Weekly Market Summary for Week Ending 7-20-07
By Al Martin
(7-23-07) Individual trades for week of July 16-20, 2007
Monday – July 11: We S-4 CZ 3.59 C 3.5650, S-4 CLQ74.30 C 74.05, S-4 SPU 1560 C 1557.50, S-4 CLQ 74.30 C 74.05, S-4 SPU 1562.50 C 1560, L-4 USU 107.02 S 107.06, S-4 SPU 1562.50, C 1560, S-5 OJU 1.2850 C 1.2750.
Tuesday – July 12: We S-5 CCU 2115 C 2105, S-4 SPU 1562.50 C 1560, S-2 SIU 13.11 C 13.06
Wednesday – July 13: We went L-4 USU 107.19 S 107.27, L-5 SBV 9.83 S 9.93.
Thursday – July 14: We went S-4 WU 6.26 C 6.2350, S-4 SPU 1565 C 1562.50, S-4 LBU 293 C 290.60.
Friday – July 15: We C-8 SPU 1540 (cover of carry-forward short)
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In last week’s market action, we see that the Oct. sugar (SBV) traded into a new high for the move at 10.53 in Friday’s intra-day trade, falling back to the support level of the previous day at 10.25. Although the sugar is extremely overbought relative to fundamentals, it does appear that the ongoing ‘bullish shill’ in sugar is not over, and we would expect a retest of the 10.50-or-better level, early-week.
Be mindful, however, that the sugar is just a trade situation. We are not on the verge, as the bullish shills try to have the unwashed believe, of a whole new move in sugar, where sugar’s going to move from 10 cents to 20 cents. The fundamentals are simply too bearish to support that kind of move in the sugar.
We also saw coffee move up late-week, and break above that 1.11 resistance area in the Sep. contract. Coffee trade was high Thursday at 1.1540. We recommended shorting the coffee at that time. Indeed, the Sep. coffee contract came down to 1.1350 in Friday’s intra-day trade.
Then there was this little reaction rally in coffee, and that’s all it is, because the July coffee contract’s now gone off the board, the cash coffee market is not being pressured by July deliveries anymore, and traditionally you do see a little rally. However, coffee fundamentals remain bearish and we like shorting this market up.
In last week’s trading in the Sep. cocoa contract (CCU), we still like trading the cocoa from the long side on pullbacks to 2050 or lower. Indeed, late-week, we saw the cocoa get back above 2100, peaking at 2120 in early Friday’s session. However, be mindful that the fundamentals in cocoa have turned decidedly less bullish in the past 30 days, and we like now trading the cocoa both ways, meaning that we also like shorting the cocoa up between 2110-2120. That’s a trade we made last week and have made every time the cocoa has returned to that level, and it’s proved to be a profitable trade.
Cotton has fallen back sharply. We had warning that the cotton was severely overbought when the Dec. contract (CTZ) failed at the 69-cent level, and we see that the contract has declined 8 cents in the past 15 trading sessions. The fundamentals in the cotton are nowhere near as bullish as the shills would have us believe, and, in fact, we think the Dec. cotton contract will continue to fall back to test the 60 cent area.
For those trading the orange juice up from the short side, do not be chagrined at Thursday’s move up in the juice. It is entirely possible the Sep. orange juice contract (OJU) will retest the 140 area. However, this does not constitute a whole new up-leg in juice. The juice fundamentals remain neutral to slightly bearish. The juice did move up on a little increase in demand, but that is a seasonal phenomenon.
The bullish shills would try to spin it that it’s something new here, but it really isn’t. Domestic juice crop looks healthy at 130 million boxes. For `07, we see that OPJC’s (other people’s juice crops) are also extremely healthy. We see Nicaraguan, Guatemalan, El Salvadorean juice production will be at record levels. And we believe the juice will be heading back down.
We are not dismayed. As you know, we have been recommending shorting the copper on rallies, something we continue to do. The Sep. copper contract (HGU) managed to rally up to 3.73 in Friday’s intra-day trade, falling back about 3˝ cents by the close of the aftermarket session. Copper fundamentals remain solidly bearish. Supply continues to increase, demand continues to fall. And, indeed, when one looks at volume dispersion in the September copper contract, one finds that the up-to-down volume is 8 times as much on the down side, yet the market has still been able to march higher. That’s largely because professional short-sellers in the copper have been waiting for pullbacks and then attempting to sell it down, instead of attempting to sell fresh peaks, which, in my mind, is what they should be doing. Unfortunately, I think, those shorting copper are building short-position trades and really aren’t concerned about the copper making these incremental new highs. But we continue to like shorting copper on rallies, and we continue to expect the Sep. copper contract to fall back to test the 3.30 level, which is from whence the recent rally began.
The S&P’s broke late-week. We were consistent short-sellers of the Sep. S&P contract (SPU) at 1560 or better and recommended that trade consistently online, and, indeed, we saw the Sep. S&P contract fall back to a 1537.50 Friday intra-session low, exiting Friday’s session at 1545, and we will continue to recommend shorting the SPU contract on any rally back to 1555 or better.
The Sep. bond contract (USU) we think is overbought relative to sub-prime tremors at the moment, going out the week on a new high at 108.13. Unless there is some fresh sub-prime - cum - junk bond tremors in Monday’s trade, we would think that the bonds aren’t going to pull back and are a good short on continuation rallies to 108.18 or better.
For the first time in 3 years, the dollar basis the DXU contract fell below 80.00 in Friday’s trade and had a good late recovery to go out of the session at 80.15. The DX dollar contract, in our opinion, has become oversold. That is certainly a minority opinion. However, traders should be reminded of the fact that there is also a record short position in the dollar, which is one thing that is preventing it from going any lower. This short position continues to build every day. And the DX dollar contract is very, very prime for a short-covering bounce back to the 80.70 area. And we actually do like scalping it on the long side.
The Sep. silver contract (SIU) rallied late-week, and, indeed, was turned back at the important 13.50 resistance area in Friday’s trade, allowing us to execute repeated scalps, shorting the silver on rallies to 13.46 or a little better, covering on 5-to-10-cent dips. The silver has really been dragged up with the gold. However, silver is, we should remember, an industrial metal and will behave like an industrial metal in the last analysis. And we feel that at 13.50 that the silver is overbought at current levels.
We also like shorting the oil on small rallies and consistently had been shorting the CLQ contract last week, before it expired, on rallies to 75.00 or better. You see record spreads now between the crude and the rest of the oil complex. For a time of year when gasoline should be trading in a spread premium to the crude oil, it is trading at one of the steepest discounts in years.
And we see, indeed, the entire oil complex is trading at a steep discount to the crude. We are looking for a sharp pullback in the now Sep. oil contract (CLU) to potentially retest the 69.00 area.