Commodity Update: The Damage Is Already Done

A $2.50 range in Crude yesterday with prices down just shy of 1%. A settlement below $94 is not bullish. Prices need to hold at these levels or I see a trade down to the next support at $90/barrel. RBOB finished slightly lower as well, but prices appear to be consolidating just under $3. I just wish the 40 cent move on the wholesale level would be reflected in prices at the pump. Prices should be lower by 10-15 cents /gallon in my opinion. As I said yesterday, on a further decline I see solid support just under $2.90 so I would not expect too much more downside. Heating oil held its own closing marginally higher on an inside day. Prices will need to regain $3 to think we are out of the woods but with prices oversold I have advised hedgers to make sure they have upside hedges. I think when prices turn, this contract has the most potential out of the distillates and Crude to see appreciation. Natural gas snapped back, bouncing off its 8 day MA. Prices will need to break above the 50% Fibonacci level or below the 38.2% Fibonacci level to determine the next leg. I think there is more risk for a retracement but my advice is, let the breakout determine the direction.

Stock Indices: In early dealings it appeared prices would see higher ground but a mid-day reversal yesterday put the indices under water with prices closing near their lows down 0.40-0.50%. We are roughly 5% off levels from two weeks ago but now that we’ve breached the March lows I would expect this leg lower to continue. A 38.2% retracement would drag the Dow to 12125 and the S&P to 1285. Trade accordingly.

Metals: June gold closed lower, $16 off its lows on the day with prices almost clawing back to positive territory. Sentiment remains bearish as I still expect to see price challenge the December lows, approximately $25 from yesterday’s closing price. Silver closed 1% lower but cut losses in half as prices were down 2% in early dealings. On its lows, prices were within 7 cents of my $27.50 target. We'll see what today brings, but if prices start to climb, from here that may be as close as we get. Stay tuned. I have not issued any fresh buy/sell recommendations. Copper found mild support at $3.50 but I anticipate that level to give way and for copper to trade closer to $3.30 in the coming weeks.

Softs: Aggressive traders can continue to fade rallies in cocoa with stops just above the 100 day MA currently in July at 2295. Start scaling into bullish plays in sugar…this is for a counter-trend bounce not necessarily a change in trend. I priced out a number of plays yesterday and like longs futures in October and selling out of the money calls 1:1. A 38.2% Fibonacci retracement brings October futures back above 22 cents. Cotton likely has reached an interim bottom. Shorts should have been stopped out for nice profit on yesterday’s trade above 80 cents. I’m not advocating longs, but I open a bounce above 85.00 to re-establish bearish trades. Coffee is approaching the 50 day MA, this pivot point has acted as a ceiling since mid-January. I’m still waiting for a bounce to sell from higher level for clients.

Treasuries: Treasuries look over-extended but have for weeks, so until we get a settlement below the 9 day MAs, stand aside. In June 30-yr bonds, that pivot point is 145’0 and in 10-yr notes at 133’00. 2013 and 2014 Euro-dollars showed more declines yesterday. Traders can scale into bearish trades looking to add on the way down.

Livestock: Until live and feeder cattle determine their next leg, stand aside. Lean hogs have appreciated five out of the last seven sessions closing back above their 20 day MA yesterday for the first time in a month. Work into bullish plays with a target of 89.00 in June.

Grains: With corn prices still under $6 let’s jump on a light long position. I think we can get a quick 15-20 cents out of the trade with moderate risk. I would not put on a big position because we may get one more washout before next month’s USDA; But in case we don’t let’s at least get some skin in the game. On a new low I would cut losses. Wheat appears ripe for a bounce too having gained 1.7% yesterday. As long as $5.95 in July holds on a closing basis I like bullish exposure. A trade back to the down sloping trend line that has capped prices since February would fetch longs 30-35 cents. Soybeans bounced off the trend line that I’ve mentioned in recent posts around $13.85 in the July contract. I’m not convinced yet that it will hold, so I currently recommend the sidelines as the trade in legumes.

Currencies:   Hello Mr. dollar: The greenback surged to four month highs gaining 0.80% yesterday. Now prices are through 81.00. We may make an attempt at 82.00 in the June contract. Look for the risk on/risk off trade to influence as well as the FOMC minutes released later today. The Cable broke the trend line that has held much of 2012 as prices should continue lower. Weakness should continue in all crosses as long as the dollar stays in favor. Tighten up stops on remaining shorts in commodity currencies. My take is most of the damage is done in the commodity markets and these currencies can turn on a dime.

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