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November 27, 2006

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The Weekly Pit Review for November 27th

Authors:

Larry Levin: S&P trading legend
Dave Blumetti: Sugar market maker
Matthew Pierce: Grain floor trader
Roy Gambella: Energy floor trader

Learn More About Today's Author

The Grains Pit Review
For the week of November 27th, 2006

            By PitGuru Matthew Pierce

BEANS: A new round of contract highs with the market moving significantly higher during a week of light trade lacking any real resistance. SF closed the week 10 1/4 higher at 684 1/4 with a weekly open close range between 659-684 1/4. The trade moved 25 1/4 on the week. No COT this week with the trade expected to have left between 40-50K long. No real fundamental information hit the market all week with no follow up information seen from Rosario, Argentina. The trade has to assume this was not as bad as first expected or simply more remote and limited. The upcoming week does not offer much to the market so continue to look at outside influences for direction and momentum but the trend is your friend and the trend is higher. Nothing in options seen all week with Dec options expiration not influencing the trade with the Jan 700c representing the closest high volume strike with the SF 640p the only real strike on interest near the current market. Spreads, as last week, remain quiet with F/H closing at 12 1/2 while trading between 12 1/2-13 1/4 during the week. My personal favorite (SX07/SH) continues to inch wider closing at 28 3/4. I still favor a move out to the mid 40's before I look to take profits. Well, it seems the double test of the mid B.Band held perfectly giving the trade enough of a back off from overbought technical conditions to light the upside up again. The current formation is strikingly strong. Both RSI and S. Stochastics have room to move higher and with no real resistance levels the trade can easily move higher but a word of caution. This previous week saw limited fund participation so look for possible profit taking early in the week against overbought conditions if looking at bollinger bands. The upper B. Band is sitting at 682 3/4 offering caution. Looking at the immediate history of the market, the upper B. Band has offered good resistance. Do not look for a correction, instead look for s choppy sideways trade this week as an overbought B. Band fights against overall bullish momentum. I expect momentum will win by week's end. Any downside move will be first supported at the mid B. Band t 664. This is a buying opportunity, (short term) so look to but any test of this level.

Weekly outlook: The downside is logical, but since when has logic dictated these markets. Overall momentum remains positive so look for indications from the CRB and especially crude for further direction this week.  Overall I expect this to be a consolidation week with conditions reaching overbought levels on a weekly chart. Do not look for a pullback, instead, a side to side chop trade before the market again heads higher.

Short term: Bearish down to 664

Long term: Bullish up to 750

CORN: A higher end to the holiday shortened week with small fund buying and a lack of interested selling allowing the market to make fresh contract highs heading into the weekend. CH closed the week 7 3/4 higher at 386 with a weekly open close range between 365-386. The trade moved 20-cents higher on the week. No COT due to the holiday shortened week with the trade expected between 270-280K long leaving the week. As stated last week this is a large and growing position but due to the expected influx of money into AG markets there is a growing trend so throw old standards out the window. In spreads we did not see the tightening I expected in the Z/H with this leaving between 16 1/2-16 3/4 in overall light activity. FND is last this week so look for interest in this spread to taper off. In options we went trough Dec expiration lacking any real fireworks but the talk previous of Advantage exercising the CZ 370c, in hindisght, would have been a good move Cei Lei Vei. Fundamentally the trade remains quiet outside of the story of Chinese domestic prices popping causing export companies to wash out of commitments due to higher available domestic prices. China has not been looking for US corn on a large scale, but if this trend increases look for them to start sniffing around before the end of the CY to meet holiday needs. Outside of this news, the S. American crop is off to a benign start offering little to the trade. Remember that there is no Dec crop report so out next blast of information will follow the new year with the final crop estimates due out in mid Jan. Looking technically, upside resistance is weak at best. We have seen this market ride the upper B. Band, currently at 389 1/4 for over two-weeks without quit, so do not look for this trend to break violently as I first anticipated. I am still looking for a correction but I now feel there is too much uncertainty in this market to make any sizable correction possible. Look for a move down to the mid B. Band currently at 363 1/4 as a buying opportunity, not a selling one. Short term, I still favor selling any real move over the upper B. Band with the market historically correcting under this level within the next two sessions. Do not get bearish, just look for corrections. Long term, following a brief corrective period, I cannot see the end of the upside potential for corn with fresh fund allocation, the fight for acreage, Ethanol usage increases and increases in world demand all pointing to a fruitful year for commodity prices.

Weekly outlook: Corn as well as the rest of the floor continues to be at the whim of the CRB and big money. Watch player flow and the CRB for direct indications but overall look for a small corrective move this week as major participants take profits against established longs to start the week. I also recommend putting on the CN/CH spread this week with expectation of this moving out to 15 1/4 in the coming weeks.

