Providio's Daily Futures Market Commentary for 07/10/12

ENERGIES:
PETROLEUM:

10July The sector is on its heels a bit this morning after the Norwegian government ordered arbitration to settle the oil workers' strike that was scheduled to start at midnight last night. China, the world's second largest consumer, also saw imports drop to the lowest levels since December:

http://www.bloomberg.com/news/2012-07-10/oil-declines-as-norway-ends-energy-strike-chinese-import.html

The recent wide consolidation range after the 28June rally has served to take all three of our tracked markets off historically Overbought conditions and has us watching this week's foreign economic calendar focusing on European and Chinese Industry and GDP. US domestic "FedSpeak" may also give a clue about more stimulus that may be in the work.

Volatility remains Very High across the sector and Volume has fallen off ever since the 29June rally.

Watch all three of our Petro markets' 21-day moving averages for support. It is interesting to note that this average offered major resistance throughout the decline since April.

CRUDE OIL:

Futures Last Trade: Aug: 20July; Sep: 21Aug; Oct: 20Sep; Nov: 22Oct; Dec: 16Nov

Options Last Trade: Aug: 17July; Sep: 16Aug; Oct: 17Sep; Nov: 17Oct; Dec: 13Nov

10July

Support (continuous contract): 84.00: 06&09July double bottom.

83.05: 21-day moving average.

81.20: 21-28June consolidation highs

77.40: -2STD below 21-day moving average and 28June low.

75.71: 09Aug 2011 low

74.95: 04Oct 2011 low

Resistance (continuous contract): 87.00-86.60: June consolidation highs

88.70: +2STD above 21-day moving average.

89.30: late May consolidation lows.

89.90: 38.2% retracement of the March to June decline.

93.85: 50% retracement of the March to June decline.

Comment: A weaker, but still an "inside" day, as of this writing. Watch the double bottom formed Friday and Monday around 84.00, then the 21-day moving average at 83.00.

French Industrial Production was weaker than expected this morning, but Italy and UK's were stronger. Chinese and the European region as a whole reports on Thursday loom large ahead. Forecasts call for Chinese numbers to improve and the EuroZone to worsen. Weak releases will probably only serve to heighten speculation about more potential stimulus. However, Crude has not reacted with the Equity Indices' vigor to such news.

Our Momentum indicator remains positive, sustaining its 14June positive turn after briefly flirting with going negative, but our Rate of Change indicator is in a three-day decline.

Our Volatility measure has propelled to Very High levels and should handicap any option purchase strategies.

Seasonal Snapshot: (cash contract): All three patterns consolidate with an upward bias until a culmination high on 15July.

PRODUCTS:

Futures Last Trade: July: 29June; Aug: 31July; Sep: 31Aug; Oct: 28Sep; Nov: 31Oct; Dec:30Nov

Options Last Trade: July: 26June; Aug: 17July; Sep: 28Aug; Oct: 25Sep; Nov: 26Oct; Dec: 27 Nov

RBOB:

10July

Aug Support: 2.6950-2.7000: Lower end of the recent consolidation range.

2.6420: 29June high.

2.6045: 21-day moving average

2.4090 -2 STD below the 21-day moving average

2.4408: 21June low

Aug Resistance 2.8000: +2STD above the 21-day moving average.

2.8275: 38.2% retracement of the March to June decline.

2.8350: 200-day moving average.

2.9260: 50% retracement of the March to June decline.

Comment: Today's Doji Candle indicates indecision on this consolidation of the 29June rally above the 21-day moving average, which offered consistent resistance all the way down since early April. The rally has been capped at our noted +2STD above the 21-day moving average, for now.

These Bollinger Bands are still expanding widely, so this consolidation may be showing signs of exhaustion for the rally.

Gasoline supplies are below the lower limit of the average for this time of year and may, along with the official start of the summer driving season, be supporting prices.

Seasonal Snapshot: (cash): The 15&30yr patterns drift higher until 12July. The 5yr pattern drifts lower until the end of July.

HEATING OIL:

10July

Aug Support: 2.7030: 06&09July double bottom.

2.6488: 02July low.

2.6455: 21-day moving average.

2.5085: 25June low

2.4980: -2STD below the 21-day moving average.

Aug Resistance: 2.7930: +2 STD above the 21-day moving average.

2.7900: 05July high.

2.8170: 38.2% retracement of the March to June decline.

2.9175: 50% retracement of the March to June decline.

