There are conflicting opinions about whether the Bull Run in commodities is over or not. We view the recent pullback as a correction in prices. The bubble bursting argument just doesn’t make any sense being that a variety of commodities are still showing sizeable gains ytd. Some commodities may have over extended their move to the upside and now may come back to a more realistic value, but with more mouths to feed, consumption for raw materials (from base metals to energy) in emerging markets increasing, we view the idea of the bull market coming to a end as ridiculous. Even though there is no doubt that global consumption is slowing down at the moment, the longer-term trajectory for consumption is higher. We cannot dispute that prices have come down and in the short run will most likely come down more, but as opposed to running away from a market where prices are governed by supply and demand, we advise investors to actually do some homework and quantify the supply and demand and then tell me commodities are not in a multi-decade bull market. I am not implying prices will go up in a straight line, however we will continue to advise clients to buy dips. Restricted supply and more demand should lift the prices of commodities in the long term. Furthermore, along the way opportunities will present themselves to go short or bet on price depreciation; the same amount of money can be made or lost, it is simply figuring out the right direction.

Energies

September Crude oil continued moving down this past week loosing just shy of $11 ending the week at $115.20, levels we have not seen since the first week of May. We have seen a very dramatic price correction, but what most prognosticators fail to recognize is that on January 1st of this year prices were at approximately $95, so even with this decline Crude oil is still up over 20%. The same people that were calling for $200/ barrel oil are now looking for prices to go to $60/barrel; not happening. We have seen a 50% correction in prices and there may be a little more left on the downside, nevertheless we feel that a trade down to $105-108 should be bought. The 200 day moving average currently comes in at $108.08 and we also would have a 61.8% Fibonacci retracement around that level. This buy recommendation should not be taken by the faint of heart or by accounts that are not well capitalized as $5000 daily swings are now commonplace. August is typically a bullish time for energies; in fact it is the strongest month on record for Crude oil. We have gotten into trouble in the past by saying that this time things are different, so we expect to see selling slow and for prices to gain in the weeks ahead. Support on September comes in at $115 with resistance at $122.50.

For individuals that live in the Midwest or Northeast that are getting ready to fill their tanks with heating oil for the Winter should be relieved as prices came off an additional 33 cents/ gallon last week and have fallen over $1 in the last month. Both daily and weekly charts are getting to the point that prices should stabilize and we may even get a bounce from oversold levels. I am not advising a trade here, but I have told consumers to lock in their prices as retail prices should soon reflect the 25% reduction in prices we have just experienced. Next support comes in at $3.05 on September with resistance at $3.30. September RBOB lost just over 20 cents last week taking prices to $2.8874 with prices closing below $3 / gallon for the first time in 3 ½ months. The break has been welcomed by consumers like myself especially being I only get 14 mpg on the vehicle I drive. Unfortunately, it looks like we may get only another 15-20 cent break before support most likely kicks in, that being said, anything lower than $3.50 at the gas station seems a little implausible all things considered. If buying was to emerge we would need to see 3 consecutive closes above $3 in September to believe an interim low was made.

It’s on our radar and when prices stop falling we feel that natural gas will be one hell of a buy as we would expect to see a $1.50 – 3.00 advance, but from what level is yet to be determined. At this point we cannot rule out a trade down to $7.50; the levels we were at last fall before a miraculous advance of virtually 70%. There have been repeated head fakes, so we will wait for a bottom before venturing long with clients again. When we get long we will advise a mini-future as well as 50 cent bull call spreads for $1500-1600. Stay in tune with this market because when it turns it will happen quickly.

Livestock

After the close Friday, the USDA estimated the week's beef production at 517.6 million pounds, down 1.8% from a year ago. Although down on the week, we will continue to advise clients to use setbacks to buy both live and feeder cattle as we expect higher prices over the next weeks to months. October live cattle was down 135 ticks for the week as prices failed to get through mild resistance at the 50% Fibonacci retracement at 108.50. The 20 day moving average comes in just below last week’s lows and should serve as support. If it does give way, prices could track down to the lows from 3 weeks ago at 104.00, but as long as that level holds we will be accumulating longs via futures and options in October live cattle for clients. After making a new contract high last week prices in October feeder cattle have corrected and now sit at 115.40, off just under 3 cents last week. We expect prices to be supported around the 114 level and we currently have clients positioned with a light long position. We will be looking to add on strength and as we have voiced in recent weeks expect prices to trade above the 120 level between now and the fall.

Pork production was estimated at 417.6 million pounds, up 5.5% from a year ago. October hogs closed up 2.60 cents on the week at 77.90, another new contract high. From the beginning of July to present, prices have advanced 15% and with tremendous exports and record pork cutouts the trend should remain up. We will be advising clients to buy dips as we expect prices to track higher. Historically when you have seen setbacks in August on October, lean hogs in September prices have been strong rallies. Past performance is not indicative of future results.

Financials

Stocks: I heard an interesting piece of information in an interview last week with the Chief Investment Strategist with Raymond James. “There have been 24 300 point 1 day rallies in the Dow, none of which have been during a bull market.” You interpret it how you would like, but we continue to feel the recent bounce in equities is a bear trap and that the lows have yet to be made. Last week the Dow had its best week since mid-April, ending an extremely volatile week up 408 points or 3.6% to 11734. The S&P 500 racked up its third gain in four weeks adding 36, or 2.9% to 1296.