American Dollar, Can it come back, why not?

Futures brokers increased bets last week that the euro will fall against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain in the dollar.

This is a testament as to who is running the show, the FUNDS! No problem as long as you get on the same side. Ok, so fundamentals do play a big part in this market. Actually the funds are willing to exit any and all positions based on world event news, if they figures out the energy markets though, it's only a matter of time before they control the dollar. Traders and commodity brokers alike are having to use technical analysis to follow these invisible market movers.

Oil up again!

The oil markets are now showing signs of mass long buying positions by the commodity index funds, again!
Over the counter swaps are a great way for a behemoth sized funds to run the market in one direction from behind the curtain. The fundamental news about Russia is an excuse used by media writers who wonder why the market decided to go up five dollars today, and not at the beginning of the conflict.
This is precisely why we need to stick to the technical charts in this controlled market. The parabolic overlay on top of the daily chart will give a commodity broker or a trader an even playing field with the manipulators.
I’m not a hater because of high gas prices. Compared to GDP, gas hasn’t been this affordable in years. I and my clients will make money whether the market goes up or down!

Oil Rises

At the pump, retail gas prices continued their decline, suggesting that cash-strapped Americans are still cutting back on their driving. A gallon of regular slipped another penny overnight to a new national average of $3.73, almost 10 percent lower than record prices of $4.114 a gallon reached July 17, according to auto club AAA, the Oil Price Information Service and Wright Express.

Crude began the day lower after Tropical Storm Fay missed oil and gas installation in the Gulf of Mexico, easing concerns about a disruption in supplies. But prices later spiked more than $3 a barrel, apparently driven higher by a surge in heating oil futures that triggered technical buy orders in energy markets, analysts said.

Heating oil futures rose 3.89 cents to settle at $3.1237 a gallon on the Nymex after earlier rising more than 3 percent to $3.1998.

"Crude's just getting pulled up by heating oil. It was a quick pop and technical triggers may have been hit," said Jim Ritterbusch, commodity broker of energy consultancy Ritterbusch and Associates in Galena, Ill.

Also supporting prices Tuesday was a slightly weaker dollar compared to the euro. The 15-nation euro traded at $1.4783, up from $1.4697 late Monday in New York. A falling greenback encourages buying among investors seeking commodities like oil as a hedge against inflation or weakness in the U.S. currency.

Crude's rally came despite the easing threat from Tropical Storm Fay. The sixth named storm of the 2008 Atlantic hurricane season swept over southwest Florida early Tuesday, bringing heavy rain and wind but staying well clear of oil and gas platforms scattered across the Gulf. The storm was moving to the north and was expected to gradually weaken during the day. Fay steamed through the Caribbean over the weekend and was blamed for at least 14 deaths in Haiti and the Dominican Republic.

Royal Dutch Shell PLC said the storm no longer threatened its oil facilities in the Gulf and that it had begun redeploying 425 evacuated workers.

"We dodged a bullet with the storm," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Some recovery in oil was expected after steep price drops over the past month. Oil prices have shed about $35, or 24 percent, from their all-time trading record $147.27 reached July 11 amid mounting evidence that a cooling global economy and high fuel costs are curtailing demand for energy.

Olivier Jakob of Petromatrix in Switzerland, however, said it was too early to assert that oil prices had reached a bottom, "especially since there is a clear lack of buying momentum."

Regarding oil fundamentals, Jakob said it was worth keeping an eye on how China's import of oil products will develop after the buildup of stocks for the Beijing Olympics. Reports of lower demand there could put further downward pressure on prices.

Meanwhile, Venezuela says it's prepared to propose an oil production cut at the next OPEC meeting if crude prices decline further. Oil Minister Rafael Ramirez said in a statement Tuesday that if prices continue to ease, "Venezuela would have to analyze the possibility of a production cut," a move that would likely send prices higher.