Comment: Similar to RBOB, Heating Oil is in a consolidation pattern since the 29June pop above the +2STD above the 21-day moving average. It does, however, have a slightly more negative bias inside this recent consolidation, essentially splitting the difference between the more Overbought RBOB and "middling" WTI Crude.

Seasonal Snapshot:(Cash) The 30yr pattern's weakness decouples from the stronger shorter-term patterns (until mid-July) and continues lower until mid July.

NATURAL GAS:

Futures Last Trade: Aug: 27July; Sep: 29Aug; Oct: 26Sep; Nov: 29Oct; Dec: 28Nov

Options last Trade: Aug: 26July; Sep: 28Aug; Oct: 25Sep; Nov: 26Oct; Dec: 27Nov

10July

Aug Support: 2.785: Rising trend line support since 14June rally.

2.70: 21-day moving average.

2.53: 06June high. Old resistance/new support for the 15June low.

2.215: 14June low

2.32: -2STD below 21-day moving average.

2.175: 20Apr low

Aug Resistance: 2.885: Mid May peak

3.07-3.08: +2STD above 21-day moving average and 200-day moving average.

3.315: 38.2% retracement of the June 2011 to April 2012 decline.

Comment: The tug of war may be coming to a close, on a technical level. Today's lows again tested rising trend line support that extends back to action after the 14June pop higher. Although it has probed above several times. the August contract is also still struggling with the mid-late May peak around the 2.90 level. One side has "gotta give"...

Friday's action revealed a bearish engulfing Candlestick pattern, on moderate Volume, indicating a potential reversal of recent gains may be in store.

This wide consolidation has our Overbought indicator (64) now "middling" and looking for direction. Our Rate of Change indicator is in its third day of decline, showing signs of leveling off and dragging on our positive Momentum.

Recent above normal temperatures are projected to last for the foreseeable future, serving to increase cooling demand supplied by natgas turbines. This speaks to bulging supplies and turns attention to Thursday's storage report, expected to show a smaller injection to storage.

Seasonal Snapshot: All three patterns chop lower, then higher before starting a period of protracted weakness from 16June-22July.

EQUITY INDICES: Futures Last Trade: SP & NASDAQ: Sep: 20Sep; Dow: Sep: 21Sep Options Last Trade: SP & NASDAQ: July: 20July; Aug: 17Aug; Sep: 20Sep; Dow: July: 20July; Aug: 17Aug; Sep: 21Sep 10July We are shorting the SP on a stronger Volume move below the 21-day moving average (1338). An initial move below the lower end of the recently rising channel (currently 1326) would lower our stop to break-even. Next target is the -2STD Bollinger Band below the average (1303). SP Support: 1339: 21-day moving average 1326: Rising trend line from the 04June low. 1302.75: 25June low 1297: 12June low 1306.30.10: 200-day moving average 1303.10: -2 STD below the 21-day moving average 1262.00: 04June low SP Resistance: 1368.50 upper end of the brief consolidation period after the early May peak. 1375: +2 STD over the 21-day moving average. 1375: 7/5 highs 1405: 01May high. Dow support: 12665: 21-day moving average 12540: Rising trend line from the 04June low 12385: 200-day moving average 12376: 25June low 12288: 12June low 12405: -2 STD below 21-day 11985: 04June low Dow resistance: 12917: 05July high. 12925: +2STD above 21-day 12975: Upper end of the brief consolidation period after the early May peak. 13284: 01May high NASDAQ support: 2581.70: 21-day moving average 2532: Rising trend line from the 04June low. 2521: 25June low 2505: 12June low 2504: -2 STD below 21-day 2481.10: 200-day moving average 2433.75: 04June low NASDAQ resistance: 2648: Upper end of the brief consolidation period after the early May peak. 2659.40: +2 STD above 21-day MA. 2655.75: 05July high. 2753: 01May high. Comment: Our Momentum and Trend indicators are turning negative. All three of our tracked markets are threatening their rising 21-day moving averages, as of this writing. This average has offered modest support for each ever since breaking above around 06-07June. With the exception of Alcoa, what seems to be a poor start to Q2 earnings season is offering pressure. There also seems to be a fair amount of disappointment over the lack of concrete results from the European Finance Ministers' Summit. We remind readers that ever since bouncing off the -2STD below the 21-day moving average on 05June, all three markets have made a series of higher highs and lows. See above for levels. Seasonal Snapshot: (Cash Indices) All three patterns for all three markets track strengthen until the end of July.

