RCM Commodity Update: Crude Oil At Highest Close In 14 Months

bounced off its 8 day MA to the highest close not trade but close in 14 months. If September gets above $107/barrel I cannot rule out a $110 probe. Traders that are short via futures should have stop losses above the recent highs or use options to lighten the load. My favored play consider the upside risk is short WTI and long Brent 1:1. The September spread is just over $2 wide. The crack spread narrowed nicely today as I have some aggressive clients’ short RBOB/long heating oil. September is almost a nickel off its widest margin in just a few days…every penny is $420 per spread. I’m aiming for an additional 3-4 cents from today’s settlement. Both products worked in our favor today…RBOB lower and heating oil higher. Inside day in natural gas with futures giving up 1.25%. As long as prices remain above $3.50 light buying is the call. Current trade is 12 cents above that level.

Stock Indices: Tug of war in stocks today as the market is digesting Bernanke’s comments. Let’s see if we can get a clearer picture tomorrow. Indices are running into the same resistance where futures rolled over from in mid-May. Past performance is not indicative of future results. A decision will be made the next few sessions in terms of the direction of the next leg. IF higher trade fails my objective in the S&P is 1630-1640 and in the Dow 15100/15150.

Metals: Gold failed at its down sloping trend line within 30 cents of $1300/ounce. It will take a trade over that level to allow bulls more upside. A trade under the 20 day MA currently at $1259/ounce would signal lower trade. Play the breakout. After trading above $20/ounce for the last five days each occasion was met with selling as prices were unable to jump that hurdle. Today silver futures gave up 2.58% and closed back under the 20 day MA. Resistance is seen $19.65/19.75 with the next downside support eyed at $18.60/18.70. I advised clients to cut their losses on their back ratio spreads today and will look to re-establish bullish trades from what I think will be lower levels.

Softs: More profits were taken in cocoa today for clients in the trade. My advice has been to scale out of bullish trades on the way up. In the last 3 weeks since bottoming on 6/28 futures are higher by 8%. I am friendly as long as the 50 day MA holds but I think the easy money has been made on bullish trades. OJ continues to run higher with only 1 negative day in the last 12 sessions. Continue to trail stops. Markets do not generally move in a straight line so after a 16% advance do not rule out back and fill action. Today’s chart of the day one can see daily and weekly chart in coffee. In the last 3 days coffee has appreciated nearly a dime lifting futures to five week highs probing its 50 day MA for the first time since 5/17. Buy dips as we feel this trade is just getting started.

Treasuries: 30-yr bonds closed above their 20 day MA near 2 week highs. I maintain that a trade above 136’00 in September should lead to a trade near 138’00 in the coming weeks. I remain in the bull camp as long as futures are above their 9 and 20 day MAs, at 134’8 and 134’24 respectively. 10-yr notes challenged the down sloping trend line mentioned in previous posts near 127’00. A penetration of this level should complete a 38.2% Fibonacci retracement lifting September to 127’23. It is not an all or nothing trade. I would use the advances in Eurodollar futures to sell into this strength. My advice is fading the rally in ¾ tranches. I am currently trading 16’ contracts with clients. I think we’ve seen about half of the potential rebound we could see from the rout in May and June. Those that want to sit in a trade could still short futures and buy calls 1:1 in my opinion.

Livestock: Live cattle gave up 0.68% trading decisively lower and closing under the 9 and 20 day MAs. This was the lowest settlement since 6/25. Use the aforementioned MAs as resistance now as we may finally see the $120 level mentioned in previous weeks. A reversal in feeder cattle as well closing at the lows on the day down by just better than 1%. A closure of the gap from last week puts futures under the 20 day MA …trade accordingly. Inside day in lean hogs a slight loser. Will 96.70 in the August contract continue to act as resistance? A trade near 94 I may be inclined to close out remaining bearish trade for clients…stay tuned.

Grains: Make up your mind maize. Corn continues to flip flop back and forth giving up 1.71% today closing at 1 week lows. The 9 day MA is your pivot point...above means bullish and below means bearish. We are in the critical pollination stage so weather will be the driving force in the next few weeks. Inside day in soybeans off by 0.21%. If $13 is not taken out this week look for trade back to $12.30 into next week. Wheat has traded lower the last 4 sessions and is now within 12 cents of the recent lows. Scale into bullish trade in December contracts. My favored play is long futures with options protection.

Currencies: Lower trade was rejected in the greenback but without a trade above the 20 and 50 day MAs I remain in the bear camp. The Aussie has settled above its 20 day MA the last 2 sessions. That had not happened since early April when futures were 12% higher than current trade. Are the tides shifting? The Loonie has tread water the last few sessions around the 34 day EMA...taking a breath before determining the next leg. I am bullish longer term but with metals getting hit and with energies ready to depreciate in my opinion tighten stops as I think we get one more swoon to last week’s lows. I generally am trading the majors for clients but once in a while I look at exotic crosses like the Real or Peso and WOW…the Mexican peso has gained 8% off its lows on 6/20. I need to start tracking the South African Rand and Israeli Shekel.

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.