Today in Commodities: Dog Days of Summer

Crude broke lower today and is currently down just over 4%, a 50% Fibonacci retracement takes prices in September down to $66. It is unlikely we see a complete reversal but it is possible to see a trade down to the trend line at $65 with no longer term chart damage. We prefer to be a buyer from lower levels as opposed to a seller on behalf of clients. Natural gas is a buy, well, at least we feel the risk being long is justified considering the potential reward. We are advising buying November $1 call spreads.

Risk aversion is back in the currency market, yen and dollar up and the other crosses down. Look for more specifics in our weekly commentary on Monday.

We remain long corn and wheat and as we’ve said our targets are $3.70 on December corn and $5.70 on December CBOT wheat.

Silver and gold broke lower, we think on outside market influence; weakness in equities, and oil and strength in the US dollar. Hold off on new entries in futures, our favored play remains $3 call spreads in December silver.

Much overdue, but stocks appear to be moving south. We maintain a 960 target very soon. Do not rule out a test of the 50 day moving average at 940 on a complete meltdown. We suggest accumulating longs in live cattle and lean hogs when prices are at these extremes. Be patient! The softs sector was ugly today; cocoa down 3%, sugar closing lower for the second session in a row, cotton down limit intra-day, oj a loser by 8.5% and coffee shedding almost 3%.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results.

Comments

[Dave Wrixon:]

Interesting Texas has been significantly lower than Brent for best part of a week to my knowledge. This tends to suggest that US inventories are too high for the market support and is probably one of the concurrent indicators that gets persistently ignored when the Bulls call the next stage of the rally. To me it is just more evidence that Uncle Sam is cooking the books and things in the US are a hell of a lot worse than people are admitting.

Aug 15 03:27 AM

[Ames Tiedeman:]

Commodities will deflate over the next 6 months. I think oil can go back into the 50's in the coming weeks.

Aug 15 08:47 AM

[SW Richmond:]

Bernanke has stated that the Fed's QE asset purchases will cease and not be renewed. The markets will probably interpret this as a withdrawal of liquidity. You may remember what happened last time. This in turn provides the set up for the next wave of intervention, but will provide much-needed support for the Treasury market in the meantime.

IMO commodities will come under much downside pressure, probably including the PM's if this liquidity withdrawal persists for any significant amount of time (months). Considering the political background, though, Obama wants the economy to seem to be recovering so that he can get cap and trade and "healthcare reform" passed; this argues for continued market supports / upside intervention. If the future was clear, everyone would discount it immediately, so no guarantees.

A brief period (year) of deflation preceded the Argentine hyperinflation. That may be where we are now. First a deflation to cost you your job, then a hyperinflation to make whatever savings you might still have worthless. In other words, complete destruction of the middle class as it reverts to abject poverty and hand-to-mouth survival.
www.itulip.com/forums/...

Aug 15 09:41 AM

[jerrydd:]

Richman, excuse me but it was Bush who got us in this mess, not Obama. Obama like Clinton has to come in, be adults and clean up the messes the repubs have left.

Just where were you when repubs ran up the debt, spent like drunken sailors. Isn't that where are problems come from?

Obama's health care reform will greatly lower many businesses personal costs.

Next Obama's energy plan, make fossil fuels pay their full costs instead of the huge corporate welfare subsidies they get now in our income taxes. He wants to tax the fossil fuels then give a tax cut and help switching to more eff vehicles. Why is if we don't now, oil will be $4-5/gal late next yr when the worlds economy recovers which likely will put us right back into recession because the repubs have blocked almost everything to make us independent on oil.

So huge debts, deficits, costly oil wars, bad energy policies, massive corporate welfare, tax breaks for the rich during a war, lax regulation, heck of a job Brownie! So you want us to keep doing that? Just look at the result, almost and maybe still fall into a depression because Repubs went wild!!