GRAINS: Options Last Trade: Aug: 27July; Sep: 24Aug; Oct: 21Sep; Nov: 26Oct; Dec: 23Nov 10July Yesterday's Crop Progress Reports downgraded the Grains, but within the expected range. Coupled with some risk averse position squaring before tomorrow's monthly USDA Supply and Demand Report and mildly encouraging weather, the Grains sold off modestly this morning. CORN: First Notice: Sep: 31Aug; Dec: 30Nov 10July Corn is under moderate selling pressure as traders take profits and square positions ahead of tomorrow's monthly Supply and Demand report. A modest improvement in the weather forecast adds a bit of negative dynamic. December Support: 7:08:7/5 settlement, 7/9 opening 7.00: psychological level 6.73: Aug 2011 highs 6.56 ¾: 6/26 high trade 6.45: June 2011 highs 6.39 +2 STD over the 21-day moving average (5.53) 6.17 Oct 2011 highs 5.94: Gap left on 26June opening. 5.75: March high trades,support in early January, bullish support inflection level back to 7/1/2011 low. 5.69: Previous high and gap left on 25June opening. Resistance: 7.31: +2 STD over the 21-day moving average (5.94) 7.50: Psychological level 7.60: Projected measured move. 6/15 to 6/27-6/29 pause, then 1.27 move from 6/29. Comment: Technicals remain clearly positive and should remain so until a meaningful correction occurs. While the drought continues and additional damage to the current crop is implied, this remains an unlikely event. RSI now looks to be declining which indicates some slowing in positive Momentum. ROC is now headed sideways. New gaps remain in place between 6.74½ and 6.85½. Additional technical gaps remain between 5.94 and 5.96¼, between 5.54 and 5.70, and then well below the consolidation between 5.34 and 5.36 ¼. We leave some recent comments and observations in place to give some context to recent action and to remind our readers of the large supply and demand dynamics at play this crop year. Any new long positions should be sensitive to any factors that could be construed as taking the Momentum impetus away from the bullish case. Such as Weakening technical action Rain Continuing global economic weakness Weak energy prices We leave a portion of a recent comments in place as their relevancy to further thoughts in the market: Despite today's strength, we believe any new longs are likely to be jittery due to the previously noted vulnerabilities: A potential record crop Early completion of planting Ahead of trend Crop Progress Declining U.S. personal automobile fuel demand Deteriorating global economic conditions Seasonal Snapshot:For December-All 3 patterns have a modest positive bias until 7/14, when all 3 peak and head lower until starting bottoming action on 7/22. The 5 and 15-year patterns bottom on 7/25, the 30-year on 7/30. At their bottoms, all 3 will project modestly higher biases until 8/2. SOYBEANS: First Notice: Aug: 31July; Sep: 31Aug; Nov: 31Oct; Jan: 31Dec 10July Another expected drop in crop conditions, but within the expected range of decline, is working in conjunction with pre Supply/Demand Report position squaring. The result is some mild selling pressure this morning. Support: 15.25: 7/5 & 7/26 resistance and overnight support test on 7/9. 15.00: Major psychological and round number price level, and measures to the $1.00 move higher from the previous high 14.50: Psychological level 14.47: +2 STD over the 21-day moving average (13.48) 14.37: 6/25 high trade also right at the +2 STD over the 21-day moving average. 13.95-14.00: Major level as November peaked here from 8/31-9/12, then failed again from 4/2-6/21 13.90: Gap left on 25June opening 13.63-13.68: 4/16-/4/23 multiple failures to go higher, support 5/2-5/4, failure to go higher 5/10 and 5/11 Resistance: 15.57: 7/9 early session resistance. 15.71¼: 7/9 high trade Comment: Technicals remain positive, but the ROC and RSI have declined some. The +2 STD (15.55) over the 21-day moving average (11.09) is acting as a drag on upward momentum. Some serious gaps remain below, most notably 14.74¾ to 14.93. If this gets filled and the drought action remains, this may set up the Soybeans for a move to materially higher record highs. Any news of significant rain, especially in Illinois or Iowa, will likely spark another violent move lower. Maybe this is the gap filler? Seasonal Snapshot: For November-All 3 patterns are in a modest positive mode until 7/14. All then enter a negative mode until bottoming action is complete on 7/29. WHEAT: First Notice: Sep: 31Aug; Dec: 30Nov 10July Wheat continues to move in sympathy with Corn. Today's action however, appears somewhat consolidative amid likely pre-report profit taking. Support: 8.41½: Resistance in late July and support in early September 2011. 8.15: mid-level support area from mid-July and mid-August 2011 8.00: psychological level and mid-Sep 2011 resistance. 7.80: 8/9/11 and 9/15/11 low support 7.66: 10/11 settlement, upper level of late October through early November rally 7.60: 6//25 high, near the 6/27 low 7.45: 5/21 high. 7.30: just above 5/21 settlement, general resistance area on rallies in early January and early February 7.17-7.20:Intermediate support and resistance inflection point, was support in mid-October, resistance in late December/early January, support in early February, and resistance on rallies in early and late March 7.00: Psychological level, extends on a traded level down to 6.90 and has acted as an inflection point around which lots of trading has occurred going back to December. 6.78-6.80: Was strong support from 2-10-3/28, was resistance in June before the drought fears rally. 6.70: Has acted mainly as an intermediate support level since late November, but on numerous dates. 6.52-6.57: Was bottoming support in late November, mid-December,mid-April, and early June. Failure to hold here means a likely test of the contact lows. Resistance: 8.50: Psychological resistance 8.58¾: 7/9 high trade Comment: Technically, this market has maintained its quite positive bias along with Corn during the drought induced rally. Look for it to continue in this vein while the drought continues. When the results of the drought are more evident and some sort of final yield is forecast, we should see some sort of consolidation. We leave in place our comment from 4/5 as it addresses longer-term patterns we've noticed: Additionally, on our Momentum measure going back to late December, each positive shift has peaked at earlier and lower. This is in a period of a modestly negative bias in what has been largely range trading. May's Volatility has peaked just below the High range (< 1 STD). Pay attention to the harvest in Winter Wheat as it moves ahead of schedule due to warm weather and the plants benefit from rain in both Europe and the US. This market has been in a gently falling bearish pattern for the last 2 months since peaking on 2/1. On a longer-term view, the bearish dynamic has been in place, albeit with a sizable range, since February 2011. Volatility is now close to High (> 1 STD higher than Average) indicating there may be opportunities to sell premium in options. Seasonal Snapshot: For December- All 3 patterns enter a more positive biased mode on 7/10. 5 year will be in a very positive mode until peaking on 8/5. 15 and 30 years are in a generally positive trending direction until early September, with the 30 year swinging back and forth from positive to negative in that time period.

