Commodity Update: Buying Underway

finished lower for the fourth consecutive week but this market is digging in its heels and finding support at a critical level; $90/barrel in July. That level held for the last three trading days and as long as it does I like buying Crude right here. First a close over $92 and then we should be on our way to the $96/97 area. A new low was rejected and a doji star in Thursday’s action in RBOB. $2.80 held and on a settlement above $2.85 an interim low should be in. I am expecting a 15-20 appreciation in RBOB to coincide with the advance in Crude in the coming weeks. Heating oil continues to tread water and though it may need some help from outside markets I’m advising clients to get positioned to play a rally. First a settlement over $2.85 and prices should quickly find their way back to $3.00. Natural gas lost 3.5% Frday to close under the 8 day MA for the first time in one month when prices were almost 20% below current levels. I like bearish trade trying to capitalize on a retracement that should drag prices at least 20 cents lower from Friday’s close.
 
Stock Indices: After three losing weeks, stocks register a small victory with positive action this week. To end the week we were unable to hold on to gains and prices reversed to close back under their 9 day MAs. I suggest the sidelines until we get a clear picture. I’m thinking we may get a bounce that could set up a selling opportunity from higher levels.
 
Metals: Buy dips in June gold…it appears $1535-1550 should support. I like the idea of bull call spreads in forward contracts. I’m looking for prices back over $1600/ounce into next week. As long as silver maintains at levels above $28/ounce I am friendly and recommend being positioned for higher ground. As I said Thursday, a trade towards $30.50 should be fairly effortless. Platinum is a buy and I would close out bearish trades in copper at a profit.
 
Softs: I am on the sidelines prepared to pounce on a buy in cocoa into next week if 2100 holds and we start to see the dollar back off…stay tuned. An interim low may be established in sugar as well. If 19.50 holds I may suggest probing bullish trades in October. Still thinking we can get a 5-8% bounce in cotton in the next few weeks. Those short I’ve advised lightening up or establishing option hedges. Coffee broke support that had held for the last six weeks. While I’ve been bearish I did not have exposure for clients because I was planning on selling from higher levels. This one may get away and I do not suggest chasing it.
 
Treasuries: It appears we are forming a rounded top in Treasuries but don’t try to outsmart the market. Wait for confirmation. For me that is a settlement below the 9 day MAs. These pivot points come in at 147’16 in 30-yr bonds and 133’19 in 10-yr notes. Once short, my favored play would likely be NOB spreads; short 30-yr and long 10-yr.
 
Livestock: Live cattle closed near their lows on the week, back under their 9 day MA. I expect further pressure and would either be short or on the sidelines. With feeder cattle closing back under the 9 day MA as well, expect further downside as I’ve been fairly consistent all week. An interim high was established last week in September as prices are 2.25% off that level. Lean hogs found some buying to end the week but I think we see lower ground before a value zone is established. I am content as a spectator with the idea of buying at lower levels for clients.
 
Grains: July corn held onto $5.75 which could prove to be a key support level but I backed off with buys into the weekend. I want to see if we post fresh lows and get an opportunity to buy closer to $5.60. The 9 day MA supported wheat again Friday, but I view this to be temporary. Lower ground is my prediction short term. In the last four weeks soybeans have lost 8% but there should be more to follow. A close under $13.60 should signal additional 3-5% depreciation. Until oats find a bottom I am not in a rush to be long any grains with the exception of soybean oil. I like the set-up here and suggest scaling into long futures thinking we get a sharp snap back after the near 15% correction we experienced since early April.
 
Currencies: In the last 21 trading days we’ve only experienced 4 negative days in the dollar index but that trend is over in my opinion. I think we are very close to an interim top as a 5% appreciation has come with almost no correction. Once we reverse and close under 82.00 I am not expecting a collapse but an orderly grind back to 80.50. The easy money has been made on the shorts as the Aussie and Kiwi are starting to find some buying at current levels. The pound could continue to falter but understand we’ve already witnessed a rapid 4% descent. As for new entries we will start probing longs next week in various crosses. Stay tuned.

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