Aug 15 10:55 AM

[Bull Run:]

US refineries caught with stolen Mexican crude, NY times reports. I've been sreaming about this for years. Tankers after tankers passing into Texas from Mexico with NO one ever questioning. Just look at Texas oil production over the last couple years, it's been INCREASING, and it's all stolen from Mexico. The US cover-up is that the thefts are doings of Mexican drug cartels. That's a lie. The theft has been going on for years and it's American oil excutives that are committing the theft. Marathon stole $1.5 million in crude from my family using this same old scam. Crude is being trucked directly from Mexican oil wells after the separater, across the border and injected into Texas piplines, or trucked directly to Texas refineries, where it is sold into an Texas account. How does this happen. An US oil excutive finds an old dry hole in Texas, and leases the rights, then he now has a "fake production site", where the sold Mexican crude can be accounted for. The authorities believe the production is coming from this dry hole, where income is being paid. This falsely figures into Texas oil production, and reaps the US oil excitives millions, ,minus a couple of pay offs. More of the same, greed and scams. It's America.

Aug 15 11:52 AM

[SW Richmond:]

jerrydd,

I am genuinely disgusted by the attitude that continually vomits up this question, and blurts it out as a self-righteous demand: 'Just where were you when repubs ran up the debt, spent like drunken sailors. Isn't that where are problems come from?'

It has become all too popular, when the message cannot be contested, to try to discredit the messenger. As if it were necessary to reply, I began commenting here at SA in late Spring '08, and here's a link to my early comments; see for yourself what my position is regarding government bailouts and interventions.
seekingalpha.com/autho...

Your statement: 'Obama's health care reform will greatly lower many businesses personal costs' reveals a deep seated naivete. If employers' costs are lowered, who will pay for the health care? Taxes? Who will pay the taxes? Employees, businesses, or both? Those are the only places taxes come from. You advocate going out and getting money from the magical pool of free money known as 'someone else's'. You advocate using your vote to do it; in other words, you advocate theft under color of authority. Theft is no basis for a system of government, yet it is the system we get from dems and repubs. THAT is what has to stop.

Regarding cap and trade: Goldman will profit handsomely from trading credits. Guess who they gave money to in the last election?
www.ireport.com/docs/D...
'Goldman Sachs and Al Gore Plan to Make Billions with CAP and Trade Scheme as Millions Lose Jobs'


Corporate welfare has accelerated under Obama; bank bailouts continue, foreign wars continue, Obama wants to EXPAND U.S. involvement in Afghanistan. The deficit under Obama is nearly $2Trillion his first year; he wanted to be president, the deficit is HIS. Bush and the neocons are first-class nutjobs and did a lot to advance the police state. Obama promised to roll it back. He has instead advanced the police state by publishing a DHS document classifying practically anyone who resists his measures as 'extremists'; it turns out the 'research' for the DHS document was a bunch of web sites.

Find someone else to worship; Obama is just as bad as Bush in many respects, and worse in several.

Aug 15 02:55 PM

[5142152-337:]

jerrydd: What separates you from SWRichmond and the rest of us is that you are a HATER. While we see the world clearly as it is, you, and your ilk have an agenda is to overpower and control the masses for the purpose of influencing how we in the USA will live our lives. History has proven time and again, it won't work. There will be difficult times, indeed, but you and your left-wing zealots will lose in the end!

Aug 15 04:01 PM

[knoc:]

"jerrydd: What separates you from SWRichmond and the rest of us is that you are a HATER. "

I very much doubt it -- but you certainly seem to hate him.

Aug 15 06:20 PM

[Belome:]

Were there abuses and ignoring of rules already on the books under the Bush and Clinton admin.? absolutely.. but to answer those abuses with far greater corruptive practices and violation of executive power is disgraceful. Adding insult to injury Obama believes that the American public are all idiots and that we will go back to our simpleton lives with our guns and our Christianity believing this crap he is selling. It is because of great websites like this we can get the truth out there... great work guys.

Aug 15 10:36 PM

[Maxe Paul:]

You are really back on this "Natural Gas is a buy" caper again.

You are starting to sound like Cramer, and it's quite frankly rather scary!

Aug 16 08:24 AM

[Maxe Paul:]

Please do not discuss George Bush on this site.

