The G Manifesto

Commodity Trading: A False Sense of Security

Weekly Commentary
For August 10th– August 14th 2009
By: Matthew Bradbard
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It always amazes me how short-term investors’ memories are. There is chatter of improving U.S. and world economies, which we feel is way too premature. Corporations are reporting optimistic numbers but could that be because expectations were so low? We’ve lost 2 million jobs in the last 6 months and because unemployment dropped 0.1%, which I still doubt is the case, it is supposed to be viewed as positive? Commodities are moving higher and this signals a recovery…I don’t think so. Treasuries and equities are trading in tandem as opposed to inversely, this will not last. The dollar is not being sought out as the fear trade and it actually rallied on positive economic news? As my basketball coach used to say, sometimes the best offense is a good defense.

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Energies
The DOE reported crude oil supplies were up 1.7 million barrels, supplies of gasoline were down 200,000 barrels while heating oil supplies were down 300,000 barrels. September crude oil closed up $1.63 trading to its highest level since 6/30. Expect $73/74 to act as resistance with support coming in at the 9 day moving average at $69.40. The chart looks overbought; a trade down to $66/67 is not out of the question. At this time we’re not advising getting short, but we would suggest being out of longs. September heating oil was higher by just over 8 cents last week but it too is showing signs of a top with prices ending last week 6 cents off their highs. Resistance is seen at 1.95/1.96 with support at 1.8850/1.89 followed by 1.83. September RBOB closed lower by 45 ticks as prices failed to make their way to higher ground after 3 positive weeks. Resistance is seen between 2.05 and 2.07 with support at 1.94 followed by the 20 day moving average at 1.87.

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The DOE reported underground supplies of natural gas were up 66 billion cubic feet last week to 3.089 trillion cubic feet. Supplies are now up 23% from a year ago. September natural gas closed up 4 cents which would not have been possible without the 11% move higher on Monday. Resistance comes in between 3.85 and 3.90 with support at 3.55 followed by 3.40. We continue to buy clients November $1 call spreads. The settlement on the $5/6 call on Friday was $2700.

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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.