Commodity Update : August 19, 2013

As of yesterday's close, Crude oil was lower by 0.54% as the 8 day MA held on the lows. I suspect this support level will give way in the coming sessions as October trades towards its 50 day MA, currently just below $102/barrel. My suggested strategy is short futures with an options leg for protection. RBOB was down 1.06% to close under its 8 and 18 day MAs yesterday. I suspect lower trade but think the crack spread will not fare as bad as yesterday. In September widening 2.25 cents yesterday to drag the spread to 13.75. I have clients that are under water on this spread as we started to initiate at 10 cents. For fresh entries obviously I still like the trade though I did not double down for those early entries. Higher trade was rejected in heating oil around the same levels that served as resistance in recent months. Futures closed 3 cents off their highs and we should see more selling to follow in my opinion. Yesterday’s chart of the day was natural gas. Futures gained 2.77% to their highest close in 2 weeks. A trade above the trend line should cause more short covering as bulls still are in control.

Stock Indices: The S&P closed under its 50 day MA yesterday, for the first time since 7/3. Futures are 60 points off their record highs and the next target is the 100 day MA, currently at 1625. Those in September back ratio spreads should look for an exit door on additional 2-3% depreciation. The Dow closed under its 100 day MA for the first time in '13. The next stiff support is seen 300 points lower just above the June lows. I anticipate lower trade in both indices and have advised clients to lighten up and book profits on longs that have developed in recent months.

Metals: Gold probed its 100 day MA but failed to close above that key pivot point, closing lower for the first time in four sessions. If December cannot take out $1380/ounce in the next 48 hours, I say a correction commences. First stop should be the 50 day MA, currently at $1307. Silver closed lower for only the second time in the last nine days. Upside resistance is seen just over $24 while I think it is more likely we get some back and fill action as futures have advanced $4.50 in the last two weeks virtually in a straight line. First support is seen at the 100 day MA, currently at $22.20 followed by the 50 day MA at $20.30.

Softs: Cocoa gained 0.78% but as of the close, futures are $44 off their lows. $2475 continues to act as resistance in September futures. Those probing bearish trades are advised to purchase put options. Sugar lost 2.42% closing at its 61.8% Fibonacci level and under its 50 day MA. I did not start buying yet for clients and would not rule out a trade back near recent lows…stay tuned. Inside day in cotton yesterday, closing back under 93 cents. I’ve suggested bearish trade believing we trade back into the mid 80s in the coming weeks. OJ was higher by 3% as the forecasted bounce appears to be playing out. I suspect November has another nickel upside before selling returns. December coffee closed lower for the third consecutive session. We need a close above the 50 day MA, currently just beyond $125 to see the bulls return. My advice is long futures with options protection.

Treasuries: 30-yr bonds have lost ground 5 out of the last 6 sessions, yesterday closing at their lowest levels in 2 years. A trade to 129’00 which is approximately 1 ½ points under current trade represents a 50% Fibonacci retracement over the last 8 years. A challenge of the trend line that has held since '07 comes in just above 127’00. As long as futures remain under their 9 and 20 day MAs the bears remain in control. 10-yr notes got within ticks of their lows from July as we will likely see fresh lows this week. I suspect there are stops just under those levels so on a breach in the coming days look for stops to be run. The 9 and 20 day MAs remain your bullish/bearish pivot points. Eurodollar futures are down 30-40 points in the last week on the 16’ contracts that I am trading with clients. Continue to fade rallies building a bearish position into next month’s FOMC meeting.

Livestock: Inside day in live cattle yesterday as futures continue to consolidate around their highs. Indecision exists until we close under the 9 day MA or close at fresh highs. I expect in the coming sessions a decision to be made and I am leaning to the bearish side. Lean hogs closed lower for the third session running completing 38.2% retracement finding support at its 9 day MA. A settlement below 86 should lead to a trade back to 84 in my opinion.

Grains: Adverse weather over the weekend in the Plains and Midwest had grain bulls in the driver’s seat yesterday. Corn rocketed above its 18 day MA gaining 4.75% on the session. The next upside resistance level comes in at the 38.2% Fib level followed by the 50% level at $4.95 and $5.10 respectively. November soybeans finally traded above $13/bushel adding 3.49% on the day. Next upside resistance is seen at $13.30 and we will be there if the hot dry weather persists. December wheat gained 1.55% to close above its 9 day MA for the first time since 8/2. Aggressive traders could start probing bullish trade with stops just under the 9 day MA with an upside target of $6.73; the 50 day MA.

Currencies: Muted action in FX yesterday with very little tradable action in my eyes. Scanning the charts end of day the only thing that jumped out at me was the failed breakout in the Kiwi. In early action we traded to three month highs but futures closed almost penny off their highs. Notable action the next few days include the release of RBA minutes and Fed minutes and then the annual Jackson Hole Symposium. As for releases that I feel could have market impact it is a light week with GBP Q2 GDP and CPI out of Canada the only noteworthy releases. I’m searching for more guidance to issue any fresh ideas for clients. Our only exposure is bearish option trades in the Cable currently.

Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.