Analysts said uncertainty over the conflict between Russia and Georgia will also support oil pricing. Russia has begun withdrawing troops, but U.S. officials said Moscow has positioned missile launchers in the separatist South Ossetia province.

In other Nymex trading, gasoline prices rose 4.87 cents to settle at $2.639 a gallon, while natural gas futures added 8.8 cents to settle at $7.976 per 1,000 cubic feet. In London, October Brent crude rose $1.31 to settle at $113.25 a barrel.

Associated Press writers Pablo Gorondi in Budapest, Hungary and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

Falling Commodity Prices

Don't look now, but oil prices are on their way back down.

Just as consumers and businesses seemed to be growing accustomed to an incrementally more expensive life, the marketplace has abruptly, if temporarily, shifted course. After months of steeply rising prices, oil prices are down 20 percent in the last four weeks and a marketbasket of commodities, including corn and wheat, is down 15 percent.

The sharp reversal, which has seen pump prices slide back toward $4 a gallon when many drivers feared $5, is creating another deep gasp of confusion for consumers, who are second-guessing what happens next and which changes in prices and buying habits are likely to stick.

To Chris Hausman, a farmer in Pesotum, in east-central Illinois, recent steep drops in oil and grain prices are just the latest jolt. Prices for the corn and soybeans he grows spiked to records a few months ago over fear that Midwestern flooding would zap the 2008 crop. But now, under fair skies, the value of his crops has dropped sharply.

Hausman had to decide a few days ago whether to buy fertilizer at roughly triple what it cost him five years ago. Or he could wait and hope the decline in oil prices, a chief fertilizer component, would show up soon in the price of the product.

Hausman plunked down his money.

"I didn't want to take the risk that oil prices would turn around and fertilizer would jump even more," Hausman said.

Across the country, consumers and businesses are wondering about the same sorts of questions: Continue to expect $5 gas, or something more reasonable? Keep draconian plans in place to cut energy consumption, or ease up a little?

But don't rush out and buy a gas guzzler just yet.

Food price increase

Despite the steep drop in prices for oil, which has fallen from $145 a barrel in early July to just over $114 Monday, few economists expect oil to return quickly to the $60 range it traded at before the steep price increases started two years ago. And consumers, jolted by a nearly 7 percent jump in food prices during the first half of this year, aren't likely to see any immediate benefits from the recent drop in commodities prices.

Oil prices are down for several reasons, including the continued expectation that a slow U.S. economy, and slowing economies abroad, will affect global demand into next year. But other factors could cause oil prices to quickly reverse course and head higher again. Russia's military conflict with the nation of Georgia is raising international tensions that could boost oil prices, for example.

And recent declines in agricultural commodities could change abruptly, too, depending on the weather. Meat prices seem set for a climb. Farmers slaughtered an extraordinarily large number of animals this summer, due to sky-high feed costs, causing prices to slip. Prices this fall could rise because of smaller livestock herds.

Amid the uncertainty, don't expect any major price relief anywhere in the grocery store.

Packaged goods-makers, after suffering through several months of pinched profit margins, will do all they can to keep consumer prices high, even though their costs for wheat, corn and other raw materials are falling. Milk has dropped 15 percent from a year ago, and wheat has fallen $2 a bushel.

"Oil went bananas, and wheat and corn went so crazy, the food companies kind of got caught out on that," said Alexia Howard, senior analyst for Bernstein Research. "Now we've gotten to the point that they're going to be very conservative with any price cuts. They don't want to be caught being overoptimistic."

Howard anticipates a repeat of the cycle seen a decade ago. Food companies saw margins squeezed as commodities prices rose in 1995 and 1996, then raked in far larger profits in 1997, as their costs declined.

Procter & Gamble just three months ago figured its input costs would jump $2 billion during the fiscal year that began July 1. In a conference call last week, the maker of Tide soap, Crest toothpaste and many other products said it now expects costs to jump $3 billion.

Northfield-based Kraft expects its costs to rise by $2 billion for all of 2008. Irene Rosenfeld, Kraft's chief executive, said the entire industry is expecting big cost hikes, despite a table the company displayed to analysts last week showing declines in prices for wheat and other commodities.

