Commodity Update: Has The Oil Bloodbath Ended?

Muted action with Crude marginally higher as of this post. As long as $83 in July holds for the next few sessions, I’m operating under the assumption that the bloodbath in oil has ended. Aggressive traders can gain bullish exposure if prices stay positive today. My initial upside objective remains $90/91. The line in the sand in July RBOB is $2.65. Prices appear to be stabilizing just above those levels and with a resurgence of buying interest in the coming sessions I expect prices to make their way 5-8% higher. Heating oil prices also appear to be establishing an interim bottom and have almost recouped 10 cents off their lows Monday. $2.60 needs to support in July and while we are far from out of the woods I feel we could see a grind back near $2.75/2.80 in the coming sessions. A near 7% appreciation in two days in natural gas ...far from a bull market but the start of an upside leg appears to be underway. I think a settlement above the 8 day MA; at $2.48 should confirm an interim low. This is not a trade I will take for clients but I expect a 5-8% additional appreciation to follow.

Stock Indices: A dead cat bounce was hinted at Monday and it appears we may get one. Again on a trade back above resistance this should be confirmed. Those levels come in at 1285 in the S&P and 12300 in the Dow. I have no long or short client exposure currently.

Metals: Gold is taking a breath as prices have been in a $20 trading range for the last 48 hours. My interpretation is, get some skin in the game under the 50 day MA and then add to the trade on a settlement above that level; in August at $1626. Silver gained 1.5% yesterday and as long as prices stay above $28/ounce I like establishing longs at current levels. Like a coiled spring, the longer prices remain range bound the larger the magnitude of the breakout. Prices in July futures have been contained in $2 range for almost three weeks. I’m speculating the breakout will be to the upside with a near term target of $30/31 ounce. I had not looked at a weekly chart in copper for several weeks and viewing it yesterday it is absolutely critical that 3.20/3.22 holds because that is the 200 day MA. This level has supported for 7 ½ months. I am not bullish by any stretch, but do feel that support holds and we get a bounce from here.

Softs: Monday cocoa was the trade of the day and yesterday prices were higher by 3.25%. I’m assuming an interim low is in place and I see a 5-8% soon coming…trade accordingly. Let’s see if sugar prices can stabilize. I want to be bullish after the near 10% correction in the last 2 weeks and 24% deprecation in the last 90 days. Be patient, wait for a reason to buy which has yet to happen. Cheap does not mean buy, remember natural gas. Cotton prices continue to trade lower with no end in sight. With a near 30% drop in the last 2 months, prices are approaching lows not seen since early 2010. Outside of cocoa the only soft commodity that I could be convinced to go long on is OJ. Prices have built what I view as a solid base in recent weeks and we could see 15-20% appreciation relatively easily in my opinion. My suggested play would be to back ratio spreads. Coffee has yet to bottom so don’t try to pick a bottom.

Treasuries: Treasuries are too high but they have been for weeks. Two consecutive down days, but as I’ve said repeatedly, until a settlement under the 9 day MAs walk away. These levels come in at 149’4 on 30-yr bonds and 133’16 on 10-yr notes.

Livestock: Live cattle want to go down, but the 9 and 20 day MAs are acting as support. I will view from the sidelines, but a break looks likely. In June a trade under 114.00 would be back on my radar. To me, the move higher in feeder cattle looks unsustainable so there is no reason to be involved. Lean hogs are running out of gas as October has failed to make any headway the last three sessions. Until the market makes a decision on direction I would step aside. I open a break lower and will be eager to re-establishing longs from lower levels.

Grains: December corn lost 2.7% yesterday bringing prices closer to that critical $5/bushel level. As long as prices remain above that pivot point I like light bullish exposure in this contract. Wheat lost 2.5% yesterday bringing prices back to support that has held the last 3 sessions. It could be a triple bottom but I think more than likely we trade lower and see a challenge of $6/bushel. A trade near $6.35 in December that holds would have me pricing out bullish trades. Stay tuned. Until soybeans break lower I have no interest in either side. My target in July remains a trade under $13/bushel.

Currencies: The yen can be sold. I like bearish exposure as this is a risk ON trade and I expect risk assets to appreciate while the yen should taper off. Short term, June could trade back near 1.2500. The dollar did not trade lower yesterday but I am still looking for further deprecation moving forward. European currencies can be bought…see my targets in yesterday’s post.
 
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