6/27/12 – Commodity Update
Energy: Crude oil traded above but settled just under the 8 day MA. A base appears to be forming as aggressive traders could probe longs with stops under the recent lows. My first upside target for those brave enough for longs is $86 in August. Heating oil settled above the 8 day MA gaining 0.70% to settle at a 1 week high. Next resistance is seen at $2.61 in August followed by $2.69. RBOB traded above but settled just under the 8 day MA. Upside resistance at $2.66 with support at $2.45…could go either way. On its highs natural gas traded to 4 month highs but a mid day reversal puts prices back under resistance. I’m operating under the influence an interim high is in place and we experience a setback. A 20-30 cent pullback in futures is my expectation.
Stock Indices: Stocks could go either way…I expect a choppy trade and though I have a bearish bias there no reason to be in the market.
Metals: Gold continues to dance between $1570-1585. I think a leg lower is due and as long as August remains below $1590 I remain in that camp. Silver appears to be in the beginning stages of a lower leg that I think drags prices to new lows. If September gets below $26.50 I believe prices get close to $24/ounce. I’d prefer to be a buyer from lower levels than a seller all things considered.
Softs: Cocoa has advanced nearly 6% in the last 2 sessions lifting prices back over the 50 day MA. Three times a charm as prices appear to be finding plenty of buying around 2100 as seen on the last three probes in recent months. I think prices could add an additional 6% fairly easily. Sugar is back on the move advancing for the last 3 sessions with prices now closing over the 50 day MA for only the second time since early April. I like buying dips as we should see another 5%. Coffee should continue to climb higher and I view today as pause in a bigger appreciation. My targets remain the 50 day and then 100 day MAs.
Treasuries: The chart in 10-yr notes and 30-y bonds looks like a flat line as this market is DEAD. As long as the 9 and 20 day MAs contain upside traders could have bearish trades in place. My favored play is light exposure in put options only because I’ve been fooled so many times on false breakdowns. I’m expecting a big enough move south that once it starts if we miss the first 2-3% there should be plenty of room so don’t force the trade.
Livestock: An interim low appears to be in place for both live and feeder cattle. With the key reversals today take all remaining bearish trades off and book profits. Rejection of lows, bullish engulfing candles on good volume is good enough for me to think we trade north. It may be temporary so stay tuned but exit shorts is the message. Similar story with lean hogs as prices could bounce form here. Those short from higher levels exit and move to the sidelines.
Grains: Trail stops in Ag…not because I think we’re done going higher but prices may have gotten ahead of themselves in corn and wheat. December corn in the last 2 weeks is higher by nearly 25%. Wheat prices have nearly gained d20%. Am I bearish…no but too much too fast we can get steep corrections. I am anticipating a break in soybeans as well. A 50% Fib retracement on the most recent leg puts November back near $13.40. If that happens I’d consider longs but I do not see that happening ahead of Friday’s USDA so without a break I do not feel comfortable in soybeans into the report. Just as oats signaled a gain 2 weeks ago there are preliminary signs that oats have reversed. Don’t be shocked to see oats lead grains lower short-term.
Currencies: The greenback closed above the 20 day MA for the first time in 2 weeks. This will be the pivot point so if prices support expect a challenge of the highs in May. If that is the case which remains to be seen imagine weakness in other crosses. The two weakest candidates in my eyes are the Euro and Pound. For a trade aggressive traders could short the Yen with stops just above the 20 day MA on the daily chart.
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