"They're all coming to understand that this isn't going away any time soon," Rosenfeld said.

Kraft pushed through a 7 percent price increase earlier this year, causing its total revenues to rise even though sales volume fell by 1 percent.

Downers Grove-based Sara Lee got in the act last month, pushing through a 5 percent price increase in its packaged meats.

Changing behavior

Consumers have noticed. And some have begun to change their behavior.

Valerie Simich's daughter and two young granddaughters, on a shopping trip to Costco on the far Southwest Side, bought house-brand snacks instead of brand-name products. They had planned to buy a package of hamburger patties, which cost $12.99 a few months ago, but balked at the $16 price.

"I think the worst is yet to come," Simich said. "It's going to get worse, long before it gets better."

Dave Rogers, 41, a salesman from Evergreen Park, said he does not expect to get any relief from falling commodities.

"As commodity prices go down, the companies are going to keep prices up," he said. "They're going to milk whatever they can to recoup the losses they've had over the last year or two."

Indeed, companies will be reluctant to cut prices, say advertising and marketing experts. Yet they also have to find a way to market products to consumers whose pocketbooks are tightly battened down.

Steffan Postaer, chief creative officer of advertising agency Euro RSCG Chicago, said clients such as Valspar Paint, Anheuser-Busch and the mattress manufacturing industry have so far not seen any evidence the recent drop in prices for raw materials will have an "echo," in which consumers will demand price cuts too.

Oil prices have dropped about 20 percent in a little more than a month, but that may not mean it's time to put the pedal back to the metal for long recreational drives.

It's true that a weakening economy, a sell-off by speculators and a stronger dollar have broken the momentum that sent crude near $150 a barrel hardly a month ago. But in this case, what goes down may come up once the drop in prices makes fuel consumption more attractive.

Last summer, Americans breezed through once-unthinkable $3-per-gallon gasoline, driving as much as they did in 2006 while starting to choose more fuel-efficient cars, said Mary Novak, managing director of North American Energy Services for Lexington, Mass.-based energy consultancy Global Insight.

"It took $4 gasoline to get people to actually drive less," Novak said Friday, as crude closed down $4.82 at $115.20 on the New York Mercantile Exchange, a 20 percent drop from the record high close of $145.29 on July 3.

That run-up had some analysts predicting oil could rise as high as $200 a barrel this year.

But Lehman Bros. said in a report Friday that the bubble is "almost certainly" over.

"Heavy selling as energy trading the energy -- and broader commodity -- complex has infected once indomitable crude oil," the report said. "Barring a physical disruption that may temporarily spike prices, we judge that oil prices have peaked for the next few years."

Still, Novak said oil prices need to stay in triple digits, with corresponding gasoline prices around $3.60 a gallon, to sustain the decreased demand. Otherwise, demand could rebound, pushing prices back up.

"If we don't continue to drive less, the supply/demand balance will tighten back up," she said.

The national average for a gallon of regular gasoline was $3.84 on Friday, down 28 cents from $4.11 a month ago, according to AAA. Texas' average fell to $3.72 from $3.96 in the same span, and Houston's to $3.69 from $3.94.

Michael Stugotts, a futures broker at Interwoven Capital, said prices could fall back to $100 a barrel, but not much lower. Saudi Arabia, Russia, Venezuela and other major global producers took a liking to $100 oil -- which didn't dent demand -- and could reduce output to keep the three-figure price.

"Prices may go below that for a while, but not for any real period of time," he said. "Make no mistake, they all like $100 oil."

Oil's rapid rise -- $100 to $140 from the first of April to the end of June, and higher through the first few days of July -- left plenty of analysts wondering where the tipping point might be.

Increasing energy thirst in booming economies in China, India and the Middle East overshadowed the weakening U.S. economy and rising inventories, and geopolitics contributed with concerns about Iran's nuclear ambitions and civil unrest in oil-rich Nigeria.