U.S. Treasurys' First Notice: Sep: 31Aug; Dec: 30Nov

U.S. Treasurys' Options Last Trade: Aug: 27July; Sep: 24Aug

10July Consolidating action is putting potential Hanging Man formations in place in the longer end contracts. Short end contracts are under mild, but meaningful pressure.

We see today's action reiterating our theme below:

Despite some intermittent "supportive" economic data, some of it in the crucial housing sector, we see growth as persistently anemic, and the numbers have stalled out in indicating growth going forward.

Couple the above with other disappointing global economic developments and risk-off days tend to drive a material share of investment and trading flows into the U.S. Treasury market.

Continuing Operation Twist operations should support the long end and add some moderate pressure to the short end.

BONDS: The safety trade continues to drive capital into the U.S. longer end, albeit, only lightly so in today's action. Bonds should continue to benefit from any risk-off action AND the expected Operation Twist induced demand.

Support: 150-24: pattern resistance since 6/1-6/7 sell-off
150-09: 6/5 support, 6/8 resistance, 6/18, 6/19 high trades

150-00: Big psychological level, resistance on 5/30 and 6/13.

149-21:6/21 high, settlements on 5/30 & 6/15

149-03 support on 5/31, 6/6-6/8. 6/17, resistance 6/19 & 6/20

148-16: Late May resistance

148-07: 6/21 low, Support level from 6/13 & 6/15

148:00: psychological support level, was resistance from 5/17-5/24, and has been support since 6/7

147-24: 6/13, 6/20 support & 5/22, 5/25 resistance

147-00: Psychological level, 5/16 resistance, support area 5/1-5/29, 6/11.

Resistance: 151-00: psychological resistance

151-24: 6/4 intra-day support, 6/5 intra-day resistance

152-00: psychological resistance

Comment: Bonds have now gone positive in Momentum; Trend already had shifted to rising.

With the lack of releases today, we see anemic Volume. Despite this observation, the Pricing is breaking out, making highs above the last month's range highs.

Seasonal Snapshot: (cash contract)

Bonds: The 5yr pattern declines 7/1. It then bounces higher and lower, going generally sideways until 7/23, whereupon it enters a generally negative pattern until early October. The 15 & 30 yrs consolidate with a downward bias until August.

