RCM Commodity Update: Crude Oil Plays Tug Of War

Tug of war in Crude oil with a mid-day correction after the sell off on today’s inventory numbers. The 8 day MA continues to contain upside but I expect a trade above that hurdle very soon that should add $2-3/barrel. In the August contract that pivot point is $95.75. Lower trade was rejected in both products. It appears support that held in April and May should support RBOB while heating oil was supported at its 61.8% Fibonacci level. I continue to advise August crack spreads, slightly against clients but flat today. Inventories out in natural gas tomorrow but to date my support number has held. If stopped out of August perhaps consider re-entering. Those in September I am targeting a 20-30 cent appreciation.

Stock Indices: Equities followed through closing higher the last two sessions after bouncing off the 100 day MA yesterday. We should probe the 50 day MA by the weekend in my opinion, 1612 in the S&P and 14930 in the Dow. Let’s see how we react to see if bulls retake the controls. One consideration is Friday is month end and the conclusion of Q2 so we could see some jostling for position and window dressing so exaggerated moves are not out of the question.

Metals: The ship is leaning one way as sentiment is extremely bearish. Gold was hit for 3.55% dragging prices within 2% of $1200/ounce. I think we are very close to turning higher but I have no fresh entries with clients. I only hold August bullish option trades willing to cut losses on a bounce in the coming weeks. I will likely buy back the bottom leg on signs of an interim bottom...stay tuned. Silver closed lower by nearly 5% closing under $19/ounce for the first time since August 2010. By the end of 2010 silver was over $30/ounce. Will history repeat itself in 2013? I doubt it but I did start buying lightly for clients today…not futures but rather back ratio spread in September. I moved the strikes down today as futures were off nearly $1/ounce when executing the trade. I like selling closer to the money and buying multiple further out of the money calls. This trade would work perfectly if we get a $3-4 spike higher in the next 2 weeks. Even with the bloodbath in precious metals copper remained above the $3 level…HMMMM.

Softs: Start working into bullish trade in cocoa as futures have started to be bid higher. A return to the 61.8% Fibonacci level lifts September to 2285. Sugar tested the 50 day MA the last two days failing to settle above that level...will three times be a charm? I like wading into bullish trade in March 14’ contracts. Cotton resumed its down move giving up 1.47% and as long as stops were above the 50 and 100 day MA bearish traders should still be in the trade. A trade below 83 in December would likely mean a trade under 82 cents. OJ is lower by 9.3% in the last 2 days and 19% in the last three weeks. I am not ruling out futures filling a gap from January but bullish entries are on my radar…stay tuned. Lumber traded limit up intra-day and has closed higher 5 out of the last 6 days. A tradable bottom appears to have been established. Coffee gave up 1.74% to take prices back to the bottom of the recent trading range. Sounds like a broken record but I think we are close to turning a corner. Don’t be outright long futures...my suggestion is have options protection as no sign of a bottom yet…just my opinion. The $1M question when will coffee perk up?

Treasuries: I’m operating under the influence a base has formed in Treasuries and we rebound from here. Support is apparent in 30-yr bonds just above 133’00 and in 10-yr notes I see support at around 125’16. I am targeting 137’16 followed by 139’00 I bonds and 127’00 followed by 128’00 in notes. A bullish engulfing candle in Eurodollars today as a recovery should play out there in my eyes as well. On a 25-40 tick appreciation we can start scaling back into bearish trade in 16’ contracts.

Livestock: A higher high and higher low in August live cattle puts futures at their highest close since early May. We are approaching overbought levels and I am looking for lower trade in the coming weeks. Some clients unfortunately got out of their bullish trades a bit prematurely on my advice…sorry. Lean hogs closed marginally lower but have yet to penetrate the 9 day MA. In August that level is 97.75. I am calling for a 3-5% correction and have bearish exposure with some clients.

Grains: In today’s chart of the day I focus on wheat but I do put out the guesstimates for Friday’s USDA report...take a look. Corn continues to find support at its 50% Fibonacci level, in December just above $5.40/bushel. We will need to see prices lower for me to issue buys ahead of Friday’s report. A lower low and lower high in soybeans…will we be back in sell mode? If November approaches its 50 day MA at $12.20 I would be willing to take a stab at bullish trade...until then stand aside. Wheat is off the last 5 days trading at its lowest level since April fools...no I’m serious this is not a joke. A buy under $7/bushel is merited in my eyes. Read today’s chart of the day for deeper analyses.

Currencies: The US dollar completed a 61.8% Fibonacci retracement today closing at its highest level since 6/3. Get out your party poppers immediately as this will not last in my opinion as I expect lower trade immediately. The 3% depreciation in the Euro in the last week has overshot to the downside in my opinion...trail stops if in bearish trade. Same advice in the Pound as a 61.8% Fibonacci retracement was completed today on a trade under 1.5300. The Swiss found support at its 20 day MA... use that level as your pivot point, in September at 1.0590. I am in the camp that the Loonie and Aussie are buys as they will appreciate in the coming weeks. I have objectives in September futures at .9700 in the CAD and .9500 in the currency down under…trade accordingly.

Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.