Commodities Continue To Kick The Can

A serious reversal in energies, today, as Crude will finish down over 3% near its lows for the day. Prices will finish almost $6 off their highs from last night as a bearish engulfing candle forms. This move is testing my bullish resolve as prices appear to be headed further south. I would not initiate fresh longs and expect further weakness tomorrow. I would suggest cutting losses on open longs.

RBOB will get clipped for just shy of 2%, having similar misfortune with a 12-cent reversal. Heating oil lost just better than 2%, closing almost 14 cents off its intra-day highs. I would be very cautious as the recent lows on all three products must hold or a new leg lower will follow. Natural gas started the week trading lower, dragging prices to seven-week lows. Prices are now within 5% of their contact lows hit in mid-April and I would not rule out a challenge of those levels. If prices trade near that level and hold, I may suggest probing longs…stay tuned.
 
Stock Indices
Securities started the week in the red losing 1.5-1.6%. Though I have no direct client exposure in the indices, forced into the market I would prefer being a seller than a buyer. Overnight, stocks came within spitting distance of their 50-day MA mentioned last week as my next upside target, but settled below the 20-day MA. Next support is seen at the 9-day MA. From here I would expect prices to find their way to last week’s lows, which would be a 3% deprecation in both the Dow and S&P.
 
Metals
August gold traded slightly lower closing just below $1600/ounce. I see value buying under that pivot point thinking prices will be appreciably higher in the coming weeks to months. I suggest gaining bullish exposure in both options and futures. Silver futures were able to hold the $28.50 level, which is mildly bullish but I would like a clearer picture before putting any size on. My take? As long as prices remain above $28/ounce, I remain friendly. Copper appears to be forming a base, trading sideways for the last week. We should see a bounce in the coming weeks but I prefer the sidelines.
 
Softs
In recent days cocoa has had trouble holding above the 50-day MA. Those that are long should tighten up stops as prices may correct short term. Remember the inverse relationship to the US dollar. Sugar closed above the down-sloping trend line that was featured last week. That's a big deal because the trend line capped all upside for the last four months. I expect further appreciation and have advised bullish exposure. I would need to see a 6-10% appreciation before advising shorts in cotton. The next significant resistance in the December contract comes in just above 77 cents.
 
Treasuries
30-yr bonds finished higher for the first time in six sessions. Prices are currently trading below resistance; the 9-day MA and above, support as I see it at the 20-day MA. The same circumstances in 10-yr notes as prices are stuck between support and resistance. Although I am bearish it will be tough to see lower pricing short term in the face of a failing equity market as this relationship should be inverse. Exit bearish and trade with a close above the 9-day MA. In 10-yr notes above 133’27 and above 149’25 in 30-yr bonds.
 
Livestock
I am still unclear on live cattle so I do not wish to have client exposure. Feeder cattle prices were bid higher, lifting prices to two-week highs and within 1.6% of contract highs. Prices should continue to trade higher short-term but I will be absent. Today’s chart of the day was lean hogs. I think it is a viable play for traders to gain bearish exposure as prices appear to be rolling over. This would be confirmed with a settlement below the 9-day MA…expect this in the next few days in my opinion. My target in October is 80.75 cents.
 
Grains
After a near 7% appreciation in corn, last week, some back and fill is expected. Use a further set back in December to gain bullish exposure. I want to have some long exposure into the month-end USDA report. Long-wheat trades from last week should have stops just under $6.10 in July as to not give back too much. Those content with the current profit could go to the sidelines as prices could trade lower short term. Soybeans have competed a 61.8% Fibonacci retracement as aggressive traders could gain bearish exposure. My suggestion would be to exit at a loss above recent highs with a downside target of 30-45 cents. Move to the sidelines in soybean oil at a profit or loss as the action in Crude today has me skeptical and, as you can infer, I am bearish soybeans.
 
Currencies
For the second day running the dollar closed above the 20-day MA just above 82.50 in June. I recognize the greenback remains the world’s reserve currency but I think we’ve factored in the worst and when reality sets in, we'll see a trade lower. I’m not calling for things to fall apart, just a trade back under 81.00…trade accordingly. As for open positions in other crosses, I suggest tightening up stops as I continue to get mixed signals. Let the market either make you money or take you out of your positions.
 
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