Tens (10-YR NOTES):Tens remain exhibiting similar action as Bonds (or is the other way around?). Friday's action coupled with today's move has the Tens breakout out of the last month's range highs.

Support: 134-16: near +2 STD over the 21-day moving average 134-00: Psychological level. Support from 5/31-6/4, just above highs on 6/11, 6/15-6/19

133-17 intra-day chart high trades 6/11, 6/13, 6/17, 6/19, 6/20, 6/21, just above 21-day moving average (133-16), near mid-point of 3 week consolidation range.

133-08 supported on 6/14, 6/17

132-28: near 6/13 & 6/20 lows, resistance in late May

132-16: 5/15 resistance, 5/2/ support, near midpoint to 5/17-5/25 consolidation action

Resistance:134-20: high trades on 7/9 and 7/10, also traces back to intra-day support on 6/4.

135-00: Psychological level, just above 6/1 & 6/2 highs

Comment: The Tenstechnicals have now shifted to a distinctly positive bias. Pricing remains near the +2 STD (134-17) over the 21-day moving average (133-22.5). Look to this level to act as a drag on further gains.

Seasonal Snapshot: (cash contract)

Tens: The 5yr pattern is in a modest bounce and fall off sideways pattern until 7/23, whereupon it enters a more profound falling pattern until early September. The longer-term patterns are in a modestly downward bias that accelerates toward the end of July and lasts until October

2-YR NOTES: Despite today's modest fall in prices, we see thecontinuing Euro-mess driving a risk-off bias in financials, Twos have shifted more distinctly to a positive bias. Recent global Central banks' moves reinforce our view below.

While we continue to maintain that Twos being allowed to fall is counter to current stated Fed monetary and QE policy, with the 6/20 news regarding the continuation of Operation Twist, some modest pressure on the short end is to be expected as the Fed reconfigures its balance sheet.

If the Fed decides it needs to break out the QE nukes again, we should see a lurch higher.

Support: 110-06.25: resistance on 5/30, support from 6/6-6/8

110-5.25: 21-day moving average

110-04.75: Declining trend line from 6/4 peak, resistance from 5/25-5/30

110-04: support from 5/29-6/19

110-03.5: resistance after 6/20 FOMC sell-off, support after 6/21 overnight rally

110-03: Support on 5/25, 6/20, & 6/21.

110-02: 6/20 low post-FOMC sell-off.

Resistance: 110-08: High settlement on 6/5

110-08.25: High Trade on 6/4

110-09.25: spike high trade on 4/24

Comment: TheTwos' are now shifted to a positive bias and look to be poised to make new highs. The market, however, has traded up to the +2 STD (110-05) over the 21-day moving average (110.04.5). This level has tended to act as a drag on further moves.

Seasonal Snapshot: (cash contract) All three patterns bounce higher from 6/25 until 6/28, and then resume a generally negative bias until 7/10. The longer term Trend is negative until it seems to bottom in early October.

SEP 13 EURODOLLARS:

Support: 99.555: high trade on 6/20

99.535: high on 6/18 & 6/19, settlement on 6/20

99.525: Support level back to 6/20

99.510: major support and resistance level going back to 2/29 settlement. Major support low since 6/21. 99.500: high trade from 4/12-4/19 & 4/26-4/27, low from 5/1-5/4, settle on 5/7

99.490: high trades on 6/7 & 6/11
Resistance: 99.560: 2/3 and 3/2 highs and mid-August support.

99.570: 9/21/11 & 3/2 high trade.

Comment: With the short end benefiting from the risk-off financial issues, this market's technicals are shifting to a higher focus. Some retrenchment with today's consolidation.

BUNDS (German 10-yr): Bunds have completed the shift to a positive bias after last week's Eurozone "rescue" deal.

Support: 144:00: psychological level and early June resistance

143.45: late May resistance

142.45: 5/14 & 5/16 highs, support & resistance inflection 5/17-5/23

141.50: general support and resistance inflection area since 6/13 lows.

140.00: resistance in late April and early May

Resistance: 144.31: 7/9 high and 5/30 settlement

Comment: Technically, Bunds shifted to a positive bias. All our directional indicators are now pointing to higher levels. Doji pattern today, but with a higher settlement and higher Volume.

SCHATZ (2-yr):

ECB rate cut provides a reason to buy the Schatz. Period.

Along with the U.S. Twos, the Schatz falling will end up being counter to official policy desires so we have our doubts as to any negative bias sustainability.

