Commodity Update: As Crude Remains Steady, Stay The Course

I’m not clear on what the catalyst will be but it will take a close under $94 in October Crude oil futures to signal an interim top. My suggestion has been to wade into bearish trades thinking a correction will come soon. As long as prices remain under $98/barrel I would stay the course. RBOB appears to have climbed high enough but a settlement under the 8 day MA would instill more confidence in calling for a correction. That pivot point is at $2.8415 in October.

Heating oil has closed lower the last two sessions but like RBOB the 8 day MA remains the line in the sand. Once we see a settlement below that level I would anticipate a 15-20 correction in both distillates. The 50 day MA has supported in natural gas now going on three sessions. Aggressive traders could wade back into longs with stops just under that level, in October under $2.73.

Stock Indices: After a 12% advance in the last 2 1/2 months stocks are pausing just above 1400 in the S&P and 13200 in the Dow. Lighten up on longs as to not get caught with your pants down albeit if we only get a profit taking correction. It will take closes under the 9 and 20 day MA to confirm an interim top.

Metals: Gold has made very little headway even though today was the fourth successive positive close. In that time December futures have put on less than $30/ounce. Mild support is seen at the 100 day MA at $1615 with the next upside resistance at the 200-day MA at $1660. Silver gained 2.65% today to lift prices to 2 month highs as prices are on the verge of closing above the 100-day MA for the first time since early April. Support is seen under $28/ounce and if prices break out I think this leg could lift prices north of $30. Platinum continued to tear up nearly 7% in the last 3 days.

Softs: September cocoa failed to break above 2500 after two days of attempts. I’d like to see a close back under 2400 in this contract but a 5-8% correction is still my prediction. Don’t call it a comeback as sugar closed positive the last two sessions. I’ve advised probing long entries thinking we get a bounce from oversold levels. Longer term swing traders could start building a position in 2013 contracts in my opinion.

For 3 weeks now cotton has tried to find its footing trading just above the 50 day MA. As longs as that level supports in December expect a grind higher. Coffee has found mild support just under $1.60 in December. Close out shorts would be my call expecting a 5-8% appreciation from current levels.

Treasuries: Close out bearish trades in 30-yr bonds and 10-yr notes and let the dust settle. Translation I expect a ounce from current levels and open the idea of selling after a bounce. At minimum if not on board calling an interim low which I understand move stop just above the 9 day MA. In 30-year bonds just above 147’10 and in 10-year notes just above 133’05.

Livestock: Live cattle will need to break the 20-day MA before we see things fall apart. A 50% Fibonacci retracement in October puts prices back near $1.2300. September feeder cattle held at the 9-day MA but look destined for lower ground. I would not take the trade though as a return to the recent lows only represent s a 4.5% drop and there appears to be at least that in risk. Lean hogs are forming a base that could set up a viable long trade but I’d like to see a reason to be long besides just prices being low.

Grains: Corn gained 2% today closing at its highs on the day. You know my take a correction should play out but before putting any size on let prices close below the 20-day MA, in December at $8.04. Soybeans gained 2.2% to close at their highest levels in one month just shy of contract highs. On a trade above $17/bushel expect momentum traders to lift soybeans to fresh highs. I will be absent with clients at these elevated prices as in my opinion they are not justified. After the 4 day bounce wheat has made its way back above its short term MAs. On that I would be closing out of any remaining bearish trades at a loss.

Currencies: As long as the aussie remains below the 20-day MA traders can remain in bearish trade. That level in September futures is at 1.0460. Tighten up stops in yen shorts as to not give back too much as prices have become oversold.

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