Since April, the commodity has embarked on an extreme upside move, shooting to highs not seen since sugar hit $0.45 per pound in 1981. The chart below illustrates it perfectly…

Sugar Chart: http://www.investmentu.com/images/sugar_082509.gif

The main reason for such a large jump was news from India, which indicated a potentially low sugar crop.

Over the past couple of weeks, the sugar market has surprised many analysts by trading even higher. I say that because while fundamental news like this often results in impressive-looking moves, its impact has a limited lifespan.

So be warned. Moves like this usually indicate that the news is factored into the price and we’re entering the last phase of the bullish run.

Based on my experience in the commodities markets, where I’ve seen this type of pattern many times, I believe we’re headed for an inevitable turnaround for the sugar market. Here’s what you can do to profit form this, and two other commodities to keep an eye on.

How to Play the Sugar Market to the Downside

If you want to play the sugar market to the downside, I suggest you buy put option contracts, or by selling limited-risk call option spreads. At the moment, the October 2009 and March 2010 option contracts are the most active.

As you can see on the chart of the October 2009 futures contract above, the price surpassed the $0.2300 per pound level twice, moved back to $0.2150 per pound, then trotted past the $0.2300 mark again.

This is what technical analysts call a “triple top” and if sugar doesn’t move above $0.2300 again, we can seriously count on the market having a big retracement lower – most likely between $0.1900 and $0.2000 per pound.

So if you play the downside and it does make that retracement, I’d suggest taking profits at that $0.1900 to $0.2000 level.

Oil Heading For $80… And Beyond: Three Ways to Play the Move

Given the historic rise and fall of the oil market and the current state of the global economy, you’d never think that it could even consider the idea of moving higher again.

But the market continues to amaze everyone with its resilience and strength, with the current price hovering around the $74.50 per barrel area.

And with conflicting reports on the global demand for oil over both the near term and long term – plus weekly inventory reports that show a strong buildup of supplies one week, followed by draw-downs the next week – it’s easy to see how this can be a very treacherous market.

Here’s the deal: Regardless of what statistics are released and how Congressional attempts curtail oil trading limits, it’s clear that the oil market continues to bring in speculators from all levels – and will most likely keep trekking higher.

Check out the oil chart below. The price is currently trading above all three main moving averages (20-day, 50-day, 200-day) and is now looking to pop above the recent high of $75.27 from June 11. If that happens, we could easily see oil shoot to $80 from there – with $90 probably right behind.

Oil Chart: http://www.investmentu.com/images/oil_082509.gif

There are a couple ways to play the oil market – be it on the long or short side…

• The futures and futures options that trade on the floor of the NYMEX. This is usually best for experienced commodities investors.
• Through an ETF like United States Oil (NYSE: USO), which tracks the price performance. This gives you broad exposure to the market through one investment, rather than playing individual companies. It’s also a less expensive way to play the market and doesn’t require a commodity trading account.

You can either play the USO shares directly, or the options on the ETF. No matter whether you’re bullish or bearish, pick an option expiration period at least three to six months in the future, as that will give your directional call ample time to mature.

The Grain Markets: Summertime Means We’re on “Grain Watch”

Finally, let’s hit the grain markets (corn, wheat, soybeans)…

During summer, these markets can really turn to the upside, as the growing season can be extremely volatile, particularly if the weather is less than ideal.

The June-October period typically sees more speculation in the grain markets than any other time of year, purely because of the prospect of more volatility. Regardless of what any fundamental data may show, nothing can compare to the sheer panic-buying when we receive weather reports that show how a drought could wipe out a year’s worth of crop.

And some of it doesn’t even need to necessarily happen… it’s merely the potential for it happening, based on previous history. Fortunes can be made or lost in just those few summer months.

Buy Corn Commodities Low… And Ride the Bullish Move Higher

This year, for example, we’ve seen corn and wheat prices shuffle around their annual lows, due to government reports that show ample planting, high carry-over levels from last year and crop production that is ahead of schedule.

Corn Chart: http://www.investmentu.com/images/corn_082509.gif

With corn currently at its lows, if any potential weather disruption does occur over the next few months, taking a bullish position here could be a low-risk way to get involved.

Like with the sugar market, the best way to play corn is through limited-risk option strategies. Stick with expiration months of December 2009 or March 2010, so that you give the market plenty of time to mount a bullish move.

Good trading,

Lee Lowell

Source: These Three Commodities Are Set to Move… Are You Ready to Profit?

I’d like to focus this week’s segment on the markets that typically see heightened activity during the summer months, due to the fact that it’s their prime growing season. Specifically, that means the grains and orange juice markets.

As we’ve mentioned before, these products are heavily dependent on the weather for their yield. So if erratic weather patterns affect the crops’ growing cycles, it’s very likely that their prices will rise.

These products aren’t just consumables either. The farmers and food/drink companies that are front-and-center of their production use these markets for income production, too. They do this by using commodity futures and options contracts as hedging mechanisms.

So let’s hit the grains market first…

Bull-Hunting In The Corn And Wheat Markets

In the last issue, we keyed in on corn and wheat, stating: “Most of the speculators who play these markets are bullish in nature, so a majority of them are placing bullish bets, either in the form of outright long futures contracts or long call option contracts.

“Right now might be one of the best times to get into the grain markets on the long side because not only are we right smack in the middle of summer, but the prices of corn and wheat have just undergone a five-week massacre to the downside.”

Both markets are still meandering around their lows, which offers another good opportunity to get in on a speculative bullish move. Here’s how to do it…

How To Play Grain Market Upside

Take a look at the daily charts below for the corn and wheat December 2009 futures contracts.

If you believe in the seasonality of bullish moves for the grains, and are willing to take a speculative bet, now is a good time to consider a trade.

Your best bet is to hit the futures options contracts that trade on the floor of the Chicago Board Of Trade (CBOT). But make sure you do so in a way that gives you limited risk (through call option spreads, for example) and unlimited reward possibilities (through outright call options).

For call options, look to play the December 2009 or March 2010 options expirations, which will give enough time for any major weather scares to produce a good upside run.

Corn: Specifically, consider December 2009 & March 2010 call options with strike price levels from $3.50 and higher.

Wheat: Use the December 2009 and March 2010 call options that have strike prices between $5.60 and $5.80, or higher.

You can also trade these contracts through the Chicago Mercantile Exchange’s electronic platform, where you can bypass the brokers in the option pits. These contracts are exactly the same as the other, so you can trade them whichever way works best for you.

Juicing In July

Having last broken down the orange juice market one month ago, this market has become a hot spot for speculators, as hurricane season got underway.

At the time, the market had carved out a low and we mentioned that it was shaping up for a “potentially lucrative seasonal trade.”

It certainly didn’t disappoint. Over a two-week period, orange juice futures launched higher to the tune of 2700 points. Usually, a move like that will take a good portion of the summer to develop, but with the oversold conditions that existed, it was stronger and quicker than normal.

This served all call option buyers well – especially those who took our advice to buy the January 2010 $85 cent call options. At the time, these options were available to buy for roughly 900 points or lower. And with the 2700-point surge, they tripled in price, fetching prices of over 3000 points.

So what now?

At this point, we wouldn’t advise buying these options anymore. The feverish move has already happened now and OJ prices are beginning to fall back. This is usually a one-time event every year, and unless orange juice drops back down into the low 80-cent area quickly (based on the January 2010 futures), we don’t recommend buying calls at this time. Markets move fast and timing is very crucial.

Lastly, we’ll take a quick look at our other favorite “weather-prone” commodity – natural gas…

Natural Gas Needs A Hurricane-Induced Boost

We’ve been bullish on natural gas for a while now, as it slinks along the lows it’s carved out since it reached manic highs last summer (along with many other commodities).

Natural gas will eventually hit a bottom, as it’s an in-demand natural resource that will be around for a long time. We just have to wait patiently for the turnaround, as the market grapples with high underground storage supplies.