Support: 110.755: Late May/Early June chart pattern support from pattern lows

110.6756/8 settlement and level of declining trend line drawn from 6/6 high.

110.625: 6/25 high and 6/11 low

110-59: resistance zone in early April, support and resistance inflection in late April/early May, support on 6/6, resistance on 6/14 & 6/15

110.50: psychological level

110.445: support in early April.

110.355: resistance in late March/early April, at various times support or resistance going back to late December.
Resistance: 110.800: Late May/Early June resistance

Comment: Schatz's technical pressure is now shifted with Trend and Momentum having already turned positive. This is in keeping with Central bank policy.

Grains Review on Jan 13th

Calls: Following WASDE the beans and corn trades touched limit twice before backing off slightly on the close. There was plenty of selling into the rally early with front end corn vol dropping by a whopping 18% to 34% basis Feb. March dropped by 6.5% on the day due to a lack of follow though once we touched limit. Also, this report offered a great exit for entrenched longs looking for an exit early in the year. The report offered no momentum for wheat after raising world stocks leaving the trade in the dust as compared with row crops. Outside momentum helped all session with talk of an Argentine farm sector strike starting on Jan 17th and running for 7 days. This is in protest of changing export parameters for corn and wheat. This is another brilliant political move by Kirchner that I think will blow up in her face. Bull spreads carried the day in corn and beans with the N/Z and N/X (beans) widening on the day. Paper was an aggressive seller of the N/Z 100p CSO for 20-cents. This is a bullish play commercials should love. Overall it was a day of many exits with few fresh positions put on. The strangest and most interesting one was in Beans with ADM buying 3,000 SN 23.00 calls for 8-cents. This smells of fund business going through a commercial. Heading into the afternoon, the trade is waiting for further word concerning the Argentine strike possibilities with confirmation seen late in the day. The strike is a no selling stance by farmers for corn, beans and wheat between Jan 17th-24th. This helped the market into the overnight with corn continuing to lead the way with oil losing to meal but this looks short lived due to production problems in Malaysia and India looking to eliminate their palm import tax. Heading into the day session export sales were nothing to get excited about and macros are having only a minor impact so far with both the Euro and crude chopping on either side of unchanged. This is a big pullback for the Euro so watch this factor closely.

Beans are called 6-8 Higher to start moving above the daily contract high and into no man's land on the weekly chart. The only comparative year is 2008 but I think the market actually has a major world production and consumptive problem. Indicators on the weekly chart remain in the upper end of the range with no overt signs of weakness. Corn is called 8-10 Higher breaking above contract highs with indicators turning positive following a week long pullback. A perfect picture for bulls, I think. Wheat is called 6-8 Higher holding the most upside ground to gain. There is nothing to stop the wheat except a lack of excitement. I favor KC and Minni over Chicago and ride this horse all season long. Meal is called 2-3 dollars Higher breaking above contract highs yesterday and continuing this overnight. There is no reason to be bearish from a technical standpoint. Indicators are at the upper end but they have been for weeks. Oil is called Flat/Mixed looking for momentum for crude and palm oil. A break above 59.10 is needed to spark fresh interest.


Fundamental: Argentine weather is looking at bit wetter through the weekend with the southern and central regions favored over the far northern regions. BA and surrounding areas look to receive .50-1.00" with 70% coverage through Monday. This will help overall prospects but the north remains too dry for anyone to be comfortable. Brazil remains in good shape overall with only the far south of any concern at the moment.

Open interest shifted as follows: Corn +27277, Beans +12701, Wheat +3633, Meal +8310 and oil +9485. Rebalancing is a major factor right? I feel the population of new ETF's and fresh allocations from CTAs is the major factor. Add commercial fund money and this looks to continue, not abate. Commodities are a hot topic that will continue to garner media attention potentially pulling more money into the trade. It's a beautiful circle.

China bought 40 TMT US bean oil yesterday for second quarter delivery.

Pakistan has sold between 200-2500 TMT of wheat to Bangladesh and Myanmar. This is their first sales in three years due to floods and drought ravaged crops. This is a mildly bearish impact but Pakistan will not export to anyone not abutting the country so the world impact is minimal.


The 6-10 day maps continue to show below average temps in the Midwest but there is ample coverage following the recent snows to cause no worry. The worry still lies in the HRW regions with no precipitation expected with the current 3-4-days system moving through the northern half of the US. This only adds to woes for farmers in that region. The trade impact is minimal today due to this being a known factor but it offers no relief for shorts nor any threat to those long KC versus CHI.

