RCM Commodity Update: An $8 Move In Crude Oil

Almost an $8 move in Crude oil the last two sessions with futures fast approaching their 7/19 highs. With the velocity of the recent leg I’m going out on a limb and saying futures will likely probe fresh highs but I do not think trade near $100 is sustainable. Those that are short futures and hedged off with options dropped half of their hedge today buying back October puts. I remain long September calls against their futures for now. As long as Crude is headed north as are the products...at a slower pace. With Crude higher by 2.72% RBOB gained 1.07% and heating oil appreciated 1.36%. It appears the products could challenge their recent highs as well. I am interested if the September crack spread gets back closer to even. 6 out of the last 7 days natural gas has lost ground down 1.71% today dragging futures to fresh 13’ lows. I like probing bullish plays at these levels and have advised clients to start in October and November back ratios spreads. At a minimum I think the gap can be filled in the coming weeks that would lift futures 5%.

Stock Indices: Fresh record highs I the indices with the S&P cutting through 1700 like a hot knife through butter. I anticipated more follow through and if we did not have the NFP # tomorrow I think bulls would have pushed harder. Expectations tomorrow are for 184,000 jobs and an unemployment rate at 7.5%. On a disappointing number support is seen at 1680 followed by 1655. The last two days in the Dow we’ve put in higher highs and higher lows and today we had the highest close ever picking up just better than 100 points in September futures. On lower trade look for support 15400 followed by 15250.

Metals: Gold failed again at its 50 day MA, its lowest close in 8 sessions. It appears we may get a challenge of the 20 day MA in the coming days. If $1293/ounce gives way the $75 correction I’ve been calling for would be underway. A 50% retracement off the lows established in the end of June puts December futures back at $1265. 6 out of the last 8 sessions silver has lost ground with futures ending under the 20 day MA for the second day running. $19.70 is seen as resistance with $18.70 as the next stiff support. Copper has advanced 13 cents in the last 2 sessions and on its highs probed the 50 day MA. This pivot point capped upside on all recent attempts so on a penetration of $3.18 expect an additional leg to ensue. A 38.2% Fibonacci retracement lifts September above $3.32.

Softs: I advised bearish traders in cocoa to take profits and move to the sidelines. I would’ve anticipated lower trade based on outside markets and when that did not happen something smells off. On higher trade I would be willing to re-establish bearish trade. Sugar traded lower for the first time in 6 sessions but as long as the 50 day MA holds stay in bullish trade. For fresh entries I’d look to enter longs closer to the 20 day MA. I again probed bearish trade in OJ today buying back ratio put spreads in November with clients looking for a trade back near $130 in the coming weeks. Futures are currently 11% above that level. Coffee lost 2.53% dragging prices to their lowest trade in 4 years. Weak action in the Brazilian Real spurred increased selling today and the fact that fresh lows were established probably triggered some momentum trading. I advised clients to roll their September $120 put to October $115 puts collecting a few cent of profit. I also will be looking to manage the December $130 call leg once we find a value zone…stay tuned.

Treasuries: 30-yr bonds closed just off their lows trading down over 2 points today. A sell rallies mentality exists in the debt complex is pricing in higher interest rates. Until the 9 and 20 day MAs are overcome I am in the bear camp. 10-yr notes gave up 1 point closing back under the down sloping trend line. I see resistance at that pivot point and see a trade under the levels made on 7/8 in the coming weeks. Eurodollars retreated today with 16’ futures closing under their 20 day MA for the first time since 7/12. Fresh entries could have stops above the recent highs with a first objective at the lows made on 6/24. If you have not read my specialty report written on 3/27 that walks through this trade...take 15 minutes and do so. Request it and I will personally send it to you!

Livestock: Live cattle have retraced 50% trading lower the last 4 sessions. As for support under the market in October I see 123.75 as your next stop. In full disclosure I have no client exposure in cows at the moment. Lean hogs picked up nearly 1% closing back above the 9 day MA in August. Stops should be in place just above the recent highs on bearish trade. As for those playing in October book profits and look to re-establish bearish trade from higher levels.

Grains: The 9 day MA rejected any more upside in corn as futures gave up 2.51% as $4.50 looks like a viable target. Refrain from trying to pick a bottom. Recent longs probing this contract should have been stopped at a small loss on fresh lows. The loss of better than 1% today puts November soybeans within pennies of their April lows. A breach of those lows could get beans 3-4% lower dragging futures to a trend line that has held since 08’ so though there may be more immediate downside I think the easy money has been made on bearish trade. That being said until we see trade above the 9 day MA I am in the bear camp. In this contract that level is currently at $12.30. Wheat traded in the red for the first time in 5 sessions but was able to remain above its 9 day MA. As long as December holds onto this pivot point stay the course. A close below that level let go of bullish trade. My suggested strategy is long futures while selling out for the money calls 1:1.

Currencies: Today’s chart of the day was in the greenback which gained better than 1% today. Dig deeper and read the report but my call is a rebound from oversold levels…trade accordingly. The European crosses appear to have established an interim top as traders should fade rallies in the Pound, Euro, and Swiss. The Pound is further into the move (more risk) so my favored play for fresh entries are the later. The Loonie gave up almost 1% challenging the 34 EMA. If and when Crude oil tracks lower look for that move to accentuate further selling in the CAD. The Aussie is approaching 3 year lows but the selling does not look complete…refrain from catching this falling knife. Bullish trades should have been taken out of the Yen as futures gave up 1.76%. Support was found at the 20 day MA. Depending on order entry this should be a small profit or small loss.

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.