Commodity Update: Crude Finding Support At Last October's Bottom

finished the day yesterday down 0.70% but it appears prices are trying to stabilize at $78/barrel exactly where prices held last October. Will prices hold on again at these exact levels? Time will tell, but if volumes pick up and we can see some appreciation, history may repeat itself, stay tuned. Prices will likely need to settle back above $85 for me to feel an interim low has been established. RBOB gained for the second day in a row picking up 1.4% to close just above $2.50/gallon. Similar to Crude prices, RBOB is finding support where prices bottomed last October. Too early to call a bottom but we could be close. Heating oil was a slight winner as new lows were rejected. In both RBOB and heating oil I’d like to see a settlement back above their 8 day MAs very soon. Natural gas traded above the recent highs to make its way to the 61.8% Fib level before backing off. I still suspect prices retrace before we get a higher leg. My take is a 10% depreciation comes before we see a $3 plus trade.

Stock Indices: Stocks registered a 1-1.5% loss yesterday to drag prices under their 50 day MAs as predicted in posts last week. Under this pivot point I do not see much in the way of support until the May lows. I would not rule out  a grind lower in stocks and this is the main reason I have been advising stock traders to lighten up and look for allocation with some of the CTAs my firm has relationships with. If the Dow and S&P were to trade down to their May lows it would be a further deprecation of roughly 4%.

Metals: August gold is finding support around $1565/ounce with prices gaining 1.4% yesterday. I’m not yet a believer that we do not see more downside. I would be proven wrong if prices can retake their 50 day MA at $1610 but until then expect a further retracement. September silver held onto the $26.50 level gaining 3.23% yesterday closing back near $28/ounce but like gold I’m not a believer yet. Of course if equities were to get hit hard I think the flight to quality money would find pleasure in metals but without that I think we get a shot at buying from lower levels. At best currently, I feel silver could continue to tread water between $27-29.

Softs: Cocoa is lower by 8% in the last 2 weeks but I think we could see further downside, potentially challenging the recent lows and lower lows if the dollar catches a bid. Sugar is in no man’s land which means it could go either way so I would not be in the trade. December cotton gained 1.35% yesterday lifting prices back over 70 cents. I’m still looking for a further appreciation to set up a sale. Coffee was higher by 2% but as I said last week the 50 day MA and then the 100 day MA are my upside targets so expect further appreciation.

Treasuries: 30-yr bonds and 10-yr notes were higher on the session closing just below their short-term MAs. Continue to use the 9 and 20 day MAs as your pivot points. With prices above those levels aggressive traders could be gaining bearish options exposure but as for futures I would not be short unless prices are below those pivot points. What I did like to see was Charles Nenner’s analyses yesterday that confirmed my feeling that we are putting in a major top in Treasuries and a day of reckoning may not be too far off.

Livestock:  Live cattle traded to their lowest levels in 7 weeks close to probing the $1.20 level in October. Further downside is expected. Feeder cattle lost the daily limit losing almost 2% to drag prices to 2 month lows. As I said in recent posts, a trade back to the April lows appears to be in the cards. October lean hogs gave up 2.10% trading under 80 cents for the first time in the month of June. Do not rule out a new contract low with prices within 1% on their lows yesterday.

Grains: Once prices traded above their upside resistance, prices were off to the races. Now traders that did not have previous bullish exposure will be playing catch up. I suggest bullish exposure ahead of the USDA report but as for new positions buy dips, don’t chase the market. December corn was higher by 7.2% up the daily limit. Support is seen at $5.70 with resistance just above $6. November soybeans traded above $14/bushel for the first time after multiple attempts gaining 3.64% yesterday to fresh contract highs. $14 now becomes support with the next resistance eyed at $15/bushel. Wheat was higher by 7.4% inching out corn as the best performer in the complex. Expect further upside and as long as $7.25 supports in December I remain friendly.

Currencies: The dollar index traded above but closed below the 20 day MA; in September at 82.70. This will be a critical level to follow the next few sessions. Weakness should persist in the Aussie as that is my favored short play but as for the Yen prices bounced back hard and the trade here would be an inverse relationship to indices…trade accordingly.

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