Congress, the Organization of the Petroleum Exporting Countries and some analysts blamed speculators, such as hedge funds and pension funds, for pouring money into commodities as a safe having against inflation and falling stocks.

But the Commodity Futures Trading Commission countered that fundamental supply and demand issues were the "best explanation" for crude's ascent.

And the slumping dollar, further weakened by the Federal Reserve's string of interest rate cuts, drove more foreign investment in commodities said a commodity broker

This week the greenback got some of its mojo back.

The euro fell below $1.50 Friday for the first time in more than five months after European Central Bank President Jean-Claude Trichet said Thursday that economic growth would be weak through September.

"I would say that the dollar has really staged a pretty impressive rebound. It's somewhat tangential to the oil markets, but there appears to be a shift in how the dollar is being looked at," said Addison Armstrong, director of market research for Tradition Energy in Stamford, Conn.

He said $34 billion in foreign funds went into the U.S. Treasury market this week, demonstrating that investors are looking to it as a safe haven "for the first time in a long time."

That faith in U.S. government securities is good for the dollar, he said.

And oil's drop appears to show that the market has finally recognized shrinking demand in the U.S., Europe and other industrialized nations, said James Williams, head of WTRG Economics, an Arkansas-based energy consulting firm.

"The market has realized that, 'Hey, we're not using as much crude oil as we were, particularly in the United States,' " he said. "Our consumption is probably down 4 to 4.5 percent. That's approaching 1 million barrels a day down from last year."

SemGroup Energy Partners continued its comeback from the bankruptcy of parent SemGroup LP with another sizable jump on the stock market Friday. Shares of the Tulsa-based oil and asphalt storage and transport company closed at $10.91 per unit on the Nasdaq Stock Market, up 11 percent from its Thursday close at $9.83.

The good news was marred, however, when Nasdaq staffers sent SGLP -- as it is known on the ticker -- a warning letter Thursday that the company was in violation of the index's audit committee rules.

Nasdaq requires three independent members on the company's audit committee, but SGLP had only two.

The deficiency started when two hedge funds, Manchester Securities and Alerian Capital Management, took board control after SemGroup LP defaulted on a $150 million loan from the two creditors, according reports. The two funds moved three members onto the board July 18.

The company has until next year to fix the deficiency.

SemGroup Energy Trading otherwise has not had a better closing since finishing at $11 per share July

17.

Its value that day dropped drastically from $22.72 as SemGroup LP's debt and cash flow crises became public knowledge as a futures broker.

Privately held SemGroup LP spun off SGLP into a publicly traded entity in July 2007. The public company gets most of its revenue from storage and transportation services for the parent operation.

The public company is not named as a debtor in SemGroup LP's bankruptcy case, and SGLP officials say they want to keep doing business by finding more third-party customers.

Some analysts contend that SGLP maintains a strong value because of its $262 million in assets, according to investor reports.

The company owns millions of barrels' worth of storage, pipeline capacity and terminal facilities, according to reports by senior energy analyst Jason Blaylock with Interwoven Capital.

Others, however, caution that the company has a hard road ahead because it must eventually replace the parent SemGroup's business.

SemGroup Energy Partners also has about $295 million in debt.

It is also the subject of several lawsuits.

The suits contend that the company violated securities laws and misled shareholders about the parent company's financial health in a stock offering earlier this year.

SemGroup LP collapsed after co-founder Tom Kivisto and other traders allegedly lost $2.4 billion of the company's money in failed hedging attempts on the oil futures market.

Republican challenger Marty Gearheart sees no difference in removing oil from the Arctic National Wildlife Refuge than the daily digging of coal from the rugged mountains of West Virginia.

For that reason, he wants Rep. Nick Rahall, D-W.Va., to accept his repeated invitations to debate him on his refusal to support ANWR drilling as a means of putting more domestic oil into the market and hopefully lowering gas prices.Not to mention running off the people interested in energy trading.

