Mid-Week Market Trend Analysis

Mid Week 06.11.08
Jun.11 2008 03:40:16 PM

Weekly Futures Report

6.11.08

Filed 3:17 pm Wednesday

Last                              7 days Ago

July Crude                                       137.00                            122.85

July Heat                                         395.74                              358.75

July XRB (Blended Gas)               346.34                              324.50

Crude oil rallied sharply on Wednesday, trading more than six dollars a barrel higher than Tuesday’s close by midday on news from the Department of Energy which stated that inventories declined more than expected. Crude oil stocks fell by 4.56 million barrels to 302.2 million barrels. The trade was looking for a decrease in stocks of only 1.5 million barrels. In a related story, China said that imports of crude oil had increased over the past month as it attempts to rebuild from its recent earthquake. Also, tensions between Iran and the US continue. One recent story that is a negative for the complex was that India was withdrawing its subsidies of oil for its population. They should destroy demand in that country. Also, it’s becoming apparent that the Federal Reserve believes that the price of oil will eventually come down due to itself: in other words, the higher the price goes the greater the demand destruction. This may take a protracted period of time, however. Another recent story regarding crude oil and one attempt to explain its historic price movement is that hedge funds approach banks to do swaps to get into the crude oil market. Investment banks are not limited to position size. Therefore, the investment banks can continue to buy oil without limit even though they’re not true hedgers. They’ll never make or take delivery of a single barrel of oil. Crude oil has been very volatile over the last week. For the first two days of the week, crude oil was lower byis down 5.2%.

However, the market is now seemingly trading in a more technical fashion. In other words, prices seem to be more cognizant of pivot point supply and demand areas. One thing the exchange could do to dampen volatility is to change margin requirements so that the initial margin requirement and the maintenance margin requirement are the same. Otherwise, the current volatility virtually demands that all traders become short-term traders. Refinery runs are lower as demand for gasoline distillate contracts. Refineries operated at only 88.6% of capacity, down 1.1% from last week. Margins between the price of buying crude oil and the price received for the refined product continue to shrink making running a refinery a very tricky business.

Perhaps to foster a sense of goodwill more than anything else, Saudi Arabia is going to invite heads of state from OPEC and oil consuming nations along with oil trading banks to a June 22 meeting to discuss the state of the oil market and why it’s trading the way it’s trading.

Support                   Resistance

July Crude                                      126.00                     140.00

July Heat                                        368.50                       404.50

July XRB                                          320.00                      355.00

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Metals

Last                     7 Days Ago

Aug Gold                                         883.80                      883.90

July Silver                                        16.87                          16.75

July Platinum                                 2038.00                     1995.90

Gold finally rallied on Wednesday after being down sharply Tuesday on interest rate outlook. The dollar was sharply lower on Wednesday as the EC rallied on the idea that the ECB would raise short-term interest rates to combat the high price of crude oil. Gold was down $23 an ounce on Tuesday as the dollar gained 2% against the EC on Monday and Tuesday. Even though the chairman of the Federal Reserve talked about the
end of an interest-rate cycle ease it’s unlikely that he will raise short-term rates. The unemployment report showed yet another contraction in job creation for the fifth consecutive month. It’s also an election year. The US housing market continues to recuperate. The more obvious course would be to leave interest rates unchanged. A more credible threat of higher interest rates probably lies with the ECB. Consequently this
would lead to a stronger EC and a weaker dollar based on interest rate differentials and metals would be a direct beneficiary. Also, the price of crude oil continues to be wildly volatile and this has to be viewed as a metal market positive. Even though gold is rallying on Wednesday higher prices are not assured. At least half the rally was short covering from yesterday’s decline. Gold currently looks to be stuck in a trading range between 850 on the bottom and 900 to 925 at the top.

Support           Resistance

Aug Gold                                850.00              925.00

July Silver                              16.00                  17.50

July Plat                               1950.00              2095.00

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SOFTS

Last                    7 Days Ago

July Coffee                      133.50                    132.75

July Sugar                       10.61                          9.64

Traders continue to refer to the coffee market as being in a consolidation phase. Insurance buying has already been seen in the market to protect against a Brazilian freeze. As for now, weather models suggest that even though temperatures may dip below average for this time of year, the crop should not be affected.

Lower prices for cash market Vietnamese coffee have been a negative. Continue to view this market is a trading range affair.Sugar finally broke out of a massive down side channel. This is finally a positive technical development. Sugar never had received buying from ever higher gasoline prices. The supply/demand picture for sugar seems to be turning. Previously demand was overwhelmed by supply, now they seem more in balance.

.                                       Support                   Resistance

July Coffee                           129.0                      138.90

July Sugar                               9.50                         11.92

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Last                   7 Days Ago

July Soybeans                     15.16                        13.710

July Corn                               7.032                         6.092

Soybeans were limit up on Wednesday. A weaker dollar was a positive. Traders continue to fear that acreage may be shifted from corn into soybeans due to the difficulty farmers are having planting corn this year. The end of the latest workers strike in Argentina was a negative development yesterday. Some very unusual issues can affect soybeans at this time of year including “prevent planting dates” that are issued by insurance companies to farmers for coverage on a ruined field. Before today’s limit up performance,
fundamental traders were looking for good two-sided trade. Now that view may have to change. Corn soared to a new all-time high in price yesterday. On top of that, corn was limit up on Wednesday. Farmers having a tough time getting the crop in the ground. Too much water in the soil is preventing planting. Heavy rains are still forecast for major growing areas through Friday. Areas such as Northeast Iowa, Minnesota and southwest Wisconsin are expected to receive as much as 5 inches of rain. Money flow and trend remained positive.

Support                 Resistance

July Soybeans                       13.95                    16.00

July Corn                                 6.85                      8.00

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT IMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.