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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