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Crude oil along with the majority of the commodity complex rallied sharply on Wednesday

WEEKLY FUTURES REPORT

Filed remotely at 1:42 am

1.26.12

  Last Last Week (01.11.12)
Mar Crude 99.40 100.76
Mar Heat 301.90 301.12
Mar Gas (Blended) 283.74 282.92

Crude oil along with the majority of the commodity complex rallied sharply on Wednesday at the conclusion of the two day Federal Open Market Committee meeting. The Fed left short terms rates unchanged, yet again, as universally expected. The devil was in the details though and in the communiqué that was released to explain the Fed’s action and give their outlook on the economy. The Fed stated that interest rates will remain low until at least 2014 to foster economic growth and encourage employment. This is January of 2012. The end of 2014 is a lifetime in terms of market cycles. It’s hard to envision that interest rates will remain negligible for such an extended period of time. Perhaps the Fed was factoring in the economic drag that a European rescission would have on world growth. At any rate, the Fed was not “buying into” the idea that the US is showing better growth and that unemployment may be in the early stages of trending low. Some traders consider the Fed’s action on Wednesday to be a de facto quantitative easing or QE3. At this point in time, the only excessive market condition is the nonexistence of interest rates. With saving money actually being punished as an investment choice, money movement into other occasionally unstable financial instruments is inevitable. The duration of projected low interest rates took many traders by surprise. The Fed seems at ease with the idea of currency debasement to stimulate growth. Financial engineering is a tricky business however and conditions can change more quickly than many would think. Easy monetary policy and increased liquidity eventually expresses itself as an asset bubble. Money flow in crude remains negative. Money flow is also negative in gasoline. Crudes advance wasn’t as robust as it might have been because of the potential for economic contraction in Europe. The EU also said that they would move to ban Iranian oil imports starting July 1st to try and pressure that country into abandoning its nuclear program. Iran has been threatening to close the Straits of Hormuz which sees the transport of about 1/5th of the world’s oil traffic. Parts of the Fed’s atatetn weren’t exactly bullish as they lowered world economic expansion projections.

As far as the Department of Energy and its supply report, crude stocks rose for the latest reporting week by 3.56 million barrels to 334.8 million barrels. Gasoline inventories fell by 390,000 barrels to 227 million barrels, the first decline on four weeks. Distillate stocks dropped by 2.46, million barrels.

As for the charts…

Crude looks range bound, positively influenced by an accommodative Fed and negatively influenced by a contracting Europe.

Gas continues to look constructive.

Heating oil looks weak.

  Support Resistance
Mar Crude 97.50 101.50
Mar Heat 299.00 305.00
Mar Gas 277.00 289.00

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METALS    
  Last Last Week
Feb Gold 1700.10 1659.90
March Silver 33.12 30.543
April Platinum 1579.6 1525.30

Gold forged its way to a six month high as the Fed indicated that easy monetary policy may continue to be in place until the end of 2014. This was tantamount to yet another round of QE3. With no competition from interest rates and a de facto weak dollar policy by the Fed, there was little to resist the advance by the metals on Wednesday. The Fed Chairman said that the option of continued large scale bond purchases was still being considered. With the Fed content to engineer a non interest rate environment, many believe that inflationary pressures must express themselves at some point in time. Excess liquidity will create a bubble somewhere in the system, probably in the metals market or tech stocks. Apple’s market cap probably exceeds Exxon at this point. Silver jumped by 3.6%. This month alone, silver has surged 19% while gold is 8% higher. Many believe that the EC will head towards a 120 valuation against the dollar but the recent path of least resistance has been higher, not lower and it’s believed that the ECB will be more accommodative and cut rates shortly. Money flow in gold and silver remain positive.

As for the charts, gold is now poised to test the 1751 level.

 
  Support Resistance
Feb Gold 1655 1751
March Silver 31.73 34.50
April Plat 1538 1600
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SOFTS    
  Last Last Week
Mar Coffee 217.20 224.85
Mar Sugar 24.51 24.00

March coffee continued to be negatively affected by outside markets. Negative macro sentiment, particularly out of Europe (and underscored by commentary coming out of the Davos conclave) suggests contraction in demand. The Fed policy statement on Wednesday may reverse this sentiment in time. Brazilian demand is better than expected regarding domestic consumption. The Brazilian harvest is expected to yield a bumper crop later this year.

Sugar has been trending higher. Open interest has increased and this could further pressure the shorts as they see new money committed to the long side. London sugar registered 10 positive sessions in a row, An eleventh followed by an outside day reversal would provide a sell signal.

  Support Resistance
Mar Coffee 215 230
Mar Sugar 32.00 34.50

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    Last Last Week
Mar Soybeans 12.134 11.834
Mar Corn 6.344 5.934
Mar Wheat 6.412 5.922

Corn advanced for five consecutive sessions for its best performance of the year. Obviously money flow is positive for this market. Fundamentally, Argentina’s corn crop may fall to 21.4 million metric tons, down from a record 23 million tons a year earlier. The next USDA estimate is due February 8th. Dry weather conditions prevail in South America. Also, a weaker dollar the last session provided support.

As for soybeans, China has been closed this week so a vital participant in world trade has been quiet in the current trade. Soybeans continue to trend higher. Of course a worsening of the Euro zone debt crisis may alter consumption expectations.

Wheat has seen short covering as Russia may move to tax grain exports. Increasing open interest suggest more of a commitment to the long side for wheat. US ending stocks are ample however and this should temper further advances.

  Support Resistance
Mar Beans 11.90 12.43
Mar Corn 6.17 6.48
Mar Wheat 6.19 6.55

Chuck Kespert from NY/NY

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, 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 SUBEQUENTLY 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.