Rahall has steadfastly opposed ANWR drilling, saying the pristine area needs to be protected, and, from a practical standpoint, it would take 20 years to produce sufficient oil to cut the price at the pumps by an estimated 1.8 cents a gallon.

"That area is no more pristine than the mountains from which we obtain coal every day here in West Virginia," Gearheart countered. "The product is available. It takes a very small footprint in order to obtain the product that's there."

Gearheart said all available forms of energy must be explored and used to make the nation energy-independent. Previousley Gearhart was a commodity broker.

"We've got to go get what we have, the products out there, and the oil companies are simply being precluded from obtaining that product by a congressional mandate," he said.

Rahall said in an interview this week he favors drilling in Alaska in a region dubbed the Nation Petroleum Reserve, where there is more "identifiable oil and gas" than in ANWR.

"There is not enough there (ANWR) in an environmentally pristine area to make a difference," the 3rd District congressman said.

Gearheart disagreed Friday, saying the area wouldn't be harmed by industrial drilling.

"Actually, I don't think the extraction of oil from that part of the country would have a tremendous effect and I certainly don't think there is any need of protection than where we extract coal every day," he said.

From security and economic standpoints, Gearheart said, it is imperative that the nation get oil where it's available.

"And the people of Alaska aren't opposed to it," he said. "We simply are not allowed to do by the vote of Congress."

Gearheart said he has attempted often to get Rahall to meet him in a debate in this congressional race, but has been turned down repeatedly.

"If Mr. Rahall were willing to appear in any way, shape or form with me, I would be there with bells on," the Bluefield a futures broker said. "He has rejected every overture to that effect."

Finding

The key word in the title of this article is “Finding.” One of the questions we are frequently asked as a Futures Broker is, “What is the best market for me to trade?” This seems like a very reasonable question and people become frustrated when the answer is “It depends.”

Imagine if you will, that the time had come to replace your car and that you had the opportunity to ask Michael Schumacher for his opinion as to the best car you could get. What might his possible answers be?

A Ferrari
Something with maximum power to weight ratio
Anything red with superb traction in corners

click here for more detail

Or he might say, “It depends. What do you want it for, how much do you want to spend, what trade-off can you accept between performance and running costs, do you want spare parts and servicing available promptly, anywhere?"

Back to trading again, there are specific characteristics of different markets be they stocks, currencies, index futures or commodity futures that can work better or worse with different trading plans but unfortunately there is not a brochure that neatly tabulates the features for comparison.

Finally, there is the unfortunate fact that the markets are greatly affected by human emotion and mass psychology so they can be capricious and change their character for no obvious reason. For example on the 11th July Oil touched 147 USD and yet on the 5th August reached as low as 120 USD, an 18% decline in 16 trading days. Does it seem likely that the world’s energy trading fundamentals have changed this quickly? No of course not, but as traders we don’t particularly care so long as we know how to capture some of that short but highly profitable move.

Closely related to our first question, is “How do I get more consistent results from my ABC Trading Plan as taught in the Smarter Starter Pack?” Often, this is a question arising from having expectations which exceed our current level of study and experience. Would we give our children the keys to a car, point out the steering wheel, the “go” pedal, the “stop” pedal, and tell them to read the RTA book of road signs and expect them to drive safely in the city and the country, in day and night, in sun fog or snow and to watch out for drivers who break the rules?

It is common sense that we would not do this, but every week people excitedly rush into their first trade having not completed the reading, watching or practicing aspects of their education, having not spent enough time understanding the powerful software tools they own, and having not tested their plan on their chosen market.

Yet the excitement and desire to be successful dulls our perception of danger. We have all been there but as independent, self-directed traders and investors we owe it to ourselves to note W.D. Gann’s words in Speculation, A Profitable Profession – “Remember that the harder you work as a commodity broker, the more knowledge you will get, and the more profits you will make.”

