Look for copper to head south this week

 

*Chart Courtesy of Gecko Software’s Track n’ Trade Pro

The Grains Pit Review: By PitGuru Matthew Pierce

The previous week saw heavy losses in all commodity markets with crude leading the way lower as speculators continue to take profits against long term positions due to growing concerns over governmental intercession. This caused both corn and beans to get hammered this week with both losing significantly in an organized downside trade with only the corn market hitting any serious number of stops. This occurred under the 100-day MA which marked the last line of defense for short term bulls. There was nothing on the fundamental side to help counter bearish macro inputs with weather benign to say the least. The market tried to rally on Thursday due to talk of a "heat dome" growing but this could not counter another round of profit taking heading into the weekend. The markets overall have not changed from a fundamental perspective in the past two weeks. There are still question concerning harvested and planted acreage as well as yield and quality concerns for both the HRW and spring wheat crops. On the technical side we have seen corn go from drastically overbought to oversold with beans quickly approaching this level, but not there yet. Wheat remains entrenched in oversold territory waiting for row crops to get up and moving. Wheat continues to lack any real smoking gun.

Concerning Argentina the bean market received bearish news when the Argentine senate vetoed the tax increase early in the week with a report out late in the week that they (the Senate) will ratify a lower tax rate and back date this to March 2008. That means all backed logged beans will be subject to the lower bracket, thus enhancing farmers profits and their appetite to sell. This should ease demand for front end US beans with evidence of this seen last week on export sales with beans falling below even meager expectations.

From a trading perspective the agricultural markets have fallen too far to jump on the bearish bandwagon with the bull bandwagon all but empty. That is not to say that either corn or beans can rally this week but they should. There is limited downside due to the simple fact that this crop is yet to hit the pollination stage. If hot and dry weather, which is currently forecasted on the 6-10 day weather model, sets up camp over the Midwest the market will have no choice but to add weather premium back to the trade. Corn approaching $6.00 is far too cheap considering the remaining questions and continued strong demand from Asian countries. Beans still feel a bit inflated but with both old and new carry outs are tight, there remains no room for error. Wheat will get up and running if and only if row crops do so look to corn and beans for best direction. Within wheat I have to favor HRW over both SRW and Spring due to continued talk of head smut affecting crops in NE, KS and CO. If enough of the crop has problems we will have another basis led rally as the world scrambles for quality wheat coverage. This will promote bull spreads and inter-market spreading in the coming weeks, but this is not imminent but it is a possibility to be aware of.

Looking to the week ahead, the market will start off weakly but we are looking at higher macros markets to start off helping erase early negativity. Weather and crude will be the driving aspects of the market today and this week with the “heat bloom” continuing to form this morning. Overall I have to favor a long term bullish stance via calls and call spreads. Puts are too expensive to jump on board so bears should start looking to take profits while swinging into calls. Smart money is exiting out of the market making the week ahead a choppy proposition. Pollination for corn and beans is approaching quickly so I will look to the upside for a mild correction via narrow call spreads looking for a small pop in volatility to help profit potential.

 

*Chart Courtesy of Gecko Software’s Track n’ Trade Pro

Disclaimer: Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading