With the 2008 Summer Olympics now behind us China is back from vacation, look for buying to emerge on commodities as we have seen prices come off 25 plus percent on select metals, energies, and agriculture. We maintain our conviction on the secular bull market and that over the long haul we will be scaling into longs on dips. Historically bull markets in commodities have lasted 18 years and we are in year 8 so NO we don’t think the show is even close to being over. My birthday is on Saturday, August 30th; for my present I would like all readers to start taking commodities more seriously as an asset class using the most recent correction to gain more exposures in their portfolio. Although in the short term it may appear like a gift to me, 2-3 years from now you should be rewarded if you are disciplined.

Energies

The 200 day moving average at $109.23 remains as solid support, but it may not come into play as October Crude oil seems to be consolidating about $5 above that level. For now, the low on August 15th at $111.50 is the line in the sand with immediate resistance at last week’s high just above $122. Monday thru Thursday of last week oil gained $7.17 and it appeared we were starting another leg higher, but on Friday nearly all the week’s gains were given back as oil faded $6.96 to close, only 58 cents higher on the week. The plunge on Friday was the largest one day drop since 1991. Technical forces, including relatively light volumes in addition to breaching support levels added to the declines. The good news is that we didn’t make a new low last week, the pace of the decline has calmed and although we didn’t hold the gains, it appears we may try to move higher in the days to weeks ahead. We have a long bias, but until we break out of the sideways consolidation we would suggest buying near $113 and selling near $120.

Heating oil and RBOB acted similar to oil being that Monday thru Thursday it appeared we were heading higher, but that came to a screeching halt on Friday. On the week, October heating oil closed 32 ticks lower just below the 9 day moving average. October RBOB was the only energy within the complex
to finish higher gaining 1.63 cents. We bounced off the 200 day moving average on Tuesday and that level should remain as support with resistance at last week’s high at $2.9727. We have no suggested trades presently in heating or RBOB.

Between this week and last week we expect the low to be made in natural gas before prices start heading higher. We were down on the week 6 cents just under the $8 level. As we said last week, we are long with our clients in the futures and sold call options out of the money bringing in between $5-7,000. Once the market confirms a turn we will look at option spreads and out right futures. For the last 16 years in September we have been higher 12 years and lower 4 for an average move of 11.9% which from current levels would be a move of roughly 95 cents. Past performance is not indicative of futures results.

Livestock

After the close Friday, the USDA said that there were 9.869 million head of cattle on feed as of August 1st, down 4.2% from a year ago and less than expected. July placements were up 2.4% from a year ago and marketings were up 1.1%. Additionally, the USDA estimated the week's beef production at 518.7 million pounds, down 4.1% from a year ago. October live cattle finished down .47 at 105.78 on the week, unable to get above the 9 day moving average. On a close above 106.30 look for prices to resume the uptrend. October live cattle has been strong from late August into mid-September 12 of the last 15 years. October feeder cattle was off 2.20 on the week as prices have come off 600 points in the last 3 weeks. The 50% Fibonacci retracement on this contract is 111.50 and we are looking for the selling to slow and a sideways pattern before the uptrend begins after a slight pause.

After the close Friday, the USDA said that there were 492.2 million pounds of frozen pork in storage on July 31st, up 8% from a year ago. Frozen pork bellies totaled 59.2 million pounds, up 87% from a year ago. Furthermore, pork production was estimated at 434.6 million pounds, up 6.4% from a year ago. October hogs were down 2.05 on the week approaching over sold levels. We expect to see a trade down to 73.00 this week, but anticipate buying to emerge around that level. October lean hogs have gained 16 of the last 25 years in September. The best Septembers have followed August weakness. Past performance is not indicative of future results.

Financials

Stocks: Federal Reserve Chairman Bernanke told a symposium at Jackson Hole, Wyoming that the current financial storm "has not yet subsided," but the "FOMC is committed to achieving medium term price stability and will act as necessary to attain that objective." That is all well and good, but will it be too little too late as the PPI last week came in at a 27 year high? Economists say it is a lagging indicator and prices of commodities have started to back off which is apparent, but what happens when prices start advancing again, which we ultimately think is the case. We cannot make a bullish case for stocks in this environment at all. The Dow ended last week down 32 points or 0.3% to 11628. The S&P 500 gave up 6 points or 0.5% to 1292. The NASDAQ ended its 5 week winning streak to lose 38 points or 1.5% to 2415.

September/October has witnessed some of the worst stock market declines in history. Resistance in the September Dow is at 11725 followed by 11850 with support 11440 followed by 11300. The S&P finds resistance at 1310 with support at 1267 followed by 1255.

Bonds: The flight to safety bid in Treasuries lives on as the global uncertainties have not abated and no quick end looks in order.