Like with the orange juice market, though, we know hurricanes can cause huge upside moves, as the majority of drilling rigs are centered in the Gulf of Mexico. If a few storms go rumbling through that area, it could be the impetus that eventually brings this commodity out of the doldrums. But until then, we’ll bide our time.

One of the ways we’re playing this market in my Instant Money Trader (IMT) service is by selling out-of-the-money naked put option contracts on the natural gas exchange-traded fund - United States Natural Gas(NYSE: UNG).

This ETF tracks the movements of natural gas futures contracts, giving investors a lower cost way to enter this market.

And by selling put options, it allows us to collect the option premium, while having an opportunity to buy natural gas at unbelievably low historical levels. Check out this article for more information on how to sell put options.And to get on board with IMT, just visit this link.

Source: Grain Hunting: How To Cash In On  The Corn And Wheat Markets

If the credit-strapped suburban mall culture is truly on the rocks, how long do you think this can survive:

Lady Amaranth, Goth Temptress

Among our analysts, a debate brews at the heart of the current consumer conundrum:

“Cutting-edge apparel retailer Hot Topic,” writes Wayne Burritt, about the purveyor of goth clothing and lip-piercing paraphernalia, “is loaded with attractive fundamentals and technicals, while its call options offer an oversized premium. Hot Topic is a mall and Web-based specialty retailer that has a proven track record in the often-fickle teen and pop retail space.

“For the fiscal quarter that ended Jan. 31, sales jumped an impressive 8%, to $238 million, while profits shot up a whopping 19%, to $14 million. And that’s no fluke: For the year, the company’s bottom line surged a staggering 23%, to $20 million. In addition, sales in stores open at least a year — a key measurement of retail success — rose a solid 5% during the first quarter.

“No doubt about it: Those are solid fundamentals. I guess someone forgot to tell Hot Topic that we’re in the midst of a recession!”

“Hot Topic is in an industry with substantial and growing overcapacity,” argues Dan Amoss, our short side analyst. “This stock is hot because the market is myopically focused on a recent, fleeting success and ignoring reality. The reality, as you’re well aware, is ugly — especially in retail. And it’s extremely ugly for retailers that sell trendy clothing and accessories. The day of reckoning has arrived for this wildly overbuilt industry, and now it’s a brutal competition for survival.

“The long list of specialty retailers that will be fighting over what’s left of teenagers’ discretionary spending dollars includes Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Charlotte Russe, Claire’s Stores, Forever 21, Pacific Sunwear, Spencer Gifts, H&M, Buckle, Wet Seal, Urban Outfitters and Zumiez.

“Hot Topic Inc. is a specialty apparel retailer with lackluster prospects for sales and earnings growth. Yet the stock trades at the rich valuation — especially for this market — of 23 times trailing earnings. HOTT stock is priced for disappointment.”

Hmmmn… if you put a gun to our head, we’d have to go short with Amoss. But then, that’s what makes trading fun and interesting, isn’t it?
Existing home sales fell 3% in March after a faux rally in February, the National Association of Realtors admitted this morning. Within the anemic annual sales rate of 4.5 million units, “distressed properties” accounted for over half of March’s sales.

The median price for an existing home is down 12% since last year, from $200,100 to $175,200.
The credit crisis has stymied a unique feature of American society. According to the Census Bureau, 35.2 million people changed their residence from March 2008 to March 2009 — the lowest number since 1962. And back then, there were 120 million fewer Americans.

The New York Times does a rather unremarkable job analyzing the trend under way, but they do point to a couple of interesting changes in American society since the 1960s: Home ownership rates have risen and owners are typically less likely to move than renters. The median age of the country has edged up… old people move less often than the young.

But probably the most telling trend under way: Two-income families have become more common and increasingly necessary to maintain a middle-class lifestyle. “Finding employment for both spouses in a new location can be challenging,” says the Times.
And in this environment, it’s getting more challenging all the time. The line of Americans seeking jobless benefits grew even longer last week, the Labor Dept. says today. Their gauge of continuing claims — that’s people seeking unemployment benefits for more than a week — rose to a new record 6.13 million. New claims inched up 27,000, to 640,000, last week — not a record, but close.

