Good morning,
DXM9 98.005 +0.124 GCM9 1282.2 +8.0 ESM9 2834.50 -23.00 CLN9 60.10 -1.32
Well, it may be the eve of a holiday weekend, but the markets don’t feel ready to wind things up just yet. With June options expiring on the CBOT tomorrow, there may be some excitement all the way to the close (which is an early close for many of the pits tomorrow). Global equities have swung back to “risk off” mode today, oil continues to move sharply lower, having taken out a key support area in the overnight trade, the dollar is firmer, with yesterday’s minutes from the last Federal Reserve meeting showing the Fed wasn’t as dovish in its view on monetary policy as the market apparently would have liked it to be. The grains endured the downward correction yesterday, from overbought conditions, and have resumed the march back up to the highs. The soft commodities are lower, as the dollar stays strong. Gold is higher, having held the test of its 200 day moving average on the down trade the other day, and being aided by the weak equities. Copper is also lower, following equities.
The main story would be the oil market today, which began yesterday afternoon when prices reversed course and traded down hard (it has taken out $60/barrel this morning). The catalyst yesterday was stronger than expected data on US production and inventories (data is on attachment). Gasoline inventories were also higher than expected. The overnight trade has seen oil move sharply through the key support area of the 200 day moving average (60.69 for CLN9). The violation of this level, with the good momentum behind it, probably caused some stop loss selling to take place from the fund community, which has been carrying a long position. In addition, the algo traders also may have received sell signals when this level was taken out. All of this may have exacerbated the price action to the downside. Oil could continue to see a position squaring trade ahead of the holiday weekend, with markets closed or less liquid, but the Middle East tension still in place. The good news is, this sizable correction down in oil prices comes just in time for the holiday weekend, and in front of summer drive season. I’m sure we’ll see this reflected in the prices at the pump!!
The grain markets also may face position squaring into the holiday weekend. The fund community, in spite of a decent amount of short covering believed to have taken place, still remains short. With the grain markets closed on Monday, that leaves an extra day of exposure in the weather risk trade. Soybeans found support, following the big break late Tuesday afternoon, following talk about the farmers aid package from the government. Helping bean prices was the announced sale of 131k tons of soybeans to Unknown (implying China). Corn also found support after trading lower. Corn’s support came from the 200 day moving average for CN9, which today comes in at 3.86 ¾ . There is still a gap on the CN9 charts at 3.84 ¾ from last Friday’s high to Sunday night’s low. Failure to fill the gap is bullish. Corn feels poised to test the highs for this move, and may be assisted from tomorrow’s options expiration. The $4.00 strike for June corn options (CN9 is the underlying futures contract) has a position imbalance of 17k in calls vs 1.4k in the puts. This can cause prices to shoot higher, if any naked call positions get squeezed, and need to buy futures to hedge the exposure. The other argument would be that it could keep the CN9 market “pinned” to the $4.00 price, as those naked positions are defended. Nonetheless, Tuesday’s high was 3.99, and it sure feels like we will see a “4” handle. Wheat has resumed its rally, after a corrective trade down. Lower prices came from the thoughts of the US wheat markets had gone up too far, too fast, and prices had made US wheat less competitive in the global export arena. However, the continued severe storms, coupled with colder temperatures (even with snow across the Plains) caused wheat to quickly find support and trade back up. It is believed the recent weather conditions will have an impact on protein levels and the quality of the wheat to be harvested.
The other soft commodities, for the most part, are trading lower today, being pushed down by the stronger dollar. Coffee traded lower yesterday, as the rally form a couple of sessions ago, on concerns of freezing weather in Brazil, was found to be not that big of a concern. Likewise, cocoa traded down yesterday, after weather concerns in the Ivory Coast created a bid to prices a few sessions ago. Orange juice remains a wild ride. It is presently trading higher today, but this market has been experiencing settlement swings of $3 to $5 a day. The cotton market is the exception to softs being down today, as it finds itself higher at the moment. Cotton has been hit hard the past few sessions, as the trade dispute lingers and a large US crop is expected. Today’s strong export sales number is also helping cotton prices.
Gold is higher today, technically in solid footing, following the recent big trade down, rejecting the $1300 level, having held its 200 day moving average. This is the third time this level has been tested, so similar to what we saw in the WTI oil trade overnight, the 4th time may not be a charm. “Risk off’ sentiment is providing the bid to gold. This same sentiment is putting pressure on copper prices, as concerns about economic growth persist.
Unfortunately, it doesn’t look like there is a great weather report to give, with the outlook for the US keeping numerous storm systems in the forecast. Some of the storms are likely to be severe, and the constant rain will keep the risks of flooding high. This extended outlook keeps rain in the forecast for a major portion of the next couple of weeks. With no relief, it will keep the farmers out of the fields, increasing the expectations of corn switching to beans. In addition, it will create numerous challenges for all of the golf and barbeque plans that many have here in the states for the holiday!
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 879.125 906.75 910.75
CN9 372.25 381.25 386.625
WN9 456.625 482.375 515.625
KWN9 427.0 463.0 508.25
MWN9 536.25 554.0 580.0
CLN9 62.35 58.67 60.69
GCM9 1293.1 1303.1 1269.8
LHM9 92.000 84.820 82.775
LCM9 117.490 117.750 116.100
KCN9 94.00 100.20 107.85
CCN9 2320 2318 2282
CTN9 75.25 75.12 78.28
SBN9 12.45 12.68 12.63
JON9 110.80 116.35 131.55
HGN9 286.40 282.65 279.85
Have a good day.
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1201A
Chicago, IL 60604
Trean Group, LLC
312-604-6404
312-896-2012 (fax)