Jordan tendered for 100 TMT Hard milling wheat. Bad timing I think.

Following yesterday's WASDE report the corn stocks to use ratio is down to 5.5% (Thanks MaryAnn). This is shockingly low forcing more and more corn users to sweat against shorts July forward. If Argentina continues to show problems I believe corn has no choice but move higher due to world supply concerns. The corn carryout at 745 million is the lowest in 15 years...want to get short this? I don't.

Palm oil traded 44 Higher overnight on production concerns. Couple this with India talking of eliminating their palm import tariff and you can start to paint the tight world situation that I talked about in the preWASDE report. The US is swimming in oil but the world is not, the world will win.

Talk has Chinese crush margins back to even and possibly turning positive shortly. This is a major swing from the talked about 20/tonne loss just a month ago.

Export sales came in as follows: Corn 439.2 10/11 and 68.3 11/12 with 613.7 TMT shipped. Beans 495 10/11 and 180 11/12 with 950.2 TMT shipped. Most of the sales and shipments were, of course, to China. Wheat 147.3 10/11 with 27.9 11/12 with 613.7 shipped. Meal 26.2 TMT sold with 278.2 shipped (none to China) Oil 7.5 TMT sold and 57.2 TMT shipped with 29 TMT heading to China.

Overall disappointing but the trade was still in holiday mode. I look for these numbers to pick up dramatically in the coming weeks.

Options: Yesterday the market learned how volatile cereal options can be with an amazing drop of 18% in CG options. This was due to a lack of follow through following WASDE with March taking a 6% hit now sitting at 39%. May was down 3% lower with deferreds down about 2%. This is a solid drop but still expensive enough to make buying it scary but I would not sell any vol. If you want to own vol, look to beans. Following yesterday's drop, SH vol is down to a scary low level of 31%. This is 8% under corn or wheat in March with July sitting at only 32%. I like looking at owning upside calls in beans and straddles with vol ownership advised. Corn bulls may want to simply buy calls or invert 1X2 call spreads looking for an explosion. There is no slope so buying call spreads is not advised.

The following chart includes my observations:

***chart courtesy Gecko Software
Past performance is not indicative of future results.

MACROS:Are mixed but support from a surging Euro following good bond sales in Spain and Italy helps the upside momentum. Crude remains choppy with metals on the sideline so far. Cotton is 200 higher with sugar inching its way higher helping even more.

Gold is trading 4.20 Higher sitting at 1,390.00.
Crude is trading .20 Lower sitting at 91.66 as of 8:25 CST.
The Euro is .0148 Higher against the USD trading at 1.3276.
The Yen is .22 Lower against the USD trading at 82.74.

Daily Wisdom: A peace is of the nature of a conquest; for then both parties nobly are subdued, and neither party loser. - William Shakespeare