While these numbers look awful — and they are — they’ll be a nonevent in trading today… this latest report was right in line with Wall Street expectations.
The stock market suffered through a wobbly trading day yesterday. Major indexes started down around 1% on not-so-great earnings. After some big swings, all the way up to 2% gains, the Dow and S&P 500 ended back down where they began. They ended the day down 1%, more or less.

And today, they’re off to another finicky start. Tech stocks are jamming, lead by a blockbuster earnings report from Apple. But with the jobless numbers and housing data… we can’t blame traders for being a bit squeamish. Most indexes opened around break-even this morning.
“Is the bounce still bouncing?” Bill Bonner asks, no doubt with a longer time frame in mind. “We don’t know. But we don’t trust it. They say the stock market ‘looks ahead.’ So it is possible for it to see things we can’t see. On the other hand, what was it looking at two years ago? Didn’t it see the economy going over a cliff? Apparently not.

“But investors tend to believe what they want to believe. And what they want to believe is that the stock market has had its vision corrected and now sees a recovery.

“Our guess is that they are wrong on both scores. The stock market is just as blind now as it was in early 2007… and there is no recovery coming anytime soon. By our reckoning, this is not a recession… this is a depression. In a recession, the bull market formula still works. It just needs a little time to rest… catch its breath… work off inventories… and rebuild cash accounts. But in a depression, the formula stops working.

“The feds have responded with zero interest rates… and $13 trillion worth of bailouts and boondoggles. But the old magic doesn’t seem to work anymore. This time, the formula no longer works. Consumers already have too much stuff — and no way to pay for it all. They have no choice; they have to cut back. This is not a pause in the long cycle of increasing consumption, debt and speculation. It is a reversal of the cycle — with less consumption and less debt (more savings). This is a depression.

“If left alone, this cycle will see falling asset prices, falling bond prices and rising savings for many years. Stocks should sell down to levels where they are attractive again — at average P/Es below 8… 7… or even 6. And with dividend yields above 5%.”
The dollar is down today, thanks mostly to some positive data from the eurozone. The European purchasing managers index beat expectations and printed at its highest level in six months this morning, which accelerated the recent profit taking the dollar’s been suffering. The euro regained the $1.30 mark, which helped push the dollar index back down to 86. The pound goes for $1.45 today, and one greenback will still score you 98 yen.
That dollar weakness has helped gold inch out of its recent trading range. With a few exceptions, the spot price had been bouncing between $880-890 this week. This morning, it’s just below $895.
“I’ve been following the agricultural scene of late with more than the usual interest,” says Chris Mayer. “I don’t think investors have yet grasped the extent to which drought and the financial crisis are going to hurt this year’s harvest in just about everything.

“We’re already seeing some muted effects in certain items, like tea. Tea prices are set to surpass the all-time highs reached last year. Drought is the main cause. Yields in tea-exporting countries such as India, Sri Lanka and Kenya have all fallen. These three countries produce half of the world’s tea export.

“In Sri Lanka, the world’s biggest tea exporter, drought will push tea production to a seven-year low. The financial crisis also led farmers to be more conservative about buying things like fertilizer, which adds to the low-yield woes.

“In Kenya’s Rift Valley, another tea-rich region, drought will also lower production. Auction prices in Mombasa — the global benchmark — are already 15% higher this year. Usually, the key time of year for tea is March-May, so perhaps it is the canary in the coal mine as for what we can expect. But tea is just the beginning.”
British researchers have developed a stem cell therapy that cures blindness. Scientists at the Institute of Ophthalmology at University College London say they’ve found an effective therapy for age-related macular degeneration (AMD), the most common cause of blindness. According to sources at The Sunday Times, at its current trajectory, the therapy will be a routine one-hour procedure available to patients in about six years. Pfizer has announced a plan to bring the therapy to patients.

