MBWealth's blog

Commodity investors were probably just as happy to see July end as equity investors were to see the end of June. During the month, the CRB Commodities Index recorded a decline of 10.0%, which is the worst monthly decline since March 1980 (10.5%) and the second worst ever. The commodity markets have produced some sharp sell offs, and given all the attention that commodities have drawn over the last several months, it is not surprising to see a steep correction. Traders that have been riding the bull for the last 8 years may have given back some profits, but recent late comers to the commodity bull run may have gotten stung the worst. Anyone new to commodities needs to be prepared for the large swings, we would advise using a broker for help with entry and exit and to advise on risk management. Because of the leverage, large monetary swings can happen in a relatively short time frame. Read more »

If your portfolio is a Dog diversify into Cows & Pigs
July 30, 2008

By: Matthew Bradbard

As we have repeatedly voiced, commodities are in a bull market, but prices will not go straight up. Furthermore, the smart money moves from sector to sector; rotating from one sector to another when the fundamentals change, technicals swing, weather shifts, or even in some instances seasonally. We feel that in addition to the agriculture and softs markets, the livestock markets i.e. live cattle, feeder cattle, and lean hogs could be at the beginning of a historic run to much higher prices.

Cattle Read more »

Consolidation and pullbacks are normal and should be viewed as healthy for the sustainability of a bull market in commodities. This may be the perfect time to load up on commodities that have lost their luster where the fundamentals are still sound. The recent correction was attributed to the shifting market sentiment that we may have a global slowdown and threats from regulators as opposed to a change in supply and demand characteristics. Instead of exiting commodities completely, the smart money is likely to move from the more high profile contracts such as energies to more innocuous contracts such as livestock and softs. In the case of crops, any substantial increase in the supply of one crop is invariably at the cost of some other. The world’s arable land is diminishing, while demand driven by population and incomes are increasing. The world has consumed more food than it has produced for the past five years. That being said we are still friendly to agriculture if one can deal with the volatility.

To find out exactly how we are positioning our clients in commodity futures and options, Contact us today at 1-888-920-9997.

The U.S. Department of Energy said that crude oil supplies were down 1.6 million barrels last week to 295.3 million barrels and 100,000 barrels were added to the Strategic Petroleum Reserve. September crude oil fell $6.24 to $123.26, with prices now almost $25 off their highs. We have yet to give up on seeing $150 but the path of least resistance for now remains down. Presently, we are not interested in trading oil long or short as the volatility is a bit rich. Support comes in at $122, which is the 100 day moving average in addition to being the level where the last run started in early June when prices rose from $122 to record levels. If that level was to give way the next stop should be $116 followed by $106 on a total collapse. If we were to change direction once again resistance comes in at $132 followed by $135.

Supplies of gasoline were up 2.9 million barrels, while heating oil supplies were up 1.2 million barrels. Over the past four weeks, gasoline demand was down 2.4% from a year ago while distillate demand was up 3.6%. Gasoline and heating oil will continue to look for guidance from crude and where crude goes they will follow. September RBOB lost 14 ½ cents last week and closed under the 100 day moving average for the first time since August of 07’ for this particular contract. Prices have come off 17% from their highs just 2 weeks ago, but with continued demand destruction we could see prices come off more. Heating oil gave up ground as well as prices in September lost virtually 20 cents on the week closing at the lowest level in 12 weeks. We could find some moderate support at last week’s lows, but if we trade south and break support we may not see any buying emerge until we get closer to $3.32 on September. First resistance comes at $3.74. We would stand clear of gasoline and heating oil until we get a clearer picture on crude.

Natural gas suffered the same consequence as prices were hit particularly hard giving up $1.56 in September; in the last 3 weeks prices have come off 33% or in dollar terms $44,000 per contract in the futures market. EIA reported an injection of 84 BCF which was greater than the 5 year average of 57 bcf and higher than last year at 70 bcf. Total gas in storage stands at 2.396 trillion cubic feet which puts stocks 12.7% under last year’s levels and 0.9% below the 5 year average. We want to be a buyer of call spreads into September and October but have exercised patience as opposed to try and catch a falling knife. If we start to see signs of a bottom we will be quick to act as we think this correction may be a bit overdone and on any signs of increased demand or perhaps a hurricane we could see prices pop back $1-2 relatively quick. Although on the daily chart we are oversold we did trade below the 200 day moving average last week, which is not particularly bullish. We expect the selling to not necessarily abate, but to slow this week. Support comes in just below $9 with resistance at $9.80 on September. If probing for a bottom make sure to use stops as this market is unforgiving because of the massive leverage and sporadic movements. Read more »

The talking heads are calling a top in commodities and claiming the bubble has burst, we prefer a pullback in an ongoing bull market to explain the recent slump in commodity prices. Remember that whether they are bull trends or bear trends, long-term trends don’t die easily. Based on current market conditions the current corrections are just that, corrections and nothing more. That being said you may want to wait for the volatility to subside before repositioning.

To find out exactly how we are positioning our clients in commodity futures and options, Contact us today at 1-888-920-9997.

The U.S. Department of Energy said that crude oil supplies were up 3.0 million barrels last week at 296.9 million barrels, more than expected, and 100,000 barrels were added to the Strategic Petroleum Reserve. September crude oil dropped $15.88 or 11% to $129.47 to post its largest one week drop in history. The prognosticators fail to point out that even with the recent sell off prices are still up over 60% ytd, so we are not out of the woods just yet. Next support comes in between $122 and $124 with resistance at $133, followed by $139 on September. We would caution traders to throw in the towel for higher prices and to shift to a bearish bias as the recent decline has taken prices to over sold levels and we still would not rule out a trade above $150 in coming weeks to months. For now we would stand clear until the sell off has fully run its course. Read more »