RCM Commodity Update: Crude Oil Turning South?

Today’s chart of the day was Crude oil. I see prices in the 9th inning of this move and anticipate futures turning south very soon. I’ve advised aggressive clients to have short futures and in August and September trying to capitalize on $3-5 depreciation. Those not wanting open ended exposure could sell puts against their futures in my opinion. The 100 day MA continues to contain the products with both heating oil and RBOB trading at that pivot point in the overnight market. I’ve yet to do anything in the crack spread in recent sessions as I have enough energy coverage for clients short Crude and long Natural gas. The 100 day MA put a stop to the upside in natural gas today though I view that as temporary. A trade above $3.95 in August should lead to a trade up to my objective $4.07/4.10.

Stock Indices: All eyes will be on the Fed tomorrow. The S&P have gained 3 out of the last 4 lifting futures to 2 week highs just under 1650. We are 35 points away from record highs made 5/22 and 35 point above the 50 day MA. I call this no man’s land as we could go in either direction. The Dow’s rebound in recent sessions has carried futures within 200 points of record highs. My only suggestion remains hedge a large equity portfolio in case we do get the 7-10% correction I’ve predicted for the several weeks.

Metals: Gold gave up 1.17% to close at its lowest levels since 5/17. Buyers have defended every trade just under today’s trade for the last 3 months but could this time be different? A number of bearish indicators are signaling sell but I’ve yet to exit August bullish trade - call it me being stubborn. My experience tells me that when everyone is leaning one way generally the masses are the as$3@. Presently August call options are severely under water and a decision will be made this week as to cut losses…stay tuned. On a percentage basis silver was hit far less than gold only losing 0.37% today. Generally silver is a far bumpier ride so what does today’s action signal? Silver needs to move lower or are we finding a value zone in the precious metals? In the last month silver is lower by 4.6% while gold is lower by 1.4% so big picture silver is getting hit harder but it appears to be slowing. The market is likely taking a breath for a 5% move, in what direction? I have yet to advise bullish or bearish trades in silver…stay tuned.

Softs: Cocoa is finding mild support just above its 61.8% Fibonacci level. Those in bearish trade should trail stops just above the 100 day MA, currently at 2245. Lower trade could play but I feel the easy money was made on the 7.5% drop in the last 4 sessions. Inside day in sugar with futures off just better than 1%. I think it is worth a stab with small size playing a potential short covering rally that could turn into a larger move. On a fresh low be willing to walk away. Aggressive clients can be short December cotton assuming an interim top was just established. A trade back to the 50 day MA is a 2.5% deprecation. OJ closed under its 50 day MA losing ground 6 out of the last 7 sessions. Another dime loss is anticipated…look at back ratio spreads in November. Coffee continues to consolidate just below $1.25…a sleeping giant in my opinion. Coffee is on the verge of the 6th consecutive negative week but I see limited downside from current levels.

Treasuries: 30-yr bonds and 10-yr notes were slight gainers on the day but unable to retake key pivot levels; 140’00 in September 30-yr bonds and 129’16 in 10-yr notes. I am carrying a very small long NOB spread position into tomorrow’s FOMC decision. A move back to the 38.2% Fib levels should get these well into the green. As for the Eurodollar I have a partial bearish trade on and will look to add length from higher or lower levels once the dust settles this week. I’m suggesting to trade 16’ contracts that have retraced off last week’s lows but have yet to take out the 20 day MA. In a perfect world clients would be able to sell on a 20-30 tick pop.

Livestock: Inside day in live cattle as it would appear a real tug of war between the bulls and the bears. Any advance should be used to exit remaining bullish trade. August lean hogs gained 0.67% to erase the previous days of losses and putting futures back near their recent highs. August needs to get under the 9 day MA, currently at 96.75 to confirm an interim top. If a fresh high is made I may roll my clients hedges from 92 strikes to 96…stay tuned.

Grains: December corn gained 2.23% to close above its 61.8% Fibonacci level. I see follow through and expect a challenge of the upper end of the trading range lifting December 20 cents higher in the coming weeks. Depending on how the market reacts at that level would dictate if I leave the trade booking profits or stay the course. Much of this action is due to tight current supplies and worries that summer weather could threaten this year’s crop. This is nothing new so pay attention to those Midwest meteorologists. Planting delays in soybeans could be a driving force but played little role today on a marginal gain. August closed 15 cents off its highs an if we can break the 20 day MA we might get that correction I’ve called for…that support level is $14.33. Wheat gained 1% stopping at its 9 day MA. I continue to think buying December near $7/bushel will make you look extremely smart in the coming weeks. Of late I’ve had some clients sell put options and use that premium to buy call options in both corn and wheat. For exact strategy contact me.

Currencies: The US dollar continues to consolidate just under the 81 level in September. A bounce remains my call, a 38.2% retracement lifts this contract to 82.25. The Pound has already started to roll over down 0.29% today and negative the last 2 sessions. I think we are just getting started, the Euro and Swiss have yet to roll over but that remains my call. Depending on stop placement those probing bearish trade could have been stopped out today at a small loss. I would not be short the Yen with futures but you could buy put options ahead of tomorrow’s FOMC decision in case we trade south from here, keep your size small. The Aussie has yet to take out its 20 day MA and continues to lag giving up ground the last 3 sessions. I am cautiously long in September futures but this has been a disappointing trade for clients who are long from 2-3 cent higher level. We did hedge off with options but this has been one or our worst performers of late in full disclosure. For now we are staying the course. The Loonie is under its 50 day MA overnight and should track lower. I’m not expecting a big move, just 0.50 - 0.75% - a challenge of the 20 day MA…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.