The 2012 S&P peak at 1420 was 14% above the year-end closing mark and has now seen a healthy halfway unwinding pullback. Watch the 1350 pivot for insight into futures future moves.
The fundamentals of lower commodity prices have done nothing to support equities over the last few sessions. A staggering decline in Crude Oil from $106 last Wednesday to $95 support should alleviate gas price fears. Gold is also at the bottom of the six-month $1600-$1800 range and has seen no safe haven buying as a Euro fallback investment.
The list of commodities at yearly lows shows NOOOoooo signs of inflation pressures in silver, corn, copper, wheat, sugar, coffee, and hogs.
The CRB basket of commodities as a whole sits more than 15% from yearly highs, though it never participated in the last equity asset rally leg higher in 2012. Another test of the 290-support bottom will tell us a lot about the resource markets fate.
Grains on the Plains
A near perfect spring planting season has the grains ahead of schedule. The dollar difference in front month July corn at $6.30 versus new crop December at $5.30 a bushel has doubled over the past month though a long hot summer is still ahead.
Reuters May 8 - "Corn up on near-term supply concerns"
"Corn prices are higher, despite Monday's USDA planting progress report that showed stronger than expected weekly growth in corn plantings. "The U.S. (corn) market is tight," said Nicholas Higgins, an analyst with Rabobank.
"This is supporting prices throughout grains and oil seed sector. "We expect trade to be choppy until Thursday when the USDA report is due."
The U.S. Department of Agriculture is expected to release its first forecasts for the 2012/13 crop year in its May supply/demand report due on Thursday.
Corn supplies in the United States are on track to reach a 16-year low this year, but are expected to soar nearly 130 percent next year to a six-year high as farmers plant the largest corn area in 75 years.
A Reuters poll released on Monday that predicted Chinese imports of corn would grow almost 60 percent to 7.9 million tonnes in the year to September 2013.
The USDA report showed 71 percent of the corn crop was planted as of May 6, up from 53 percent a week earlier. Analysts polled by Reuters had expected the report to show 67 percent of the corn had been planted. Analysts have said timely planting of corn in the northern states is critical to adding the acreage needed to produce a crop big enough to ease the strain on supplies.
The USDA said soybean planting was 24 percent complete compared to 12 percent a week earlier. Soybean planting progress slightly surpassed the for the five-year average of 11 percent complete.
While soybean plantings surpassed analysts' expectations, a Reuter's poll on Monday showed the market expects Thursday's USDA report to show a decline in soybean stocks at the end of the 2011/12 marketing season, which ends on August 31."
Current Portfolio Positions
June 2012 Canadian Dollar (CDM12) 100.5 call at 160 points ($1,600): The CD$ sat at our option strike at the close Monday. The breakout move above 101.5 set up a potential 2 point run to 103.5. Canadian Dollar support had held the last drawdown at 99.5 and reversed prices higher. The move above 101.33 highs from March 1st signals a rally run. A sideways trading range between 99.5 and 101.5 sets up a breakout rally above 103.5. The At The Money option has a high Delta payoff on the CD$ price increase. The position sits at 91 points ($910), which represents a 43% loss. HOLD.
October 2012 Natural Gas (NGV12) 3.5 call at 160 points ($1,600): October NG may have finally found a bottom at $2.3 after the straight down decline from $3.2. The halfway recovery resistance sits at $2.75 to confirm a reversal higher. Time is an ally with the October option. A push above $3.2 in the October contract lights higher prices to the $3.7 target. The position sits at 9.6 points ($960), which represents a 40% loss. HOLD.
September 2012 Cocoa (CCU12) 2400 call at 160 points ($1,600): A rally run has pushed Cocoa back above $2350 and new month highs. Sep Cocoa found a base at $2100 in the last weeks and rebound back from triple digit losses in the last sessions. A secondary push to $2450 basis September contract set up an attack on resistance peak. Another thrust above $2450 sets up for a test of crucial $2500/$2550 to put in price bottom. The larger target of $2900 is the halfway point of multi-month decline. The position sits at 152 points ($1520), which represents a 5% loss. HOLD.
July 2012 Crude (CLN12) 110/115 call spreads at 152 points ($1,520): $102 support failed last week on the heavy unwinding sales. Prices sat at $106 Wednesday before the plug was pulled. The bull flag breakout above $105 sets up a rally run to $120. Crude prices had traded between $109.50 and $104.50 for weeks before a dip below the channel. Broken support at $102 recaptured to spark another rebound. The recent peak touched the nine month highs target at $110. The reversal has put crude at multi week highs again and above bull flag breakout. A full $30 retracement sets up for a move to $135. The position sits at 25 points ($250), which represents a 84% loss. HOLD.
June 2012 Gold (GCM12) 1750/1825 call spreads at 15 points ($1,500): Half of the spreads were sold at $1000 profit per position last week. The option premium had pushed to more than double the initial premium cost again on a run above $1750. Weekly support was tested at $1600 with only a reclaim of the $1700 level bullish in the near term. The push above the $1675 October lows targeted the next upside at $1725 and $1750. New relative highs at $1800 months ago still set a goal at $2000 an ounce on a breakout of the trading range. Expiration is May 24th. The position sits at 3 points ($300), which represents a 81% loss. HOLD.
July 2012 Corn (CN12) 700/850 call spreads at 32 points ($1,600): Old crop July Corn has pushed above $6.30 this week and sits a full dollar above December contract. A move above $6.70 sets sights on breakout run to $7.10+. The recent recovery and attack on $6.50 resistance revealed resilient trend strength. A Bounce off $6.00 has twice rallied Corn $0.50+ in the last months. A move back inside the range from $6.80 to $6.50 lows Oct 11 is a good sign to test recent highs again. The breakout above that highs at $8 projects a run to double-digit $10 Corn. The position sits at 8.5 points ($425), which represents a 73% loss. HOLD.
October 2012 Sugar (SBV12) 25/31 call spreads at 135 points ($1,512): A drop from 24 cents just weeks ago has pressured Sugar to new 6 month lows. The new dip below 21 cents has voided any bottom pattern. Sugar prices had hit lower lows at 22.5 cent area after pushing above 24 cents before the failure last week. Sugar prices had held again the critical quadruple + bottom at 22.5 cent area which now represents a bottom confirmation level. This was also the September and October three-month lows. The position expiration is over four months away September 17th. The spread sits at 25 points ($280), which represents an 81% loss. HOLD.