You may recall our series of discussions on stem cell technology earlier this year. Our technology analyst, Patrick Cox, is as bullish as ever on the future of stem cell technology, and we’re inclined to agree. For better or worse, it seems like these technologies are quickly coming to fruition.

For a full array of stem cell picks, including one that just today became a target of a record level of SC funding, be sure to check out Patrick’s Breakthrough Technology Alert… but do it quickly: There are just 13 spots left in this month’s offering.
Drug companies are going to have to do their bit before governments around the world completely crowd out productive capital investment. Case in point:

Mr. Brown unveiled a plan of unprecedented deficit spending and tax hikes for the U.K. yesterday. His plan for this year and next would exceed the combined borrowing by all British governments since the Bank of England was founded in the late 17th century.

The Brown government’s latest budget plans to pump over $1 trillion into the U.K. economy over the next five years.

Should that plan come to fruition, the U.K. ratio of debt to GDP would hit nearly 80% by 2013 — likely topping even the U.S.’ (Still got nothin’ on Japan’s debt to GDP of nearly 200%.)

And just as many fear here in the U.S., Brown declared the rich will be funding this public spending spree. His government ordered to hike the tax rate on the country’s top earners by another 5%, to a stunning 50% rate. While that breathtaking rate will confiscate half the income of those earning over $216,750 a year, it will raise enough extra revenue to cover only 3% of Brown’s trillion-dollar spending plan.
“I heard you are updating your book Financial Reckoning Day,” a reader writes. “I read the first edition and look forward to the new one.

“In the new edition, you will probably make the comparison of the U.S. and Japan. I hope you will also address the issue in a post by Eric Fry. Here is an except from his post. It is the critical question that must be addressed for your readers:

“‘So we think it’s fair — and prudent — to wonder what sort of war we are fighting. Is the stock market of 2008 like 1974 — a market that dropped 45% from its high and then advanced, more or less, for the next 30 years? Or is 2008 like 1929, a market that fell 40% from its peak, bounced a little, then erased another 50% of its peak value before hitting its ultimate low?’

“I think it is more relevant to compare and contrast 1929, 1974 and 2008 in the U.S. than making the comparison with Japan. I foresee a chart that lists several economic conditions on the left vertical axis and 1929, 1974 and 2008 along the top, horizontally. The chart would be followed by a narrative discussion of each condition and the situation that existed during the three periods. This would be an entire chapter (or more) in the book. How are the periods the same/different? What predictions can be made from this analysis?

“The above analysis will either strengthen his case or result in a modification of it. Will we end up somewhere between what happened in 1929 and 1974, or is 1929 the situation we should expect?

The 5: Given the earnings rout on the S&P 500, and government spending on overdrive, we suspect 1929 — or worse — is what you can expect. But as you suggest, we’ll endeavor to give a more analytical answer in the book.

Source: Analysts Clash, American’s Aren’t Moving, Stock Outlook, New Sector to Watch, and More!

]]> http://www.contrarianprofits.com/articles/analysts-clash-american%e2%80%99s-aren%e2%80%99t-moving-stock-outlook-new-sector-to-watch-and-more/15862/feed 0 http://www.contrarianprofits.com/articles/range-trading-exxonmobil-nysexom/13636 http://www.contrarianprofits.com/articles/range-trading-exxonmobil-nysexom/13636#comments Fri, 13 Feb 2009 15:59:31 +0000 Charles Delvalle http://www.contrarianprofits.com/?p=13636 One of the most boring, yet profitable ways to make money in the market is buying and selling stocks that trade within a range.

It’s boring because it can be repetitive and not really offer any excitement (other than making money). It’s profitable because it’s really easy to figure out when you’re wrong and get out at a small loss (the hope is that it doesn’t happen the first time you trade the stock!).

One recent example of a range-trading stock is ExxonMobil (NYSE:XOM).

Over the past three months, Exxon has traded within a roughly ten percent range. Every time it hits $74, it begins to rally back up to around $81, and then it falls back down to $74.

The way to play…