Commodity Market Review for Week Ending July 27, 2007
By Al Martin
(7-30-07) Individual trades for week of July 23-30, 2007 -
In Monday’s, 7-23-07, trade, we SS-4 USU 108.18 C 108.14, SS-4 SX 8.65 C 8.60, S-4 KCU 1.12, C 1.1175, SS-4 SPU 1555 C 1552.50.
In Tuesday’s trade, we SS-4 WU 3.42 C 3.3950.
In Wednesday’s trade, we SS-2 HGU 3.60 C 3.59, S-4 KCU 1.1450 C 1.1425.
In Thursday’s trade, we SS-5 DXU 80.50 C 80.375, SS-4 CLU 77.00 C 76.75, SS-5 WU 6.64 C 6.59.
In Friday’s trade, we SS-5 DXU 80.85 C 80.75, SS-2 HGU 3.55 C 3.54.
The USU contract settled into a late-week trading range, mostly 109½ -110¼ , with consistent short-selling seen at 110 or better, buying on dips late at 109-3/4 or lower. Extreme volatility was the hallmark of the bond futures last week, as the so-called ‘fear bid’ continued to build.
We like scalping the range, for now, i.e., shorting on rallies above 110 and buying on dips to 109.22 or a little less. However, if you are scalping from the long side, do not hold on to positions for very long, as the fear bid has caused this contract to become dramatically overbought relative to current fundamentals.
In the DXU contract, the trading pattern of buying dips to the 80.00 area, selling on 15-to-20-point rallies, continued up until late-week, when, at last, we saw a short-covering rally in the contract take place as we had predicted in our previous week’s summary. We are now shorting the contract at current levels, 80.85 or better, mindful that this is nothing more than a short-covering rally as dollar fundamentals continue to remain negative.
In the SIU contract, we saw the silver sell off, particularly late-week, several efforts to trade the silver below the 12.68 level, which failed, and we like now scalping the silver from the long side on dips to 12.70 or lower, mindful of the 12.63 support level.
In the HGU contract, we continued to see a series of lower lows and lower highs, as the contract touched 3.50 ledvel in late-week trade, before late Friday trade action short-covering took hold.
However, we believe that the copper ‘shill’ continues to weaken. A key sign that for a break, the next break down in the copper would be to see the LME copper come under 7680. We continue to love shorting the copper on 2-to-3-cent rallies.
In the grains, we continue to like shorting the beans above 850, and did so late-week. Wheat had a late-week rally off of crop report, strength suggesting increased exports, which has helped the wheat. However, wheat production globally remains healthy. We are seeing Australian wheat production increase dramatically from pre-drought levels. We believe the WU contract is overbought at current levels and we are looking for a decline back under 620 in the Sep. wheat contract.
In the CTZ contract, we finally saw the cotton come back to reality, as we have been suggesting it would, trading into the 62.00-63.00 area. Much of the weakness came on late-week crop report showing diminished cotton exports and diminishing global demand for cotton. U.S. cotton production continues to remain healthy. Crop estimate remains 1-2% higher vs. last year’s production. And although cotton has sold down as much as 6 cents off its recent highs, we still like shorting the Dec. cotton on rallies back to 64.00 or better.
The LBU contract continued to gradually weaken, in line with our predictions. We have been shorting the lumber all the way down. We continue to like shorting the LBU contract on rallies, continuing to believe that the contract remains about $60 overbought relative to fundamentals. Look for a break this week of the key 276 support area in the contract.
The sugar shill continued last week, although weakened with tops consistently turned back at 10.35 in the SBV contract, although sugar did hold the 10-cent area in late-week trade. Despite pressure coming from collateral soft’s and trop’s, the sugar opened long interest and fund support would suggest that the shill is not over yet, and we like scalping the sugar from the long side on dips. Also watch the SBV contract. If we can get above 10.35 again, it’s likely you’ll see a new higher high above 10.53 established.
Coffee broke late-week, after having traded above 1.16 in the KCU contract. We had suggested that this was only a temporary shill effort. Once delivery pressure had been relieved on the expiring July contract, indeed that proved to be the case. With the Sep. contract trading back to 1.11, coffee fundamentals remain neutral to bearish. We continue to like shorting the Sep. coffee on rallies back to 1.13 or better.
The CCU contract got its back broken late-week, falling more than $100/ton over Thursday-Friday’s session, as a prominent London hedge fund, which had been long the cocoa, liquidated 4,000 lots. We had been warning that cocoa fundamentals have been turning more bearish of late. We don’t know if hedge fund liquidation of the cocoa is over or not, but we believe that the Sep. cocoa contract is going to trade back to 1850 before any sustainable rally effort could hold.
In the OJU contract, we continue to see a rally on the breakout of the 1.40 area on thoughts that `07 domestic juice production might be something light of the 130 million boxes now estimated. We think, however, that, for one thing, this is the wrong time of year for a sustainable rally in the juice contracts. The flooding that we have seen in Texas and north Florida has not damaged juice production to the extent that the juice bulls would have you believe. We think this is just another shill effort, and we believe that the juice will be falling back to test the 1.30 area.
In the CLU contract, numerous efforts to pull the oil down from the $75-$77 area failed when desperation buying by commodity funds who were loaded up to the gills on the long side of the oil consistently came in to support the oil in the $73-$74 range. However, near-term oil fundamentals are decidedly bearish, and we continue to like scalping the oil at current levels on the short side, taking our standard 25¢-50¢ scalps. If you are trading oil from the long side, do not hold on to the trades, in that fundamentals are negative.
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