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Local, Trade Buying Retraces Monday's Losses

Local, Trade Buying Retraces Monday's Losses

After plumbing to the lowest levels in over a month Monday, the futures market rallied yesterday as scale down commercial buying received unexpected support from local traders eager to reverse short positions. The June contract finished at $2.200, up 2.4 cents for the day.

Several traders were surprised by the market's ability to change directions so easily after June and July settled below their respective 40-day moving averages Monday. Fund traders and other speculative accounts typically use moving averages as parameters on when to enter the market. If the prompt month moves below the average it sends a sell signal. Conversely a move above the average would be a buy signal. The last time the prompt month moved above the 40-day moving average was on March 25 when the May contract settled at $1.835. A buy placed then would have netted a 50-cent move by the time the contract expired on April 28.

Tom Saal of Miami-based Pioneer Futures feels that the market got a little out of its comfort zone Monday on the move into the teens. "Cash prices have been in the $2.20s for most of the month. What we saw today was some short covering following Monday's long liquidation." Looking ahead to expiration today, Saal expects continued waves of buying and selling. "In the end, it will come down to who is willing to make or take delivery at that price level. Based on traders' experience for the month of May, they might think twice about going long for the second month in a row. That potential selling, Saal argues, could limit the market's upside potential, leaving it susceptible to further decay on June's last trading day.

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