Commodity Update: Crude Finishes In The Red

After five positive sessions Crude oil finished in the red yesterday but it was not a one way trade as the trading range was nearly $2. I started advising clients to work into bearish trade thinking we see prices $3-5 lower in the coming weeks. The heating oil/RBOB spread mentioned in previous weeks worked like a charm yesterday as May heating oil is only at a 2 cent discount to RBOB after being 10 cents wide just last week. Do not rule out heating oil trading at a premium very soon. The 8 day MA held in natural gas yesterday with prices fighting to close in the green. Bearish probes are OK in my eyes as long as we do make fresh highs…I’m searching for a 25-35 cent correction.

Stock Indices: The S&P and Dow are exhibiting signs of exhaustion but until we break the 9 day MAs I am grasping at straws picking a market top. Those levels come in at 1550 and 14400 respectively. My advice continues to be large stock holders lighten up or establish partial hedges.

Metals: Back to back inside days in gold as prices remain around $1600/ounce. June futures have support about $10 below current trade and resistance $10 overhead. Play the breakout but with a faltering dollar I think we see upside around the bend. My first upside objective is the 50 day MA in this contract currently at $1625. May silver futures gave up 1.20% to settle under $28/ounce…the lowest close in eight months. Do not rule out a spike lower, but those levels will not last in my eyes. I’ve suggested scaling into bullish trade but start small and be willing to stay the course even if futures falter $1/ounce...if not stand aside. Platinum can be bought with tight stops under the recent lows. Copper is approaching eight month lows and has yet to find solid support. Further weakness should not be ignored as it could be an indication of what’s to come elsewhere.

Softs: Cocoa is having trouble getting above 2200 but I think once it does 2300 should come in quick order. Sugar is cheap but that alone is not reason to buy as I would like to see a reason to buy…sentiment remains bearish. Cotton gave up 1.2% yesterday to close under its 20 day MA once again. A breach up the up sloping trend line remains my call. OJ had lost ground the last four sessions as the 20 day MA was probed in yesterday’s trade. $1.25 is my objective in May futures. On the advance yesterday coffee probed the down sloping trend line mentioned last week that has capped upside the last three months. Expect further upside to follow that will allow bullish trade an exit window from higher levels.

Treasuries: 30-yr bonds and 10-yr notes were slightly bid but nothing too exciting. I would still prefer higher trade to re-establish bearish positions for clients. I prefer trading the short end of the curve and would be more apt to have bearish trade in long dated eurodollars vs. bonds or notes.

Livestock: Live cattle took a breath yesterday after the big jump to end last week. As long as the 20 day MA supports just under $123 in June stay the course in bullish trade. The standout in the livestock complex yesterday was feeder cattle gapping higher, closing up 1.70%. A 50% Fibonacci retracement lifts May futures an additional 1.4%. 92 has served as resistance in June lean hogs and capped upside once again today…from here I see limited upside.

Grains: Old crop corn got hit again yesterday losing 7.62% dragging prices to nine month lows. On the lows a 61.8% Fibonacci retracement was completed. We could see further pressure but I do not expect it to be at this pace. I would prefer to trade new crop corn (December 13’) which was lower by less than 0.60%. A trade near $5.25 can be bought in my eyes on this contract. Soybeans closed under $14/bushel for the first time since mid-January and lower trade looks likely…do not rule out additional 30-40 depreciation. July soybean meal remains on my buy list…for long futures trades I’ve suggested selling out of the money calms 1:1. Wheat gave up 3.45% today to drag prices to fresh ten month lows. I did advise any bearish trade in old crop to book profits today. My suggestion is to buy new crop...I like December contracts under $7/bushel.

Currencies: The 20 day MA held in the dollar but if June breaks 82.85 I think selling could intensify. My objective for bearish trade is 81.50; the 50 day MA. The Euro and Swiss can be bought with tight stops. If the Pound gets above its 34 EMA which capped upside today and last week look for an upside leg to recommence. Stand aside on any fresh entries in the Commodity Currencies. Those long the Loonie should tighten up stops but stay the course. The Yen was higher by 0.78% to close at one month highs. Long calls are the only play here in my opinion but a spike could still lift June futures to $1.1000.

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