RCM Commodity Update - Mixed Trade Day

For the first time in five sessions Crude oil finished higher yesterday. While it was only a 1% gain, it is a small victory as lower trade was rejected and prices appear to be closing almost $3/barrel from their intra-day lows. I’m expecting a bounce from extremely oversold levels, and in the July contract a trade back above $90 in the next few weeks. On another positive close today I would initiate new positions. Aggressive traders can add to open positions. The distillates also managed a positive close with RBOB closing 8 cents of their lows. If we did finally reach our value zone a 38.2% Fibonacci retracement would put RBOB back at $2.90/gallon in the coming weeks. Heating oil traded down to the same level that held in late September 2011. If $2.60 holds in the July contract, speculators could look to probe bullish trades. As for hedgers I would be protecting from upside spikes by buying winter contracts at these levels. Natural gas picked up 4.7% yesterday. I think we get a bounce from here and have advised shorts to move to the sidelines.

Stock Indices: Stocks were mildly lower but held up much better than I had anticipated after last week’s actions. I am cautiously bearish but would have stops just above resistance and would not rule out a dead cat bounce. Those short should be willing to exit on a trade above 1285 in the S&P and 12150 in the Dow.

Metals: Gold again probed the 50 day MA closing slightly below that pivot point. I suggest buying dips in this metal as I believe we just put in our 2012 low last week. A trade below $1600/ounce in August should aggressively be bought in my opinion. As long as July silver holds above $28/ounce I would suggest layering in longs. I priced out an option strategy over the weekend that I think a lot of metal investors would be interested in. The trade involves the combination of puts and call options out until December 2012. For immediate trade a settlement over $29 could lead to $31. I would wait for a bounce in copper that should be coming immediately before re-establishing bearish trade. I am looking for at least a 5% bounce. Stay tuned.

Softs: Cocoa is finding its footing just above 2050 in July futures. The previous three times cocoa has traded to these levels we’ve seen appreciation. As always, past performance is not indicative of future results. Scale into bullish trades in September contracts as I expect a 5-8% bounce in the coming weeks. Sugar lost 1%, dragging prices under 19 cents for the first time since August 2010. Do not try to pick a bottom until we see more evidence of buying interest. I am still waiting for a bounce in cotton and coffee to establish bearish trades for clients.

Treasuries: 30-yr bonds and 10 yr notes traded lower as they were unable to hold onto early gains. The price action is indicative of a top but I’ve been sucked in before and refuse to get short until we see settlements below their 9 day MAs; those pivot points come in at 133’10 in 10-yr notes and 148’15 in 30-yr bonds. (September contracts)

Livestock:  The live cattle market as in no man’s land, by that I mean it could go either way so I do not wish to have a long or short trade on for clients. When I get a clearer picture I will issue a trade recommendation. Feeder cattle gained for the third consecutive session with prices rising back over the short term MAs. We should see further appreciation but I like the sidelines. From my standpoint I need to risk the same amount as my perceived profit so that is not worthy of a trade in my opinion. Lean hogs are running into resistance at the 38.2% Fibonacci level, just under 83 cents in October. As long as 81.00 holds on this contract I remain friendly.

Grains: Oats appear to have established an interim bottom. Why I bring this up: if the free fall has ended in oats I’m more eager to have bullish exposure elsewhere in the Ag sector. Let’s start with corn. Speculators can buy July with stops just below the recent lows or those willing to stay the next few weeks/month could start scaling into bullish trades in December contracts. As long as prices remain above $5/bushel in December, I’m friendly. Let’s watch the action in wheat a few more sessions. A buy around current levels is on my radar, I just want to see a few days of price action, so stay tuned. I see more room to the downside in soybeans before I’m comfortable issuing buy recs. July under $13.15 should mean $12.75 is shortly thereafter. If Crude has truly found a bottom, once soybeans reach a bottom I will look to re-establish longs in soybean oil. Until then, walk away.

Currencies: The dollar has fallen only slightly but yesterday did register the third consecutive down day. I expect prices to back off in the coming weeks with the June contract finding its way to 81.00. With the dollar backing off we should see higher trade in other crosses. Aggressive traders could start scaling into longs in the Swissie, pound and euro. My targets are as follows: 1.0600 in the Swiss franc, 1.5600 in the Cable and 1.2800 in the euro. Trade accordingly.
 
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