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The Financials Pit Review
For the week of September 28th, 2009
By PitGuru Frank LaMantia
S&P & Currencies
For the most part I have seen what I feel is a strong market, but still have to be careful about buying into a market that has question marks. The past few weeks have seen both the Dow and the S&P reach highs. The Dow is up 47% from the March lows. Both materials and financials had a lower trading week, off 4.8% and 3.6%. The sell off could have continued further but the Iran situation created excitement. Traders are likely worried about the oil situation and how this might affect stocks. For those that do not know about the situation, the Iranian president is supposedly hiding nuclear facilities. The fear of another war, supply of black gold, and nerves put Wall Street in a stagnant mentality. I prefer traders that sit on the sidelines than those that panic. Traders did what I feel is respectable and did not emotionally trade. Another topic that is hot this week is social security. Baby boomers are showing that they would rather retire than start over at a low paying job. This will probably cause huge problems for those that put into the system. You and I may be paying these people to retire!
This week has a loaded calendar with enough data to keep the street very busy. Tuesday, September 29th, the consumer confidence number (which is expected to 57) will be announced. Analysts believe that 59.5 is more likely. Remember, these forecasts are best estimates and not factual numbers. This number is collected by surveying 5,000 families and using present data. Wednesday, September 30th, the GDP is forecasted to be around -1.2%. Also, Chicago PMI and crude inventories: Chicago PMI is forecasted to be 53.5, which would lead us to believe that the market is stabilizing. This is usually the case when we see this number in the mid 50's. The Iran situation could affect crude inventories so we must be alert in this statistic. I would have to say that Thursday and Friday is filled with announcements. Thursday, October 1st, has personal income, spending, initial jobless claims, ISM, pending home sales, and auto and truck sales. Let's break this down real quick: Personal income is expected to be flat, personal spending is expected to be up to 1.2% from 0.2%, initial jobless claims is expected to be around 535k, ISM is forecasted to be 55.7, and pending homes sales are expected to be 1.0%. Friday, October 2nd, the market will see nonfarm payrolls, the unemployment rate, and factory orders. Nonfarm payrolls are forecasted to be down -225k from -216k, the unemployment rate is expected to grow to 9.8%, and factory orders are expected to be 0.5%. Now what can traders expect from this data? Well, one thing is pretty obvious: the unemployment rate is showing high numbers and personal income is not predicted to grow anytime in the near future. Low growth or stabilization may be gathered from this data. There may be light at the end of the tunnel, but it may take months to get there.
The dollar still looks attractive to me and is up 0.13 to 76.94 on the index. Conversely, the Euro is down 0.0055 to 1.4634 and is holding some ground. In the pas, whenever the U.S. has conflict the dollar showed resilience while the market trended downward. This is something that might be relevant and could help a slide that some consider overdue.
The Energies Pit Review
For the week of September 28th, 2009
By PitGuru Daniel Cronin
Energies had a dismal week after a big build in all 3 main energy inventories sending the price of Crude lower from $72-$65. Crude Oil had a build of +3mil barrels to liquidate prices -8% to close at $66.02. Heating Oil was down 8.1% as this built more than 2 million and Gasoline had the worst week -11% to $1.6205 as this market showed an enormous build of +5mil barrels. Natural Gas was once again on the plus side, +7% to $3.98 in the October contract as the short squeeze is still on in this market.
Subscribers to the premium commentary would know that there is a possibility for huge support in the Oil market at $65 as this is the last low in the continuous contract on August 17th. Fridays low was $65.05 and I believe that if it breaks this number it could very well see $62.50. The USD has now seen a bit of a short squeeze as the crowded trade reversed as traders took profit. It is now 2 and a half cents below this year's high of $1.4850 in the Euro/USD and has traded below support of $1.4610.
This week may be a busy one for investors to digest as there are major economic data points coming out. Chief among the reports is the Labor Department's monthly reading on the labor market, due Friday. Unemployment is considered one of the economy's biggest obstacles. Investors will also get reports on home prices, manufacturing, consumer confidence, construction spending and factory orders. Beyond the economic data, investors may be watching for updated outlooks from companies ahead of third-quarter earnings reports next month. If the market gets a higher unemployment number on Friday then this market may trade lower.
Be prepared for the possibility of a very volatile week and keep an eye out for the economic data along with the movement in the USD. Look for insight in the premium service's daily commentary.
The Softs Pit Review
For the week of September 28th, 2009
By Guest Analyst James Mound of MoundReport.com
Coffee held a triple trend line resistance and could see some selling pressure short term from an anticipated strengthening of the U.S. dollar against the Brazilian Real and Vietnamese Dong. The bottom line for coffee long term is a static supply environment with expanding demand, susceptibility to supply squeezes and crop issues, and the 2nd-largest producer (Vietnam) eventually running into production quality problems that could send coffee to historically high levels. Debit calendar spreads are recommended to play the two forecasts.
