RCM Commodity Update: Crude Oil Closed Above April Highs

closed above the April highs gaining 1.19% today closing $3.50 off the lows this week. I opted to lift my hedges at a profit for clients and remain short (under water) over the weekend. I could live to regret that decision, let’s see Sunday night. I think we are $4-6/barrel lower next week but if we show strength Sunday into Monday I will be forced to cut losses. With the 1.2% advance today RBOB probed its 100 day MA, a level that has served as a ceiling since 4/3. A close above $2.89 in August would likely lead to a test of $2.94 though I see the likelier path a trade back to $2.79…trade accordingly. Heating oil also tested its 100 day MA ending nearly 20 cents above its lows from 2 weeks ago. It’s evident my opinion is a correction in all three aforementioned products but will I be correct? Natural gas was today’s commodity chart of the day. A tradable base appears in place just below the 8 day MA. My suggestion is scaling into bullish trade looking for 30-40 cents of appreciation in the coming weeks.

Stock Indices: The Nikkei dropped for the fourth week running closing under its 100 day MA for the first time in 2013. Do not rule out an additional 5-8% swoon. All eyes next week will be on the FOMC. The S&P has closed lower 3 out of the last 4 weeks but the real key is the 50 day MA which has served as a safety net the last 2 weeks. That pivot point comes in at 1604. A breach of that level which I do expect drags futures 40-60 points lower in my eyes. The Dow is about 500 points below its record highs made just 3 weeks ago but the 50 day MA at 14875 remains the line in the sand here as well. Stiff support is not seen for another 700-800 points. Warning horns have been blown…have you lightened up or hedged off a portion of your exposure yet?

Metals: Gold was barely able to keep its head above water closing out the week just under its 20 day MA. A probe above $1395 next week not only gets prices above that pivot point it would also signify a violation of the down sloping trend line that has served as resistance since early April. If the $50-70 appreciation does not begin next week I think it is safe to say we see lower trade ahead and I will let go of any bullish hope short term. Silver closed 55 cents off its intra-day highs probing the 20 day MA in early dealings. That level is key in determining where we go short-term. A breach of $21.25 would likely lead to a $19/ounce trade while a settlement above $22… $24 would follow soon thereafter. Play the direction of the breakout.

Softs: Cocoa gave up 5% in the last 2 sessions dragging futures within $5 of the 100 day MA. Bearish trades should have been rewarded this week. My objectives in September are 2245 followed by 2200. Sugar awoke from the dead gaining 3.4%. The largest 1 day % move since October 11, 2012. Could this move have been triggered by short covering and potentially get legs lifting futures back near 18/cents lb or greater? Cotton has appreciated 14.8% in the last 2 weeks approaching levels that we rolled over from in mid-March. Bearish plays are on my radar so expect trade ideas next week. OJ has its first losing week in the last four weeks closing just above its 50 day MA. A 50% retracement drags futures 14 cents lower...my objective in the coming weeks. In the last 5 weeks coffee is lower by 20 cents/lb. with prices at 4 years lows. This week bulls felt some pressure but I maintain my conviction that coffee is a buy for medium to longer term swing traders. Keep your size small until the market proves me correct.

Treasuries: Lower trade was rejected and 30-yr bonds closed in the green after 6 consecutive losing weeks. The key to me was futures closed out the week above a key pivot point -140’00. The next hurdle that needs to be overcome is the 20 day MA …which was probed on 6/6 and 6/14. My target remains a trade near 144’00 in the coming weeks. 10-yr notes also bounced off support established on Tuesday closed out the week just under the 20 day MA. A further appreciation is expected to lift 10-yr notes to 130’16. On the week the NOB spread met the same support level that held in March, stay the course. We’ve started to rebound and though there may be more in store I’ve advised clients to re-establish bearish exposure in 16’ Eurodollar contracts. I want to have some skin in the game ahead of the FOMC and then add to the trade either way after next Wednesday…stay tuned.

Livestock: Live cattle are just above support but a breach could get ugly in my opinion. I’ve advised all bullish trades to move to the sidelines. Here’s my logic I would rather be on the sidelines wishing I was in the market as opposed to in the market wanting to be on the sidelines. August lean hogs closed in the red the last two sessions…a feat that had not been accomplished since 5/17 & 5/20 when futures were 7% lower. The same level that capped upside in February held off the bulls again this week. Assuming an interim top was established a 50% Fibonacci retracement puts this contract closer to 93 cents in the coming weeks.

Grains: New crop corn closed lower 4 out of 5 sessions this week closing out the week just under its 50 day MA. With the gap being filled from Memorial Day I think traders can scale into bullish trade. I like selling $5 puts, buying just out of the money outright calls or long futures with 1/3 of the ultimate size you desire to own. Soybeans have only closed lower 2 out of the last 10 weeks, this week was one of them. I am operating under the influence an interim high was established this week and we get a break lower. Clients on board with me are in bearish trade in August looking for a 50-70 cent break from current pricing. In the last 3 months every attempt at $7/bushel has been met with stiff support in December wheat. I don’t expect this time to be any different. We are on the lower end of the trading range and I think we trade back to the upper band in the coming weeks above $7.50 in this contact…trade accordingly.

Currencies: The US dollar is at 4 month lows but the easy money has been made on bearish trade in my opinion as I expect a rebound from current levels. If the market delivers I anticipate resistance to come in around 82/82.50. Inverse reaction in European crosses as I expect a pull back in the near term…the Euro to 1.31, the Pound to 1.5350 and finally the Swiss to 1.06. After the 2.25% appreciation in the last 2 weeks the Loonie likely backs off a bit…tighten stops on remaining longs. The Yen has bounced 9.5% since bottoming on 5/22. I am searching for an area to probe bearish trade thinking new lows are in our future…stay tuned. The Aussie will close 3% off its intra-week lows. Just under the 20 day MA. We may have dodge a bullet on bullish trade…next week will be critical. On a further advance my objective is a parity trade…4.8% above current trade in the coming weeks. Here’s something you do to hear a gringo say everyday...buy the Mexican peso. After the 8% correction in the last 6 weeks prices are starting to pick up again and higher trade appears likely.

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.