Short Term: Bearish down to 354

Long Term: Bullish up to 555

WHEAT: A low volume rally this week with wheat gaining momentum from being the most oversold commodity on the floor. WH closed the week 13 3/4 better at 519 with a weekly open close range between 490-519. The trade moved 29 higher on the week. No COT this week with the trade expected to have left between 25-30K long. Looking at spreads we saw Z/H continue to widen with no interest from anyone taking Dec delivery. This left trading on either side of 21 with interest waning. The next spread to watch is H/N. This spread continued to tighten in with N gaining back lost ground from the recent spread disaster. This left around a 18-cent inverse. Look for this to continue to tighten this week as FND takes all the interest out of Dec. Look for this to move back out to the range previous to the spread flush on either side of a 15-cent carry. In options we went through Dec expiration with 2,000 WZ 480c exercised while 2,500 480p were abandoned. This was a bullish play that was backed up by the ensuing trade for the rest of the week. Do not expect heavy options activity for the rest of the year with major fund money sitting on the sideline with year end bonuses already set. Fundamentally the trade continues to be quiet with continued talk out of China concerning drought but as we have seen domestically, wheat is a weed that is almost impossible to kill so do not get too excited about this. I am more interested in seeing the total increase in wheat acreage world wide next year and the weather patterns over the next three months domestically concerning the HRW crop. I may be barking up the wrong tree but I still feel the lack of an expected cold winter offers early emergence risk to the HRW crop. It is still really early but this is there so keep an eye out. The KWH/WH spread collapsed this week due to the run up in WH but the fact remains that the risk story is in KC so look to buy this spread at or below 10 looking for a correction out to the historical range between 40-60. The WH/CH spread continues to sign signs of life closing the week at 133 with plenty of upside potential out to 156 before encountering real resistance. This market seems to have bottomed so look for further backing this week. Any move over 140 should be viewed as a breakout, not a selling opportunity. On the technical front, wheat acted just as it should. It held the 50-day MA as well as the low B. Band using these levels to bounce higher breaking out of the downside channel we have been trading over the past month. With all indicators pointing to a continued upside move I expect Friday's activity to be viewed as an  upside break out with the old high at 560 in play in the coming weeks before the expected year end flush from funds. Any downside move will first be supported at the mid B. Band at 509.


(CLICK CHART TO VIEW LARGER IMAGE)

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

Weekly outlook: A possible breakout of the downside channel with support from technical indicators offers continuation to this market more than the rest of the floor, but wheat is a laggard so look for both corn and beans to start in one direction or the other with wheat following with exaggerated moves due in large part to the lack of interested volume. I favor a higher move but fear a corrective profit taking move as volume returns to the market this week.

Short term: Bullish up to 529 1/2

Long term: Bullish up to 560

The Energies Pit Review
For the week of November 27th, 2006

            By PitGuru Roy Gambella

Energy prices rose in electronic trading Friday after deadly attacks on oil facilities in Nigeria disrupted supplies. Also helping energy prices to rally Friday was further depreciation of the U.S. dollar thereby boosting the value of commodities. The latest attacks on Nigerian oil facilities, along with the many other attacks throughout the year, have cut Nigeria’s production by 25% so far this year. Nigeria’s reduced production has failed to take any excess supply off the market.

On Wednesday we saw crude inventories rise by 5.1 million barrels, the highest since June. The larger then expected gain caused crude to trade lower Wednesday, making a new low for the week. Above average temperatures in the northeast has reduced demand going into the winter months also causing prices to trade lower. The larger then expected increase in inventories this past week and strong U.S. imports so far this year has shown little sign that OPEC has followed through with their proposed cut backs.

Technically speaking, I discussed last week CL needs to settle above 60.40 as a .236 retracement of the most recent down move for the bulls to see any type of acceleration to the upside. The high on Wednesday was 60.40 and the CL sold off. Until CL settles above this area, it is most likely CL will continue to consolidate.

 

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

The HO chart above shows the consolidating pattern we have been in for two months now. HO has been making higher lows and lower highs since September. Last week I mentioned that buying HO calls and call spreads represents; more value and potential then buying CL options. I think this opportunity still exists. On Friday HO was up over 300 will CL was up only .66. HO showed its strength last week by not making a new weekly low while the CL did make a new weekly low.

The Financials Pit Review
For the week of November 27th, 2006

            By PitGuru Larry Levin

Recap - It was definitely a mixed week for the stock indexes.  We had previously seen 7 out of the last 8 weeks finish higher.  It isn’t too surprising to see the market slow down on the upside.  In fact even though the Dow and the S&P were a bit lower, then NASDAQ and the Russell were both higher.

We got a chance to see what the S&P futures contract would do near the 1400 level.  It traded down to 1401 on Monday and Friday but was not able to move below that psychological level.  The other interesting fact was seeing the stock indexes with a strong move lower on Friday supposedly on a weak dollar.

The markets recovered nicely as the holiday shortened session showed extremely low volume.

But by the end of the day the S&P and the Dow Jones finished near their lows, the NASDAQ 100 on the other hand finished Friday closer to its intraday high.

Outlook - The focus this week will be the holiday shopping season and reported results from retailers about “Black Friday.  There will also be some fairly important economic reports.  On Tuesday we will get a look at the Consumer Confidence report as well as Existing Home Sales.  Both reports are expected to come out lower than the previous readings.  The best chance the stock indexes to continue higher this week will be those readings coming out higher than expected.

As far as the technical levels to watch this week, I believe we will trade below the 1400 level in the December S&P 500 contract.  I think the key level will actually be a lower price to watch this week.  As noted in the chart below, the 1394 level in the December S&P’s will be the key price this week.  That important support level comes from three consecutive highs from November 7,8, and 9th.  Once we moved above these highs they now become an important support level that should be watched by traders.  Remember old highs are not resistance levels, but they are support levels once they are penetrated to the upside (as noted on the chart.)

*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

About Today's Authors

Larry Levin (S&P trading legend), Dave Blumetti (Sugar market maker), Matthew Pierce (Grain floor trader) & Roy Gambella (Energy floor trader) are the 4 Gurus for the Weekly Pit Review published by www.PitGuru.com - hear their daily opening market calls, learn more about them and sign-up for the weekly Pit Review by clicking here.

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