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MF Global meltdown effects everything
WEEKLY FUTURES REPORT  
11.02.11    
Filed 8:35    
  Last Last Week (10/26/11)
Dec Crude 93.04 90.87
Dec Heat 301.95 305.52
Dec Gas (Blended) 264.02 263.14

Crude rallied for the first time in four sessions on Wednesday. A positive influence was the release of the key ADP private jobs forecast report which showed that US companies had added more jobs than previously forecast. ADP stated that US companies added 110,000 workers for the month of October. The median forecast had called for a gain of 100,000 jobs. These gains were tempered after the conclusion of the Federal Reserve Open Market Committee meeting. As widely anticipated, the Federal Reserve left short-term rates unchanged. In their communiqué, the Fed seemed to stress signs of growth in the economy. At a follow-up press conference, Federal Reserve Chairman Bernanke said that the Federal Reserve had lowered its economic forecast for next year but that unemployment may move under 9%. All five Federal Reserve board members and 12 Reserve Bank presidents reduced their growth forecast from previous predictions of 3.3 to 3.7% to 2.5 to 2.9%. Labor markets continue to be weak and there are significant risks to the downside. Another ongoing negative is the fluid situation in Europe with the potential default of Greece. Prime Minister Papandreou is intent upon having the country vote a referendum for the latest euro zone bailout package. If there is a no-confidence vote for the Greek government and the referendum, it could potentially trigger a government change and put further economic pressures on Italy, Spain and Portugal. The resulting economic contraction would reduce energy consumption.

For the latest reporting week, crude stocks increased by 1.83 million barrels to 339.5 million barrels. The trade was looking for an increase of 1 million barrels. Gasoline stockpiles rose by 1.36 million barrels to 206.3 million barrels. The trade was looking for an increase of 800,000 barrels. Inventories for distillate fuels which include jet fuel dropped by 3.58 million barrels to 141.9 million barrels. The street was looking for decline of 1.75 million barrels. Another negative for the oil market over the course of the past five sessions was the demise of MF Global resulting in a liquidation only policy for its customers holding positions.

Now for the charts….

Crude has run into good resistance and the bottom Bollinger band is turning upwards to meet price, a usual sign of impending decline.

Even with the bizarre Noreaster that hit the populus Northeast with freezing snow and resulted in 2.7 million people losing power, heating oil failed to flex higher.

Gasoline, out of season, seems range bound at best.

  Support Resistance
Dec Crude 89.90 95.00
Dec Heat 293.00 238.70
Dec Gas 250.00 270.00

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

METALS    
  Last Last Week
Dec Gold 1740.50 1726.50
Dec Silver 34.31 33.41
Jan Platinum 1608.50 1598.70

God has been volatile with a positive bias over the past five sessions. The value of the hard asset as a non interest rate bearing store of value was recently underscored by the failure of MF Global. Additionally, conditions in the Euro Zone seem to change with each new headline. The big surprise of the week was Greek Prime Minister Papandreou submitting the EU bailout package for a referendum vote. This took virtually everyone by surprise, especially EU ministers in Germany and France. There‘s a very real possibility that the package may not be endorsed by the Greek people and that this could lead to the fall of the government. The resulting political instability to the region could easily spread to Italy, Spain and Portugal and a possible recession. Berlusconi only survived his last confidence test by just one vote and conditions certainly haven’t improved. One ongoing negative is news that gold producers are ramping up production to capture the price advance.

Silver advances seem to be mostly dependent on a weak dollar. The Federal Reserve seems intent on keeping interest rates basically at negligible levels though mid 2013 so this zero yield environment will continue to act as a positive for the silver market. There is a linkage with the US equity market. Possibly the seasonality of a yearend rally in equities will be beneficial to the silver price. The fog of the Euro Zone sovereign debt situation continues to remain a problem, however. The metals market seems more headline driven than ever. The exact resolution to the Euro Zone crisis remains unclear.

Now for the charts…

Gold seems content to work its channel with an upside bias. Gold is selecting its influences on a rotating basis these days so what might seem to be a negative fundamental on a Tuesday can be reframed to a positive by Wednesday.

Silver seems more reluctant to expand the upside of the trading range.

  Support Resistance
Dec Gold 1686 1755
Dec Silver 31.65 35.80
Jan Plat 1556 1639
******************************************
SOFTS    
  Last Last Week
Dec Coffee 224.00 233.70
Mar Sugar 25.42 26.35

The market seems intent on retesting recent lows. Support from outside markets is lacking. A Brazilian glut is looming. Coffee is 27 cents lower since October 24th. A strong dollar has been a negative. Elevated risk form Europe has been a price negative.

Sugar wants to align itself with an outside market, probably metals. Speculative interest, or at least a part of it, was under forced long liquidation with the demise of MF Global. Chinese production should be 15% higher than last year. A reduction in the estimates for Brazilian production is a minor positive.

Now for the charts…

Coffee’s excursion to the downside is not over.

Sugar chart remains defensive. Not enough shorts in the market but there are too many speculative longs; a negative.

  Support Resistance
Dec Coffee 220.00 233.00
Mar Sugar 25.00 26.50

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

 

  Last Last Week
Jan Soybeans 12.026 12.196
Dec Corn 6.45 6.372
Dec Wheat 6.234 6.194

Wheat and corn remained under pressure on signs that supplies may be satisfactory as production around the world ramps up. Global wheat production as measured by Informa Economics, a private company, suggested that actual production would exceed the Department of Agriculture’s estimate of last month by 1.1. % According to this respected source, the US corn harvest should come in at 12.9 billion bushels, almost 1% higher than the USDA projection. Wheat is 22% lower for the year. Russia and the Ukraine continue to boost exports for

currency. Corn is 19% lower than prices traded on June 10th. South American rains are only improving growth prospects. Euro Zone debt tensions have acted as a price negative. A lower than expected reading for the Chinese Purchasing Managers Index indicating economic contraction was another negative for this complex.

And the charts say…

Soybeans remain range bound with a downward bias.

Corn has been maintaining price while stochastics deteriorate; a positive.

Wheat has been under pressure since August so the current action can be termed base building; a positive.

  Support Resistance
Jan Soybeans 11.72 12.38
Dec Corn 6.19 6.65
Dec Wheat 6.03 6.47

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.