He was a first class moron of the highest order, and the sooner he is forgotton by history the better for all.

How he has anything to do with this article on commodities, at this point in time escapes me.

Aug 16 11:35 AM

[LKofEnglish:]

never been a big fan of precious metals as my banker blood says goods with "use value" always trump, well, gold, which really has no use whatsoever. having said that i can really see how an investment into a Freeport/Mac in here could be quite interesting. copper sold off dramatically this year but has really started to surge as the democrats and fed declare all dollar based assets worthless. the politician in me says "i stand opposed to this plan" and am buying into organizations that have to care about the value of their us dollars. those are NOT financial instruments that substitute paper for the actual good unless that is paper in a company that is dedicated to PRODUCING and actual good. Save that I'll buy the commodity myself. On the precious front diamonds and other precious gems are starting to interest me.

Aug 16 12:21 PM

[Matthew Bra...:]

Have never left this trade. I have been consisient, accumulating natural gas expecting a move higher by the end of September. I suggest you refrain from bashing the trade until you see the final outcome in the next 6 weeks.

On Aug 16 08:24 AM Maxe Paul wrote:

> You are really back on this "Natural Gas is a buy" caper again.<br/>
>
> You are starting to sound like Cramer, and it's quite frankly rather
> scary!

Aug 16 12:27 PM

[Macro_Man:]

It looks like nat gas will take quite a while to form a bottom, so I am in no hurry to get long. But, would like to know what is the best way to get long nat gas. Looks like UNG may not be the most efficient way and may have even more of a tracking error. Is there a better way to get long nat gas other than using UNG in some form

Aug 16 01:46 PM

[BPYHO:]

In all fairness many have been bashing it the whole time. Unless this storm season is a lot worse than anticipated than NG will continue to fall...


On Aug 16 12:27 PM Matthew Bradbard wrote:

> Have never left this trade. I have been consisient, accumulating
> natural gas expecting a move higher by the end of September. I suggest
> you refrain from bashing the trade until you see the final outcome
> in the next 6 weeks.
>
> On Aug 16 08:24 AM Maxe Paul wrote:

Aug 16 08:07 PM

[Maxe Paul:]

Yes in all fairness as BPYHO points out we have been bashing it the whole time, and we were correct, the whole time.

Now you are trying to tell me you are "accumulating"? Is this the new word for "bottom picking"?

It's just a bad trade, and considering every commodity in the world has been rising and NG falling, i fail to see how "accumulating" into a losing trade can be in anyway argued as being worthy of praise.

It just amazes me that you don't just admit your wrong and give it up.


On Aug 16 12:27 PM Matthew Bradbard wrote:

> Have never left this trade. I have been consisient, accumulating
> natural gas expecting a move higher by the end of September. I suggest
> you refrain from bashing the trade until you see the final outcome
> in the next 6 weeks.
>
> On Aug 16 08:24 AM Maxe Paul wrote:

Aug 17 09:53 AM

[Barbarous R...:]

Buy natural gas related stocks (i.e. land drillers, pressure pumpers, etc.) as a play on the commodity. Short the natural gas commodity ETFs (UNG, HNU, etc.) as a hedge over the near term. Cover the short once storage is full -- maybe late September, early October.

Gas is likely going lower still in the near term leading up to full storage this fall, but will almost certainly be much higher come Q1/10 given the curtailment in drilling. Equities are the best way to play.

Aug 17 02:04 PM

[AndrewBaker:]

All commodiites are good compared to equities but natural gas is THE commodity to back for the future. Buy on the dips, and hold for a big return. Take a twelve month view. You will make money.

Aug 17 03:55 PM

[Maxe Paul:]

What complete garbage, "NG is THE commodity". I guess thats why useless commodities such as copper, oil and gold have all gone up and NG is still going down?

Makes perfect sense.


On Aug 17 03:55 PM AndrewBaker wrote:

> All commodiites are good compared to equities but natural gas is
> THE commodity to back for the future. Buy on the dips, and hold for
> a big return. Take a twelve month view. You will make money.

Aug 18 01:43 AM