Commodity Update: Oil Still Afloat, But Getting Ready To Sink

found mild support at the 38.2% Fibonacci level but we should see further downside. As long as prices remain under the 8-day MA just below $89 on a closing basis I am bearish with a target of $85.50. RBOB has lost 15 cents in the last two sessions and a breach of the 20-day MA at $2.6900 should mean another 10 cents as I see support in September at $2.59.

Heating oil was able to hold yesterday’s lows and mange a slight uptick but pressure should follow as a 50% Fibonacci retracement should drag September under $2.74 in the coming days. Natural gas gained 2% on Tuesday to close at fresh highs. I do not see price remaining above $3 for an extended period and the fact that prices remained above that level for three days is a surprise to me. I am not advising a bearish trade currently but rather exiting longs as a 10-15% correction is still my call from here.

Stock Indices: Stocks have done some near-term chart damage and with a penetration of the 50-day MA pending more is likely to come. That level in the S&P is 1326 and in the Dow that pivot point comes in at 12530. I’m targeting 1330 followed by 1265 in the S&P and 12350 followed by 12000 in the Dow on this leg lower.

Metals: Gold prices remained depressed and I do not see a catalyst to get prices back to elevated levels at least in the near-term. As long as prices in August are under $1600 I’m bearish. September silver closed under $27/ounce and it appears like we may challenge the lows from late June. As I stated then on a breach of $26 do not rule out a probe of $24.

Softs: Cocoa continued to trade back and forth between the 50 and 100-day MA as it has challenged both ends of the spectrum the last four sessions. On a breach of either on a closing basis I believe that will be the direction of the next leg…trade accordingly. Sugar lost 1.7% today to close lower two sessions in a row the first time in July. Aggressive traders can gain bearish exposure willing to take a loss if prices get above 24 cents in October. My first target is 22 cents followed by 21.

Cotton gave up 1.6% to close at its 50 day MA; 71.10 in December will serve as the pivot point. My downside target is 67.50. Trails stops in OJ placing an order to lock in profits just above $1.15 in September. Coffee gave up just better than 5% to close back under its 50 day MA. An interim top is in place and as I said yesterday we should see a move 10 cents south from here in fairly quick order.

Treasuries: With stocks and commodity prices coming off Treasuries will continue to be bid higher. Both 30-yr bonds and 10-yr notes are at contract highs and appear to be headed for higher ground. I prefer to be a spectator and not have bullish exposure for clients here.

Livestock: Live cattle could be forming a flag and pennant formation but the fact that I expect a break lower I will not take this signal. My opinion is that prices break lower in the coming days but I have no client exposure as I see far better opportunities elsewhere. Feeder cattle closed above the 9 day MA so shorts should tighten stops because if prices breach the recent highs I see a challenge of the 20 day MA. Lean hogs traded lower for the fourth session in a row as prices approached contract lows. As long as the 9 day MA caps any upside I would remain in bearish trade. That level in October is just above 79 cents.

Grains: December corn pared losses closing down 1% but over 30 cents from its lows. A near 50 cent trading range so not for the faint of heart and to me this sector is still screaming correction. A close and not just a trade under the 9 day MA should confirm this. Soybeans lost 3.25% today and are down $1.30 or $6,500 per futures contract in the last two days. More to come in my opinion as prices should be under $15/bushel very soon. Wheat closed under its 9 day MA. My first target in December is the 38.2% Fibonacci level at $8.37…trade accordingly. Oats signaled a correction in the AG sector and as prices are currently trading under their 20 day MA for the first time in one month. I am anticipating more deprecation in oats and the other Ag products.

Currencies: The Dollar Index finally closed above 84.00 as momentum traders should lift the greenback further. If prices hold 83.60 the next few days do not rule out a trade to 85.00 in the coming weeks. Expect further weakness in all crosses with the exception of the yen. My expectation is that the commodity currencies will get hit the hardest…trade accordingly.

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