- Matthew Pierce, Grains Guru

The Learn About Futures Insider for Oct 28th, 2010: Crude Oil

The Learn About Futures Insider: Crude Oil Sometimes mythic, often controversial, crude oil has been an important component of modern times. Crude oil comes in many colors and consistencies, from hydrocarbon rich reservoirs in Texas to the heavy oil sands of Canada and Venezuela. Usually named for their region of production as well as other factors, crude oil properties can include various elements including carbon, nitrogen, oxygen, sulfur, and metals. Due to international appeal and demand, there are different tradable crude oil contracts across the globe, but for the purposes of this report, specifications willl focus on the NYMEX Light, Sweet crude oil contract. Contract Size:1,000 US barrels or 42,000 gallons Price Quote & Tick Size:Dollars and cents per barrel; minimum tick size is one cent per barrel or $10.00 per contract Contract Months: All months Trading Specs: Open outcry on NYMEX runs from 9:00 am to 2:30 pm ET. Electronic trading on Globex runs Sunday through Friday 6:00 pm until 5:15 pm with a 45 minute break each day. Daily Price Limit: $10.00 per barrel or $10,000 per contract. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction. If another halt were triggered, the market would continue to be expanded by $10.00 per barrel in either direction after each successive five-minute trading halt. There will be no maximum price fluctuation limits during any one trading session. Trading Symbols: CL Past performance is not indicative of future results. ***chart courtesy of Gecko Software Crude Oil Facts Crude oil is not limited to modern uses as history shows examples of petroleum products being applied for nearly four thousand years. However, there is no doubt that the volume of consumption and the variety of applications for crude oil exploded in the middle of the nineteenth century. First driven by the demand for kerosene and oil lamps, the introduction of the internal combustion engine sealed crude oil's fate and ushered in the era of oil booms across the United States. As oil quickly overtook coal as the world's leading fuel, it was only a matter of time before reservoirs began to be outpaced by demand and the first "energy crisis" hit in the 1970's. In the 1980's, increased production and lower demand led to an "oil glut". US imports in the last three decades are illustrated as follows: Past performance is not indicative of future results. **Data Courtesy of EIA The most well known deposits of petroleum are porous rock formations in which the hydrocarbons that make up the oil are sealed within the rock by an impermeable rock above. These reservoirs are accessed by drilling and pumping. Unconventional oil deposits of heavy crude oil exist in oil sands or oil shales which contain migrating oil or trapped hydrocarbons. Heavier crude oil deposits are often more expensive or require a more intensive process to extract the oil. Most geologists attribute the formation of oil to the compression and heating of organic materials over extremely long periods of geologic time. However, there is an alternate theory that suggests natural petroleum was formed from deposits which may date to the formation of the earth rather than biological origins. World crude oil supply and demand stats are highlighted in the following: Past performance is not indicative of future results. **Data Courtesy of EIA Past performance is not indicative of future results. **Data Courtesy of EIA Past performance is not indicative of future results. **Data Courtesy of EIA Past performance is not indicative of future results. **Data Courtesy of EIA Key Terms Crack Spread - Based on the word cracking which is the word for breaking down crude oil into products at a refinery. A crack spread is a term used when referring to the price difference between crude oil and extracted products like gasoline or heating oil. Light, sweet or sour crude oil - Oil comes in various colors and viscosities. Light, sweet crude oil has less sulfur and is lighter than sour crude oil. Light, sweet crude oil is usually in higher demand for refining into gasoline, kerosene and diesel. Oil sands or tar sands - are semi-solids of crude oil, sand, and water. Usually sticky, sands need to be extracted in unconventional ways since they do not flow like those deposits used with well methods. Big deposits include Athabasca oil sands in Canada and Orinoco oil sands in Venezuela. Key Uses Crude oil is normally taken to refineries for the hydrocarbon chemicals to be distilled into the common products consumers are all familiar with or to be mixed with chemicals to create other products including: Diesel fuel Gasoline Jet Fuel Kerosene Natural Gas Lubricants Tar Paraffin Key Concerns Hubbert Peak Theory - A geologist working for Shell Oil in the middle part of the last century is widely recognized as the first person to predict an oil peak. M. King Hubbert noted that oil discoveries tended over time to form a bell shaped curve. He suggested that oil production over time would follow a similar path with production in the lower 48 states peaking between 1965 and 1970. Hubbert went on to predict global oil production would peak in the last five years of the 20th century. Using his predictive curve, it appears as though 54 of the largest oil producing nations have already passed their peak of production and are in decline. However, controversy surrounds the theory since many regions lack transparency in accounting for oil reserves. Conclusions vary from intimating that the global peak has already passed to the optimistic notion that the peak will come in 2035. Fossil fuels are defined as finite and since supply can be a major factor when considering pricing - if not the most important - the implications of the theory are boundless. OPEC - The Organization of Petroleum Exporting Countries (OPEC) is a group of thirteen oil producing nations: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Created in 1960 and with current headquarters in Vienna, the stated objective of OPEC is to coordinate and unify member petroleum policies to secure fair and stable prices. Actions, statements, and policy changes from member nations can have an immediate impact on the price of oil and meetings are usually foreshadowed by media and trader speculation. Geopolitical Tensions - Disputes and conflicts in any producing nation will naturally have an effect on oil prices . The Gulf War and the War on Terror are probable examples as they centered on top producing regions of the world. Smaller - though no less grave - incursions in or around oil pipes, oil pumps, and oil refineries in areas of Asia and Africa can also affect production, distribution, and price. Alternative Fuels/Environmental Concerns - Controversy surrounds petroleum products and is rooted in the potential harmful effects to the environment and atmosphere. The late 20th and early 21st centuries have focused on producing alternative fuels and engines. They have also seen significant environmental issues ranging from oil spills to the impact of drilling in preserved areas. Alternately and perhaps ironically the effect of the environment on oil production is a key area for concern especially during the Gulf hurricane season when offshore platforms become natural targets and production is pared back or halted completely. The same effect can be felt during winter storms in the North Sea.

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