Hightower Softs/ Energies (short version)
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TODAY'S MARKET OUTLOOKS
ENERGY: Under pressure from profit taking ahead of EIA report to show jump in stocks
COTTON: Market is waiting for the other shoe to drop to the downside.
COFFEE: Big crops ahead but may not be big enough to build world stocks
COCOA: Oversold, but under pressure from bearish currency influences
SUGAR: More long liquidation selling with funds still long 153,218 contracts
OVERNIGHT PRICE CHANGES
CRUDE: -127
HEATING OIL: -296
UNLEADED GAS -389
CRUDE MARKETS OVERVIEW
Crude oil prices have seen a sharp break in the early overnight action under pressure from bearish outside market influences, an overbought technical condition and concerns the market has gone up too far too fast ahead of its fundamentals. Crude oil pushed to an eight week high yesterday on lingering macro economic optimism tied to last week's employment news raising expectations for a recovery in oil demand. But the rally in April crude oil stalled out yesterday just under key resistance at $82.50, which hinted that the market's overbought condition was starting to have an impact.
NATURAL GAS MARKET OVERVIEW
Natural gas attempted to edge higher in the early overnight trade following yesterday's push to a new contract low. But we suspect the slide in crude oil and the bearish fundamental sentiment that has become entrenched in this market will make upside traction in natural gas difficult despite being technically oversold while leaving downside price risk in place. The spread between crude oil and natural gas in Btu terms had widened significantly recently and natural gas may be underpinned while a sharp break in crude oil helps to narrow in the spread.
SOFTS MARKETS OUTLOOK
COTTON: The market remains in a holding pattern just above the lows of the past week with no sign of the sort of investor interest that is needed to take us to new highs over the short term. In fact, cotton is looking more and more like a market that needs to quit stalling and get its downside correction out of the way. Fundamental and economic news will start picking up with the USDA's supply/demand report tomorrow morning and then the Export Sales, Trade Balance and Initial Jobless Claims reports on Thursday.
COFFEE: The market remains in a steady downtrend off of the mid-December peak as traders remained focused on the potential for a big crop in Brazil which will help ease tightness in the cash market. Cash premiums remain high for many Central America growths led by Colombia but traders see better production from Colombia for the harvest this fall. The head of the International Coffee Organization believes the world coffee production for the 2009/10 season will reach near 126 million bags which is up from a previous estimate of 124 million.
COCOA: May cocoa was pushed sharply lower in the early overnight action under pressure from currency connected and chart based selling. The sharp break in the Pound overnight tied to high sovereign debt concerns seems to have provided cocoa traders with a fresh selling incentive. May cocoa's break under the $2,800 price level likely triggered some stop loss selling.
SUGAR: The market is oversold basis traditional technical indicators but the COT report on the weekend showed that there could be significantly more speculative long liquidation selling ahead. May sugar closed sharply lower on the session and to the lowest close since early December. The COT reports on the weekend showed that speculators were still in a long liquidation mode which was expected but the market did not expect that speculators still held a massive net long position.
PRICE OUTLOOKS
COTTON: Look for continued deterioration of call premium in May options. Aggressive traders can look to buy a July put into tomorrow's reports.
COFFEE: Aggressive short-term traders might consider buying May coffee at 132.50 on a stop with 136.05 and 138.45 as upside targets.
COCOA: May cocoa was pushed sharply lower in the early overnight action under pressure from currency connected and chart based selling. The sharp break in the Pound overnight tied to high sovereign debt concerns seems to have provided cocoa traders with a fresh selling incentive. May cocoa's break under the $2,800 price level likely triggered some stop loss selling.
SUGAR: Buyers may want to stand aside until there is better evidence of a low. Aggressive buyers could pull the trigger on an at-the-money bull call spread on a further washout to 19.38.
***NOTICE: Above is a condensed version of The Hightower Report's daily reserch.
***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.