By now the grooves on our broken OJ record are well-worn from repeated play. Here are some of your favorite hits from eViews of the past: high prices at retail; declining consumer interest, resulting in lower consumption; a terrific harvest with a larger crop than expected; and higher fruit yield that was the result of some timely rains. One has to listen really hard for even the hint of a bullish note in there.
In her comment from last Thursday, noted softs analyst Judith Ganes points to the recent precipitation in Florida growing areas as setting the stage for what could be another bumper crop in 2008/09. She is probably right, as she usually is. However, between then and now we have a hurricane season to contend with. And it would appear from a quick glance at the chart that short traders are beginning to cover positions.
On April 9, Colorado State forecasters Philip J. Klotzbach and William M. Gray will release an update to their 2008 Hurricane Forecast from the Bahamas Weather Conference. How do we get invited to that party? They have hinted that there will be changes that result in the forecast pointing to more potential activity-and not less. This could be the cause for the rally we have seen in the last four or five sessions, as traders move to cover short positions and even initiate new longs-anticipating a change in trend.
On the chart, you can see the spike low on March 27th was followed by higher prices along with a test and failure to take the market down through previous lows on April 3. Since that time, we have rallied convincingly up through the 10 day and 18 day moving average. Should we continue to hold these levels (specifically above the 18 day moving average at 114), we could be poised to test trendline resistance up in the 123 area.
Should we trade and close above the trendline (at roughly 123) and the 50 day moving average (roughly 125), this would be final confirmation (in my opinion) of the end of the downtrend. The resultant stops and new long interest could propel this market to 132 and beyond, possibly as high as the double-top up near 150. The risk to this view rests in any surprise reduction in numbered storms or chance for landfall in 2008, and in any sharp increase in yield or amount harvested in the upcoming USDA report. If you are still long May 130 puts/short May 120 puts, now would be a great time to cover the extra 120 put we sold. After the rough ride we have had with that extra 120 put, I will be happy to get out of those at break even. Look to hold the remaining 130/120 spread to expiration 9 days from now. Looking to position for the summer months, I want to spread the July 135 calls against the July 155 calls for 2.00 points. This would represent a cost of $300 for the spread, plus two commissions with the max gross profit at expiration 20 points or $3000.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
