MB WealthBuilder

by: Matthew Bradbard

 

Date: 05/07/08  

Estimated Update: 05/12/08

Company:

 MB Wealth Corp.

Phone:

 1-888-920-9997

Email:

 contact@mbwealth.com

Website:

 www.MBWealth.com
 
 


The commodity bubble has burst and money is flowing out of commodities back into securities. Yeah, well, that was the story for last week but we don’t consider it to be a prolonged trend. Why would a secular bull market reverse on a dime; because prices are too high, I have been hearing prices are too high for years now. Need I remind you the cure for high prices is higher prices. Although there will be retractions in prices, we maintain our position that pullbacks should be bought as long as the underlying fundamentals have not changed, that what caused prices to get to higher levels still exist. If you are currently making trading decisions by watching the television or reading the newspaper, you are destined for failure and I stress that you look elsewhere. In order to be successful you must go the extra mile and find other resources, whether it is technical or fundamental research. Furthermore, be disciplined and unemotional, try to eliminate greed and fear from your approach. For further suggestion click this link:

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


Stocks: Stocks broke a 5 month losing streak in April closing higher. The Dow finished at its highest level in 2008 last week, trading as high as 13,132 on June adding 198 points or 1.5%. The S&P 500 added 17 points or 1.0% to end the week at 1415.75. The NASDAQ outperformed both indices as investors moved money from commodities into technology and rallied 54 points or 2.2% to 2477. We would be cautious at these levels and for the short term are looking for equities to back off from current levels, thinking the recent acceleration higher in prices was too much too quick. On the Dow we expect prices to come back to 12,750 to 12,800 and the S&P for June back to 1370 to 1390. We generally just focus on US markets, but April was a notable month for some stock exchanges globally so we wanted to point them out as this trend may continue; for the month of April the Bovespa was up 11%, the Nikkei was up 11% as well as the Sensex (India) and finally the Hang Seng was up 13%.

Bonds: US employment continued to fall in April for the fourth straight month, but at a much slower pace than anticipated suggesting the economy may be starting to find its footing; that is assuming you buy into these government reports. We are satisfied that these reporting results might as well be forecasted by drunks throwing darts at a board. Unfortunately, there is no possible way employment could move from 5.1% to 5.0% in the current environment. Even though the Fed delivered the seventh rate cut last week taking rates back to 2.0%, it appears the market was looking for more, not necessarily a larger cut, but perhaps a signal that they were going to pause. Sometimes it is not the rate decision as much as the conclusion of what the next move may be that affects the market. It appears the path of least resistance remains down and we will continue to suggest selling rallies in the debt market. June bonds should encounter resistance at 117’20 with support at 115. We still expect to see a challenge of 112 in coming weeks. Ten year notes for June resistance is at 115’28 with support at 114.
 
Softs

Lumber has started to move higher as we had anticipated, but it has been a bumpy road; July lumber picked up just under $12 off its lows trading just below 250. It appears we are forming a base at these levels and we would expect sideways action with a bias to the upside.

The ten day forecast for central Florida is mostly warm and dry. July orange juice finished up 1.55 cents at $1.2155 on the week after trading as high as nearly 126 and as lows as 117.30. For 2008-2009, the trade is expecting a production increase as trees continue to recover from hurricanes which severely impacted the industry three years ago. If no major hurricanes hit the citrus belt, some estimates see a crop as high as 175 to 180 million. July futures are expected to continue trading in a 115 to 125 range for the time being but as time passes Florida’s hurricane season may be the determining factor in price direction, particularly if we see any supply destruction.

The ICAC indicated that world production in 2008/09 could come in unchanged from this past year for cotton at 120 million bales, while world consumption is expected to rise just slightly to 123 million bales. Traders will wait for the USDA’s first look at the ‘08/09 supply and demand numbers on Friday, expecting a sharp drop in U.S. production. We are still looking for December to trade higher, but as for July it may continue to come under pressure depending on the movement of outside markets and the WASDE report on Friday. The support line for December comes in at the 200 day moving average at 75.96 with resistance just below 81.00

Sugar prices in October moved down 84 ticks on the week but pared their losses Friday closing 29 ticks off the lows. We were looking for the 100 day moving average to hold on a closing basis, but it gave way last Tuesday and what was support now becomes resistance. We maintain longs for clients but have been able to trade around the decline by selling calls and going short different contract months as to limit the bleeding. We suggest holding on, not because we feel we are married to a position, but because the funds remain net long as a new record was made according to the COT. We would not suggest adding to a loosing position but if fortunate enough to see sugar turn we would suggest adding once in a profit.

July coffee prices have stair stepped lower but we are not ready to issue a trade recommendation as of yet. Since the highs in mid April, prices have come off 13 cents, but we are not sure new lows are not possible. We would recommend waiting for the May 8th forecast from Brazil’s National Commodities Supply Corp. before taking a position. Ideally we are looking to be buyers at lower levels for our clients.
Cocoa prices came under pressure last week losing nearly $150 in July on dollar strength and weakness in the pound. We were looking for a $100-300 pullback back to support for a buying opportunity and the market delivered. We have not issued a buy as of yet but on a move back to 2550 this week we will most likely start to get long for clients.

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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. There are no guarantees of market outcome stated, everything stated above are our opinions.