Notes on the 2nd Quarter

At the close of 1Q’09 I sent clients the FIA’s “Annual Volume Survey” to assail doubts they were having over their trading systems. In essence I told them that it was a failure of the “marketplace” itself that was to blame for their trading system’s sub-par performance. I compared volume and open interest from 1Q08 to 1 Q09 to illustrate how the debt crisis was impacting the market place. At that time, corn OI was down 42% from the prior year and volume was 25% below year ago levels. In crude oil, OI was down 16% with volume down 23%...
During this quarter corn OI jumped 25% m-o-m and is now 2% below 2Q08.
While crude oil OI is 20% below same time last year numbers, with volume almost 50% below year-ago numbers. In the financials, both OI and volume levels are about 50% below last year.
But these y-o-y comparisons don’t give an accurate assessment of where the markets are today. If you will remember, last year had two distinct phases: the boom in the first half & the bust in the second half. Investor activity peaked in the second quarter and then quickly disappeared as dire financial news spread through the second half of the year.
Year-to-date activity levels have been mixed so far this year as this table illustrates;
%Y-T-D Change Volume OI
Corn +12% +17%
Crude +1% -5%
Ten Year Note +30% -3%

So for now, a systemic market collapse has been avoided and people still have to eat (grains), drive (crude) and emerging markets will continue to build industrial plants (base metals).

Technically, commodity prices have plenty of room to rebound on the upside after last year’s dramatic collapse