Cocoa has seen its day in the sun and it is ready to come crumbling down. Cocoa has seen levels really only once before and the fundamentals a year ago appear far more drastic and bullish than they do now. Most may know conditions in the Ivory Coast are showing exposure to black pod disease and general crop degradation but politics there are almost predictably bad and global demand for cocoa is not quite the panicked buying environment many expected a year ago. This market is playable to the downside with straight puts.
Sugar remains exposed to a U.S. shortage and the market is in a butting-heads environment with producers coming in and selling the market while specs and funds buy into the hype. The congestion is overdone and a breakout is pending. Long strangles are recommended. OJ is a buy on dips as the market enters a second wave bull production cycle. A decent spend by the Florida Growers and Tropicana may bring life back into the demand side of orange juice, while U.S. production remains large enough and exposed to a two season weather concern (hurricanes and frost). Cotton continues to be a buy on dips as global subsidy programs support a market that had a short term recession demand dip and big cycle supply shift. That means the wow factor on the upside could be massive when demand comes back and they realize the supply evaporated.
The Metals Pit Review
For the week of September 28th, 2009
By PitGuru Daniel Cronin
Precious metals had their worst week in a very long time. The USD strengthened as traders took profit from an oversold USD market and an overbought metal market. Gold fell by more than 2.9% to $990. Silver was down 5.9% to $16.03 and platinum lost 4% to $1,284. Copper was down 3.1% to $2.73.
With regards to copper it is in a pretty big support zone between $2.64 and $2.70. I would recommend playing the long side here with a tight stop to try and bottom-feed. Copper fell in recent trading sessions as data on Friday showed U.S durable goods orders saw their biggest drop in seven months, and new home sales fell short of the forecast. A negative to this market is that imports are seen slowing to around 150,000 a month for the rest of the year, but the softening in prices is starting to awaken buyers' appetite for the metal.
Gold has seen a pullback here and I believe that from this point down one should be a scale back buyer as there is much support at the $980 mark. Traders will look to get back into the Euro/USD at the $1.4500 range and that would help support the price of gold and silver.
The Grains Pit Review
For the week of September 28th, 2009
By PitGuru Matthew Pierce
The previous week saw beans chop wildly, corn grind its way higher, and wheat collapse on Friday making new range lows. The reason for the lack of movement in beans is twofold. On the bearish side there is uninhibited harvest with early results pointing to a yield better than 43. On the bullish side there is a weak USD helping China continue buying at an epic pace. For corn most are looking at early harvest running into small mold problems and poor test weights. On the flipside of that I am still expecting a yield exceeding 164. Traders also have to look at corn in relation to sugar with wet corn mill demand increasing in step with HFCS (high fructose corn syrup). The worst thing ever invented in terms of health will help the "health" of the corn market. In wheat, the market had a brief scare from Australia due to their dust storms but a lack of business and ample stocks brought the market to heel. Also the CFTC continues pointing to further speculative reduction.
Looking forward, I have to look at month end this Wednesday as a factor with Chinese corn harvest and Early S. American planting talk also factors.
Concerning month end there are two possible stories. First, funds look at our markets at a "buy" due to low prices and talk of a season bottom for corn due to talk of diminished crops in S. America. This is most evident with corn acreage a hot topic in Latin America. The US could also be looked at as "overvalued" due to weakness in the USD. If this occurs, look for weak length to exit stage left.
Chinese corn harvest is of major interest in that private forecasters are looking for a number 12 million tons under the USDA. If this continues, world balance sheets and a heavy US carryout may seem less intimidating. It may be a constant battle to find the truth coming out of China. Also, early talks of China starting an import program are unfounded...but interesting.
Lastly look at S. American planting with the improving political situation in Argentina a major factor. There is plenty of talk concerning improved conditions for farmers due to expectations of an improved export tax benefit. Results are yet to occur so this bears major watching.
Concerning trading, I continue to feel corn volatility is way overvalued. Close to 37% versus the rest of the floor working to remain above 30% is a good sign that things are going to change. Traders may want to look at any vol level above 35% as a selling opportunity, especially those entering a steepening time decay curve.
In spreads, traders saw beans chop wildly as people try to valuate SX heading into the deliverable period. Look at any widening of SX9/SX10 as a bear spread opportunity. Lacking a weather scare the pipeline should fill quickly, breaking basis and, in turn, hammering any advantage SX9 has. Wheat corn is setting up a fresh trading range. See attached chart for the visual. This is a spread to watch without entering...yet. Wheat is way oversold and offers a chance to pop in the near future.
Overall the excitement level in agricultural markets has sagged recently due to a lack of stimuli. I eagerly await the southern hemisphere planting and growth seasons looking for reasons to put the bull horns on again but that's not today so look to sell major pops and any surge in volatility this week looking at Wednesday as the focal point of the week.
Frank LaMantia (S&P and Currency trader), Matthew Pierce (Grain Floor Trader), Daniel Cronin (Energy & Metals Broker) and Jurgens Bauer (Softs Floor Trader) are the Gurus for the Weekly Pit Review published on www.PitGuru.com by Futures Press, Inc. - hear their audio market commentary, learn more about them and sign-up for the Weekly Pit Review by visiting www.PitGuru.com
Disclaimer: Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading.
