Commodity Update: Crude Drops 3.9%

lost 3.39% Friday, closing just above its 100 day MA. The forecasted correction appears to be underway. We should see $2-3 of additional selling. Those short that do not want to leave the trade could by call options 1:1 against their futures. As I said Thursday on a $3-5 decline in Crude we should see 10-15 cents in the products. August RBOB and heating oil gave up just better than a dime Friday. A breach of their 50 day MAs should lead to an additional 5-8 cent decline.I did advise buying August RBOB/heating oil spread around a dime looking for a 3 cent move. It may have been the right move to cut exposure in natural gas bullish trades Thursday with prices off 2.16%. Sometimes it is better to be lucky than good. I would be willing to shop bullish exposure from lower levels. Stay tuned.

Stock Indices: Friday’s chart of the day was the S&P. A major development in my eyes Friday was US indices closed under a major pivot point; the 50 day MA. This level has held on all previous attempts. What was the floor should now become the ceiling, in the S&P at 1610 and in the Dow at 14920. Friday's word of the day is hedge as a larger correction should follow. A 38.2% Fibonacci retracement puts September futures at 1535 and 14165 respectively.

Metals: Friday’s move in the metals market was reminiscent of the move we experienced back in April only at a lesser extent. Still we will finish down 6.39% in gold and $65 off intra-day highs. My August options are getting crushed. Fortunately it was a small position but clearly I am wrong. I will probably buy back the leg I sold for clients if we can find value around current levels, hold the upper leg for a rebound and then exit the whole trade at a loss in the coming weeks. Big picture gold is down 29% in the last 9 months trading to levels not seen since October 10’. Silver lost 8.32% trading under $20/ounce for the first time since September 10’. A seasoned metals trader told me many years ago that silver takes the stairs higher and the elevator lower and isn’t that the truth. Ytd silver is lower by 35% and off the highs made in April 11’ silver prices are off by 60%. There is a lot of congestion in the chart between $16.50/18.50 going back several years and I think we will find a bottom somewhere between those levels. Catching this falling knife can be one of the most dangerous markets to attempt that feat. Trust me as I speak from experience. If committed to a longer term position, trade swing away but be willing to take heat and keep size manageable.

Softs: Cocoa gapped lower Friday, breaking its recent support level closing lower by 2.66%. If not out of bearish trade exit the remainder now. I see limited downside. Sugar gave up a majority of the last 4 day of gains losing 3.64% Friday. As long as the recent lows hold I like wading into bullish trade at these levels. In the October contract, prices are about $225 in dollar terms away from the lows per futures contact. December cotton has hit all my bearish objectives. Tighten stops and see if the market will give you more. Coffee lost 4.83% dragging prices to their lowest level in 4 years. Some of those long futures that trade with me are using August and September put options to protect any further downside. We are all in the camp that prices are very close to turning but that has been our opinion for the last few weeks. Some marriages last forever but my marriage to coffee may soon be over if we do not find buyers.

Treasuries: Losses were cut in NOB spreads Thursday for clients and Friday would have delivered more pain had we stayed in with 30-yr bonds lower by 1’28 and 10-yr notes lower by ’26. In dollar terms an additional $1063 loss per spread. I do think we get a rebound but I’m not willing to time this considering all my other open positions with clients. One of my colleagues pointed out in layman terms to me what this jump in rates really means to “Joe the plumber.” In the last 5 weeks the move in rates on a conventional 30 year mortgage, the monthly jump is 10%. That is a big deal. Again why I am so high on the Eurodollar and playing higher rates in the coming years. I am looking for a bounce in the coming weeks to re-establish bearish trades for clients short 16’ contracts. A trade back to the 20 day MA would be magical.

Livestock: Live cattle could go either way so I have no client exposure as the last stragglers exited bullish trades Friday. Stand aside for now. My opinion is we move lower in lean hogs but I hope followers recognize my opinion is just that and does not matter. Those that have weathered this ferocious storm were advised to roll up their hedges. We offset the August 92 puts at a profit and sold 96 puts against their futures positions 1:1. Let’s hope a top has been established and we trade back into the low 90s on this contract.

Grains: I advised profits to be taken in new crop corn. I think we get a shot to buy December on a setback once the weather lets up. However I am impressed how well Ag held up in the face of weakness elsewhere. A move back to the 50 day MA puts December 25 cents lower. Friday was an inside day in wheat with a slight loss but the 50 day MA held, in December at $7.15. Stay the course and remain in bullish trade. My objective is the upper end of the range, 35-40 cents above Friday’s close. August soybeans lost 1.81%, the lowest close in 3 weeks. I expect this leg to drag futures under $14/bushel and I will be looking to get out of current August bear put spreads for clients. Stay tuned.

Currencies: On its highs, my objectives were reached on Friday for the dead cat bounce forecast in the US dollar, that a majority of you questioned. We may see a bit more upside but this is not a start of the next bull market in my eyes. The euro and the pound both hit their 20 day MAs. These were my objectives, so shorts should have booked profits. The Swissie actually closed in the green and on a day such as Friday, that does not smell right. Exit bearish trade. Commodity currencies were hit hard which makes sense with the loss in energies and metals. The loonie is back at support that held last month; tighten stops on remaining trades if still short. The yen has given up a quick 3 cents and may continue south but I would only play it with put options, no futures. I’ve experienced enough pain in the Aussie which means we are likely close to a bottom. Hopefully I do not get stopped out with clients. I have stop losses just under Friday’s lows and took profits on their hedges. We rally from here or we take a hefty loss...I’ll let you know the outcome.

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