Rather than being a “One Size Fits All” proposition, the “ABC Trading Plan” is in fact a framework of trading plan options that can be shaped to specific goals. It is essential that we each make it our own so in future articles I will further explore some of those choices.

Volotility

In the world of a futures broker this volatility can be a invitation to an ulcer or sleeplessness due to a constant pressure headache. Energy Trading and commodity trading ingeneral can be bad for long term health, which is why a number of Futures brokers are putting a percentage of their clients funds in managed futures. "With all the behind the scenes over the counter swaps, commodities are being whipped around so fast it's hard to gage direction even with the best technical analysis says Senior Commodities Broker Ryan Silmon with Interwoven Capital.

"The national average price for a gallon of regular gas fell to $3.826 from $3.836 the previous day. That's down 7% from the record high of $4.114 that gas prices hit on July 16."

But falling oil prices also suggest that the recession the U.S. has so far avoided is well on its way, as consumers pull back from the spending spree that drove economic growth earlier this decade. A weakening economy will mean more layoffs, further pressuring already reduced spending.

"There is no doubt that with gasoline prices dipping below $3.90 a gallon we have a bit of a reprieve on the energy front," Merrill Lynch Futures Broker David Rosenberg wrote in a report Monday, "but the reality is that this is a chicken and egg game because the decline is reflecting the consumer recession."

Energy use down

Perhaps the biggest factor behind the recent 18% drop in the price of a barrel of crude is sinking North American demand. Federal Highway Administration data show the number of miles driven in the U.S. dropped from year-ago levels for the seventh straight month in May.

May's decline was the third-largest monthly drop on record since 1942, says Stephen Schork, editor of the Schork Report energy and shipping newsletter in Villanova, Pa.

Americans are driving 4% less now than they were a year ago, Rosenberg writes, while energy use in inflation-adjusted terms has dropped 2% - an event he calls "extremely rare."

The pullback comes after the recent crude-price surge - the cost of a barrel doubled between Labor Day of 2007 and July 11 - seriously damaged the industrial economy, which despite its long decline remains a crucial source of better-paying jobs.

General Motors (GM, Fortune 500) on Friday posted a $15.5 billion second-quarter loss, as sales plunged 18% from a year ago. The company and rival Ford (F, Fortune 500) have slashed truck production, laid off thousands of workers and refocused on smaller cars as buyers flee the light trucks that had made the companies so much money.

Americans' decision to drive less comes at a time of rising stress. The economy has been hemorrhaging jobs and real wages, adjusted for inflation, have been flat to lower for a decade. Americans have enjoyed a rising standard of living in the meantime by borrowing - but with banks choking on subprime mortgages gone bad, the loan window is closing. Rosenberg calls a recent rise in the savings rate "a vivid sign that frugality is now replacing frivolity."

Meanwhile, the weak economy is spurring more companies to cut back. Outplacement firm Challenger Gray & Christmas said Monday that layoff announcements jumped 26% from a month ago in July. The unemployment rate recently hit a four-year high at 5.7%.

How low can it go?

One unhappy fact is that a drop in the price of oil won't bring back many of the jobs lost over the past year to the energy-cost surge. Even were gas to fall to $3 a gallon - a move that is by no means assured - no one is going to beat a path to the dealership to buy pick-ups and SUVs that are now, in many cases, being phased out. GM recently announced plans to shut four SUV plants.

On a happier note, there is hope that the decline in energy trading has just begun. While Schork says it's anyone's guess where crude will trade - "By the end of the third quarter, there's a good chance oil could be below $100 a barrel, and a good chance it could be above $150," he says - others see a chance that the commodity, having enjoyed a head-spinning runup, could also drop more than anyone expects. Economist Jim Griffin notes at the ING Investment Weekly that crude's rally earlier this year became "nearly parabolic" - a sign that the decline could be steep.

Now a return to double-digit oil may not rescue the Hummer. But as the government's fiscal stimulus program did earlier this year, it could give consumers a little more change in their pockets, either to spend, salt away - or pay down their debts.