. Support is seen at 1.2975 followed by 1.2840 with resistance at 1.3125 followed by 1.3260.
The Aussie was lower by 19 ticks last week and although longer term we are extremely friendly to this currency, in the immediate future we expect a retracement. This should set up an excellent long entry for a position trade. Our buy zone is .6650/.6750 for our clients. The 50 day moving average comes in at .6700. First support comes in between .7050 and .7100 with resistance at .7275. One of clients has suggested 5 cent call spreads in September which is our on our radar.
As predicted the Swissie came under pressure last week giving up 79 ticks. Much like the Euro, the Swissie started the week strong only to fall back the next four sessions down 2 ½ cents in that time frame. Now that the .8600 level has been penetrated we should see .8525. On a trade back over .8600 look for resistance at .8675 followed by .8750.
The Loonie was higher by 71 ticks but is starting to exhibit signs of an interim top closing over 1 cent off its weekly high. Our target has and remains 84 cents, but was the trade up to .8368 close enough to reach our objective? Support comes in at .8100 followed by .8025 with resistance at .8370 followed by .8450. For futures traders you should be trailing stops on longs as to not give back too much. For our clients still holding May and June call options we are still looking for a challenge of 84 cents. The BOC will meet this week and is expected to keep rates at 0.50%.
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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.
