7/3/12 – Commodity Update
Energy: Crude was higher by nearly 5% today closing at a 5 week high as prices are fast approaching $90/barrel. I’ve asserted that an interim bottom is in for the summer and traders should be buying dips moving forward. My upside targets in August are $90 followed by $94. RBOB has advanced greater than 20 cents in the last 3 sessions and is well above the trend line mentioned last week as prices approach the 50 day MA; a level that prices have been under since mid-April. Further upside is expected as the 50% Fibonacci level is approximately 13 cents above today’s close. Heating oil should too see further upside; a 50% Fibonacci retracement in August would lift prices back near $2.92/gallon. Natural gas closed at its highest level since late February but I’m still in the camp that a correction is due. The 8 day MA has served as solid support so we first must see a close below that level. In August that pivot comes in at $2.78.
Stock Indices: Stocks were able to close slightly higher bringing prices to their highest levels in nearly 2 months and it appears on the daily chart we have a flag and pennant formation. What this means is that as long as prices can stay above Mondays lows on a closing basis we should see acceleration higher. Support is seen at 12720 in the Dow and 1350 in the S&P. As for upside targets I see 13000 in the Dow and 1390 in the S&P.
Metals: August gold broke above its 50 day MA to gain 1.5% on the session. Prices are approaching the 38.2% Fib level again and on this leg I’m thinking we can get above $1635 and make our way near $1665. The next upside resistance comes in at the 100 day MA at $1646. Silver appreciated 2.85% today to close at 2 week highs. Prices have yet to penetrate the 50 day MA at $28.70 in September but expect that around the bend. Outside market influence and some more buying should get futures back near $29.50. Copper closed above its 50 day MA for the first time since mid-May completing a 38.2% Fibonacci retracement trading above $3.54 today. Regular followers should recognize that was our target for weeks now. Next stop should be $3.62.
Softs: Cocoa gained 2.6% to close near 2 month highs. If prices can get above previous resistance about $25 above today’s close prices could challenge 2012 highs about 7% from today’s settlement. Sugar gained 2.7% to complete a 50% Fibonacci retracement and trade within a few ticks of it’s 100 day MA. A level that prices have been below since mid-April. I see further upside and have my next target in October at 22.50. Cotton has gained for the last four sessions but my target in December remains 77 cents so we still have 6% to go in my opinion. Coffee gained 3.35% today to get within spitting distance of its 100 day MA…my target from 2 weeks ago. In that time frame prices have appreciated nearly 20%. My objective should be achieved the next few sessions. My advice is exit the trade as a 20% move in 2 weeks is likely not sustainable.
Treasuries: Continue to use the 9 and 20 day MAs as your pivot points to help navigate futures trades in 30-yr bonds and 10-yr notes. I am bearish when prices are below those levels and neutral when prices are above those pivot points. As for option trades the direction should be down so I’m ok being long puts into Fridays NFP.
Livestock: August live cattle are in no man’s land which means previous bought longs should trail stops but I would not be establishing new trades at this juncture. If August can hold onto 118.00 on a closing basis I think we get a shot at 122.00 in the futures into next week. Feeder cattle broke down today losing 1.5% as the 9 day MA remains the line in the sand capping any further upside. Prices appear to be headed lower. I do not see much more upside in lean hogs until we get a retracement. After the 8% advance last week we need some back and fill to see higher levels in my opinion. Those long trail stops.
Grains: Corn picked up nearly 3% closing higher for the eighth consecutive session. I’m not ruling out higher prices in fact I see that as the likely scenario but those long should lock in profits. I’m willing to buy on a retracement as my advice is move to the sidelines and look to re-establish longs on a pullback. Soybeans gained 2.5% today to lift prices to their highest levels since the summer of 2008. There is no real resistance for another 80 cents to $1 but I would not be long until a correction happens. If carrying a large profit tighten up stops or use options to hedge against a correction. Wheat also was higher by almost 3% putting prices back above $8/bushel. I do not see resistance for another 3.5% but a correction here is also not out of the question. The moral of the story is any of the grains could fall 30-50 cents doing no long term chart damage so the sound move would be to book partial profits on longs.
Currencies: The dollar remains under the trend line and if prices can break the 50 day MA a trade under 81.00 in the September contract is likely. As long as the Euro, Pound and Swissie remain above their 20 day MA I remain mildly friendly. The Kiwi and Aussie have seen the most significant upside of late but that will continue as long as the move higher in commodities continues. As for the Yen aggressive traders can get short with stops just above the 20 day MA; a risk of about $500/contract from current prices.
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