Commodity Update: Crude Prices At 3 Month Highs

closed above the 100 day MA for the last 2 sessions as September futures are approaching $96/barrel. With prices at 3 month highs I am ok with clients having light bearish exposure. I would not rule out a trade closer to $98 but I do not see prices able to sustain these levels for much longer. RBOB made a 4 month high with prices within 11 cents of their spring highs. Heating oil has showed resiliency as well filling a gap from early May on the advance of 1.22% yesterday. I didn’t suspect the strength in the distillates as it has been the tail wagging the dog in recent weeks. Natural gas resumed its slide getting within pennies of the 50 day MA; a support line that has held since mid-June. I am still not ruling out a trade under $2.60 in September.

Stock Indices: A fresh 2012 high in stocks as prices bounced off the 9 day MA yesterday. Prices appear to be overbought but until the 9 and 20 day MAs are broken, the momentum could lift prices higher. In full disclosure my followers will be absent from further upside as I advised exiting longs prior to this last pop. The market likes round numbers so I think it will take the Dow under 13000 and the S&P under 1400 to signify an interim top.

Metals: In the last 2 sessions gold has advanced $30/ounce to put prices back over the 50 day MA. Sloppy action continues and prices have been very indecisive . Being that one has to be a market timer here I would keep sizes small if trying to navigate these waters. Forced into the market with a longer time perspective bullish trade is encouraged but in the same breath a $50-75 drop is not out of the question. Silver gained 1.44% yesterday lifting prices back over $28/ounce. This represents the top of the recent range and on a trade above $28.50 do not rule out a 3-5% further advance. Like gold though, I would keep my hand close to my chest as prices could drop on a dime.

Softs: Cocoa futures continue to hover around the 2400 level but I remain in the camp that says a retracement is due. My target on September futures is 2300. The streak continues with sugar down the last 9 consecutive days. If October trades under 20 cents I would use that as an opportunity to probe bullish trade. Cotton has yet to break the 50 day MA on the downside as prices have danced that line for the last 4 days. On a breach, look for lower ground but risk-to-reward, all things considered, I prefer the sidelines. Coffee has dropped 17% in the last month and appears to be moving lower yet.

Treasuries: I’d rather be lucky than good as regular readers may remember me calling for a trade to 145’16 in 30-yr bonds. That was yesterday’s low? 10-yr notes also had a similar move retracing as forecast. These moves represent a 38.2% Fibonacci retracement to the tick. Yes, I do adhere to technical analyses. As long as stocks trade up, the inverse relationship should play out. A 50% Fibonacci retracement puts 30-yr bonds at 143’10 and 10-yr notes at 131’05.

Livestock: After making 4 month highs early in the week it appears prices are headed south in live cattle from here. A breach of the 20 day MA in October at 124.90 should signal a trade back to at least 122.50…trade accordingly. Likewise in feeder cattle I am calling an interim top expecting a trade south from here. My target would be 139.00 in September. Weakness abound in the whole livestock sector with lean hogs doing an about face and also getting hit. With prices under the 20 day MA I have to be bearish but there is likely little downside. Stand aside for now.

Grains: The 9 day MA has been above the 20 day MA in corn for the entire summer when prices advanced $3 plus but that will not be the case on a break from current levels. I think a combination of technicals and the fact that the crop is virtually ”made” it would not shock me to see a hard drop. To add insult to injury a break of $7.60 and if traders exited we could find prices back at $7 quickly….just my opinion. Soybeans are trading back above their MAs as November will need to close below $16 again for me to think weakness would persist. After a 10% drop wheat has appeared to find mild support picking up nearly 30 cents in the last two days. As long as December is below $9/bushel I’m bearish.

Currencies: The European crosses continue to tread water and I see no trade. Shorts should have been stopped out of the loonie at a small loss and I’d take a loss on the Aussie and kiwi as well as to preserve capital. Weakness should persist in the yen as it adds to its 2% drop in the last 2 weeks.

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