Commodity Update: European Contagion

With Crude oil collapsing over $10 in the last week we’ve gotten the correction I had anticipated. If readers remember, I was calling for $97.50 4-6 weeks ago. The next support level is $94 followed by $90 in the June contract. Based on the buying the last two days lifting prices to close near their highs. I think most of the easy money has been made on bearish trades. I’ve advised energy traders to book profits on shorts. I’ve yet to issue a buy recommendation but I notice some guys I communicate with are wading into longs. That may be the right move but a low is yet to be determined. High to low in terms of wholesale prices: the RBOB price came down nearly 50 cents in just over two months. Prices are now oversold and I do not see much more depreciation. Consecutive closes above $3 would get me feeling that an interim bottom was set. Stay tuned. While heating oil had only lost 35 cents /gallon, a 61.8% Fibonacci retracement has occurred and if $2.95 can hold in the June contract this week I say the damage is done here as well. Natural gas has been sideways for the better part of a week but as long as the 40 day MA holds we could see a grind higher. Once that support at 2.29 is breached I would move to the sidelines.

Stock Indices: In the last week stocks have lost ground four out of the last five sessions depreciating roughly 3%. With the Dow below 12900 and the S&P back under 1365, bearish plays are back on my radar. Aggressive traders can scale into bearish trades but be willing to risk a trade back over the 20 day and 50 day MAs which come in around the same pivot points, in the Dow at 13000 and in the S&P at 1380. On a further leg down, my targets would be 12500 and 1315 respectively.

Metals: Gold closed lower by 2% yesterday dragging prices to four month lows. June gold futures had not traded below $1600/ounce since the first week of 2012 and it does not look like prices have set a bottom yet. I’m not ruling out a challenge of $1550 in the coming weeks. Be patient. I am advising long entries from lower levels. Silver also was lower by just over 2% as prices are approaching my $29 price target. On a breach of $29 I anticipate a trade to $27.75. As with gold I am more interested in buying from lower levels with clients as opposed to bearish trades in the precious metals. The sentiment in Copper is starting to shift bearish as prices are 15 cents from an interim high one week ago. If July breaks $3.65 on a closing basis, I anticipate the next support to come into play around $3.55.

Softs: Sugar traded to a fresh 17 month lows with prices in July approaching 20 cents/lb. I expect prices to find their value around these levels so on signs of an interim low I should have some buy recommendations soon. Cotton has lost 6% in the last two weeks and is on its way to a fresh 2012 low very soon…in my opinion. Continue to hold shorts though I would be trailing stops as we often experience violent bounces for no reason in cotton. For seven straight sessions OJ has been in the red as prices have lost over 40% ytd. A 61.8% Fibonacci retracement has been completed but do not rule out an attempt at the $1 mark. Even though I am bearish until we get a bounce in coffee that would set up a sale from higher levels walk away.

Treasuries: 30-yr bonds and 10-yr notes have ascended to contact highs as projected in recent weeks. Sales in 30-yr bonds are on my radar with prices above 144’00 but I would suggest waiting for signs of an interim top before trying to pick a top. Perhaps a volume spike or key reversal would be a preliminary indicator. Same story in10-yr notes although a close back under the 9 day MA in either product would get me interested in pricing out NOB spreads for clients again.

Livestock: Looking at the daily chart in June live cattle and using a bit of your imagination we could have a flag and pennant formation for the last four days activity. Being prices have only appreciated 3% and we’ve gone form oversold to nearly overbought I would back off until we get a clearer picture. Feeder cattle are in neutral territory so I would not force a trade on either side of the market. Further sales the last few sessions have been rejected in lean hogs but I would not be a buyer just yet. Shorts should be out at a tidy profit on a settlement above the 9 day MA in June currently at 85.25 if we see a bounce.

Grains: Corn and wheat were able to squeeze out marginal gains while soybeans gave up nearly 2% in today’s session. From current levels I’m interested in probing longs in July under $6/bushel in either CBOT wheat or corn. In just over one week soybeans have lost 70 cents and with today’ s close under the 20 day MA for the first time since late January I am comfortable calling an interim high. A 38.2% Fibonacci retracement could drag prices in July to $13.60…a further 5.5% depreciation.

Currencies:   With commodities correcting and more bad news out of Europe I’m expecting further depreciation across the board with the exception of the Yen which marches to the beat of its own drum. My favored plays to capitalize on further commodity weakness would be bearish trades in the Loonie and Aussie. As for the European crosses being the Pound had the most upside it has the most potential to falter. Even though the bad news it out of France, Spain , and Germany and not directly the UK we can group the Cable as a European currency and expect it to be influenced by major happenings out of that region.
 
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