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FEATURED COMMENTARY ARCHIVES - STERLING SMITH
Sterling Smith is developer and publisher of the FuturesOne Power Index, and a 15-year market veteran. Registered as a CTA he is a noted Coffee, Sugar and Cocoa analyst. Sterling works with clients of all sizes to help improve their trading. He may be reached at 800-533-4748 or through www.futuresone.com
March 9, 2005
New York, New York
Last week I had the pleasure of actually meeting the gentlemen who handle my sugar orders in New York. Given that very little of this business is done in person, it's always fun to connect a voice to a face. For this week's market overview, we are going to look at the New York markets.
Some of our sexiest contracts trade in New York: the energies, coffee, cotton and orange juice are amongst the things that trade in the Big Apple.
Crude Oil/Heating Oil/Unleaded/Natural Gas
This market's ability to cause unlimited pain to the American consumer knows no bounds. Gasoline here in downtown Chicago stations has surged to
$2.25/gallon. We are in front of a major OPEC meeting, happening March 16 in Iran. Many analysts feel that increases in production are unlikely, as world stocks remain large.
Herein sits a contradiction in markets: If we have large stocks, why are we at record to near record highs? Doesn't the law of supply and demand tell us that large supplies should lead to lower prices? Has one of the basic beliefs of economics been repealed? No, it's just the other side of the equation, as demand is not a static situation.
Demand for crude and crude oil products remains strong. With China growing in leaps and bounds, I can only think that we have made a secular change in the energy
markets, which is going feature higher prices and higher volatility. Our lack of growth in reefing capacity keeps a lid on production of the crude by-products. We shouldn't be too surprised by this. In 1980 a new Corvette cost around $16,000; today a new one will set you back around $48,000. As recently as 1998, crude traded under $10/barrel, while trading well over $20 in the early 1980s. We shouldn't be surprised by some inflation in energy prices.
Natural gas appears to be poised for another upsurge as a surprise cold snap this week in the Midwest could draw on supplies. |
Coffee
One of my favorite markets, coffee provides plenty of excitement and plenty of big moves to work with. As many of you may already know, I follow the commitments of traders reports very closely. These are great for getting a market overview, and can help out a ton when looking at potential trades. The downside is that sometimes - especially in smaller markets or unique markets like coffee - they can give misreads.
The underlying fundamentals of the coffee market are changing. Vietnamese crops are
being stressed from an ongoing drought. Concerns about Brazilian crops have the market on edge. Coupled with this we have the funds being vigorous buyers of coffee, a formula is developing for higher prices down the road. We have seen some roaster buying in deferred months, which is viewed as bullish.
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Sugar
What can you say about a market that is now, after crude oil and corn, the number three most active physical commodity market? The sugar market is one the fastest growing trades in the world. Reasonable margins and good ranges make it a favorite of speculators of all shapes and sizes. The market is right now at the bottom of its recent range, and I am looking for a bounce before we trade lower and make what should be some fairly solid lows.
Cocoa
Worries over recent violence in
the Ivory Coast have made this market very jittery right now. Usually I look to avoid such situations as markets can become very difficult to trade. There are worries about a strike amongst farmers in the Ivory Coast, which is the world's largest producer of cocoa. Yesterday twenty bush villages in Duekoue, a key cocoa and coffee producing area were burnt to the ground in ethnic violence. Incidents like this can make a market very unpredictable. But this uncertainty can lead to panic buying. |
Cotton
Moving up from November lows, with fits and starts. I really like the bottoming pattern of the daily chart here; the market remains neither overbought nor oversold. I think with some weather issues this spring, we could see cotton being a star performer in 2005. |
Orange Juice
Florida hurricane damage grabbed headlines late last summer, and tree mortality is beginning to become an issue. The other side of the coin is that we have large supplies, and demand lowered by the low carb diet craze. Fund longs have largely been supportive of the market but the potential for a downturn remains. I would be interested in buying breaks in juice down the road, as supplies should start to tighten.
Silver and Gold
Intermediate term top. Silver really is
giving mixed signals here, but they are big signals. I think moves in silver will be exaggerated in nature, as the fund positions will cast a weight, producing nasty, sudden corrections, while the weaker dollar propels soaring rallies. I think we break here shortly, but I would be a buyer around 6.60.
Copper
The baby of global building boom, copper is reaching for new heights. As long as the building keeps going, so will the copper market. While heavy fund long positions can lead to sudden liquidations, this market continues to move higher and the daily charts remain bullish.  |
That is the world of New York markets as I see it right now. Trading commodities skillfully, in many ways, is about time. Be it time decay of options to the time perspective on the duration of trades. What I am going talk about briefly is the very big picture, and why you should maintain an interest in the commodity markets.
Imagine a place, if you will, going through the agrarian to industrial to modern to high tech cultural evolution. Picture the United States from 1880 to 2005. Now picture a place covering all of the time at
once. It is happening right now in China. We have seen the effects on the markets thus far. These, I think, when history looks back, are going to be the mere warning blips on the screen. The modernization in China has past the point of no return, in my estimation. The cultural "center of gravity" to feed progress is in place, and there isn't going to be any turning back.
Yes, they will go though many growing pains. However, as their demand grows, (and like their population, it will be large) and we will see this played out through every economy in the world, and every commodity market.
This like a blizzard in Nebraska: You may or may not like it, but there isn't anything
you can do about it. You can make something of it, or you can get snowed over.
REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF FUTURESONE AND STERLING J SMITH. THE INFORMATION REFLECTED HEREIN IS DERIVED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THIS INFORMATION IS NOT GUARANTEED AS TO ITS ACCURACY OR COMPLETENESS. OPINIONS EXPRESSED ARE SUBJECT TO CHANGEWITHOUT NOTICE. THIS MATERIAL AND ANY VIEW EXPRESSED HEREIN ARE PROVIDED FORINFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED IN ANY WAY AS ANINDUCEMENT TO BUY OR SELL COMMODITY FUTURES OR OPTIONS CONTRACTS. FUTURESONE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AFFILIATES MAY TAKEPOSITIONS FOR THEIR OWN ACCOUNTS IN CONTRACTS REFERRED TO HEREIN. TRADING FUTURES INVOLVES RISK OF LOSS. DO NOT DUPLICATE.
This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as a solicitation to buy or trade in any commodities or securities herein.
Sterling Smith is developer and publisher of the FuturesOne Power Index, and a 15-year market veteran. Registered as a CTA he is a noted Coffee, Sugar and Cocoa analyst. Sterling works with clients of all sizes to help improve their trading. He may be reached at 800-533-4748 or through www.futuresone.com |
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