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Wednesday saw intense volatility

WEEKLY FUTURES REPORT

Filed at 9:40 am 4.05

4.04.12

 
Last
Last Week (3.28.12)
May Crude
102.04
105.54
May Heat
317.00
322.48
May Gas (Blended)
332.88
336.41

Oil fell sharply on Wednesday after the government released a report stating that stockpiles increased to levels not seen since 2008. Crude production in the US is at its best level in 12 years. On Tuesday, the market had a negative response to the release of the minutes of the latest Federal Reserve Open Market Committee meeting. The report gave the impression that the US economy was continuing to gradually improve as was the unemployment picture. As a result of this improvement, the need for further stimulus by the Federal Reserve has been greatly reduced.

For the latest reporting week, crude stocks increased by 9.01 million barrels to 362 million barrels. The Street was looking for an increase of only 2.5 million barrels. Us oil production was pegged at 6.05 million barrels a day, an increase of almost 3%. At this point, the market is saturated with oil. Producers have obviously taken advantage of high prices to produce as much as possible. Even with the ongoing threat of Iran, prices have now retreated back to mid-February levels. At 1:30 on Wednesday afternoon, prices were only 2.7% higher for the year. Output is at its highest level since 1999 which by inference gives a fairly clear picture of how much insurance premium is built into the present price from the possibility of Iran disrupting oil distribution through the Straits of Hormuz. US production levels are 5.2% higher than last year at this time. Supplies at Cushing, Oklahoma, the terminus for the US benchmark West Texas Intermediate, are at their highest levels since last May. Another negative for the market was an undersubscribed Spanish bond auction suggesting that the sovereign debt crisis was alive and well and possibly a clear and present danger to European economic expansion. Money flow for gold is negative. Money flow for silver is positive as it is for platinum. Money flow is important but remains a singular component while the market can trade anywhere it likes on any given day regardless of technical considerations.

Now for the charts…

The break in crude is decisive. The upward bend to the upper Bollinger Band away from the price action is a negative feature. Given this configuration, prices will be constrained by the mind Bollinger and will eventually guide prices to the February lows as long as geopolitical considerations are held in check. Beyond that, Heat/Gas spreads should work with Gas on the buy side.

 
 
Support
Resistance
May Crude
99.60
104.90
May Heat
310.0
327.00
May Gas
324.00
345.00

**********************************************************

METALS
   
 
Last
Last Week
June Gold
1621.70
1660.50
May Silver
31.30
32.05
July Platinum
160.35
1635.20

Gold had a very negative response to the release of the FOMC report. The market’s interpretation was that the Fed was no longer inclined to add stimulus to the economy. Gold had thrived in a negative interest rate environment and the suggestion that this policy cycle may be over was enough to induce serious profit taking. Another negative for gold was a contraction in

the reading of the Institute for Supply Management’s index of non-manufacturing industries which accounts for approximately 90% of US economic activity. It fell to a reading of 56 from the prior month reading of 57.3. The Street was looking for a reading of 56.8. Gold fell to a 12 week low on this prevailing idea that the Fed will be less than accommodative and the liquidity rally is over. The fact that Indian jewelers were in the 19th day of a strike in protest over the imposition of a tax was a negative for silver. India is the biggest importer of that metal.

Now for the charts…

Gold’s break can only be termed substantial. The downside channel remains intact. The projection suggests 1560 by the end of April.

 
  Support Resistance
June Gold 1590 1689
May Silver 30.50 33.00
July Plat 1580 1657

******************************************

SOFTS    
  Last Last Week
May Coffee 184.75 182.00
May Sugar 24.42 24.26

Wednesday saw intense volatility. The daily trading range of over 11 cents was the most volatile since December. The early rally was induced by large fund short covering, not new buying so when the shorts had covered there wasn’t any fresh buying to support values. Macro conditions remain negative for coffee.

Funds still are net long this market even with liquidation pressures from other sectors. Sugar was able to close better on the day while other markets were enduring some form of collapse. Supply side pressures will keep a lid on prices. Trend followers are long and this will lead to liquidation in front of the Brazilian harvest.

   
Support
Resistance
May Coffee
175.00
195.00
May Sugar
23.90
25.00
********************** **********************
   
Last
Last Week
May Soybeans
14.194
13.674
May
Corn
6.566
6.202
May
Wheat
6.392
6.306

Cash business in soybeans was slow as China was closed for holiday. Wheat dropped in price as Russia and the Ukraine upwardly revised crop expectations. Soybeans are about 20 cents off new, recent highs. Corn continues to get the benefit of early planting due to the early spring. This should prop up prices. Beginning soybean stocks stand at just 245 million bushels which could leave ending stocks at 92 million bushels. The drivers for this market continue to point to better values.

Corn should revisit prices left behind on the rally in late March. Weather remains almost ideal. Wheat remains under pressure. There could be colder weather next week according to some models. The spring crop is already 8% planted. Wheat remains the most bearish chart.

 
.
   
 
Support
Resistance
May Beans
14.00
14.41
May Corn
6.44
6.72
May Wheat
6.25
6.61

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.