RCM Commodity Update - Sell in May..Gone Away

lost 1.5% Friday as the slide south continued. Selling seems to be slowing but an interim low is yet to be established. In the front month contract $83 is the next solid support but I’m not convinced prices slide that much. I’m thinking the market has over reacted and we will see buying in the next few sessions. If long and willing to weather a few more dollars of risk perhaps selling calls or buying puts to protect from the short term downside. With Crude down 1.5% today the distillates also were hit trading to fresh lows. RBOB has filled the gap from late December mentioned in yesterday’s post. We should see support around $2.70 in July. Heating oil filled its gap from early October but the freefall continues. I have opted to halt all fresh long entries and if this pace continues I will be forced to cut looses on recent purchases for clients. Natural gas traded down for the fifth consecutive session but all my short term objectives have been satisfied so I would suggest moving to the sidelines.

Stock Indices: After two sided trade stocks closed virtually unchanged. The next leg will be determined by tomorrow’s jobs number. My expectation is we’ve factored in a dreadful number so unless it is horrible we should see a muted reaction. I have no long or short exposure with my clients in the indices currently. This is likely no help because the wild gyrations of late but I see support at 1290 and resistance at 1330 in the S&P. As for the Dow 12300 and 12600.

Metals: For a week now gold has been range bounce sideways in a $30 trading range. My suggestion is to scale into longs with an expectation of $1625 in August. Trade this with either a long futures contract or by purchasing bull call spreads. Contact me for exact pricing. Muted action in silver futures and until we settle back over $28/ounce I am a spectator. Copper broke support and appears to be on its way to $3.30.

Softs: Aggressive traders can work long into cocoa with stops below their recent lows. Sugar continues to build a base but let’s see the action tomorrow. The key will be to hang on to the support just above 19.25 in July. Cotton will need to hold 70 cents or my prediction of a bounce will be proven wrong. Stay tuned as regular readers know I’m predicting a trade back up near 80 in the coming weeks. 22 month lows were achieved in coffee today...it is a shame we just missed our last sell signal. I need to see a bounce and am not establishing fresh shorts at this time.

Treasuries: Yields continue to get squeezed as prices climb even higher in Treasuries with 30-yr bonds and 10-yr notes continue to climb the wall of worry. With the payroll number coming out tomorrow I would not want to be long after this recent run up but picking a top is not my plan either. I’m content on the sidelines willing to establish bearish trades for clients on a penetration of the 9 day MAs. These pivot points come in at 148’8 in 30-yr bonds and 133’30 in 10-yr notes.

Livestock: Inside day in live cattle and feeder cattle; as prices take a slight pause. I’m still expecting more downside to come. My target in June futures remains 115.00. As for September feeder cattle; I feel we get a trade back to 156.25 into next week. Lean hogs broke out to 1 month highs gaining 2-3% depending on the month. Prices are within a few tick of my target, if we clear 90 cents in June next stop should be 92.00. If willing to stay in trail stops.

Grains: Key reversal in oats as a new low was rejected and oats closed in the green for the first time in eight sessions. If this proves to be a bottom we would start probing longs in corn...stay tuned. Support in July wheat is seen at $6.35...if that level gives way $6.00 comes into play but I don’t see that as a likely scenario. My downside objective has been reached and I like the sidelines. Soybeans lost 2.4% today to drag prices to four month lows. I see July making its way to $13/13.15. Soybean oil lost its upward momentum in the last few sessions and prices will need to hold 49 in July or I would cut loses on longs. It will take Crude to stabilize as there remains a heavy correlation.

Currencies: The dollar is exhibiting signs of running out of gas but one down day is far from evidence of a top. The immediate direction will be determined by tomorrows NFP number. I would have tight stops protecting profits on all shorts or be on the sidelines into the number tomorrow. The only play I like at this juncture is bullish exposure in the Yen as prices broke out today to fresh five month highs and there looks to be room to run.
 
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