RCM Commodity Update: Higher Trade Rejected In Crude Oil

Higher trade was rejected in Crude oil with the frits negative close in 4 sessions. I believe in the next 2 weeks August can trade back to its 50 day MA; currently at $94/barrel. In full disclosure I have light bearish exposure short August futures with some aggressive clients - we are currently under water. Assuming Crude falls $3-4 we should see a 10-15 cent setback in the products. RBOB and heating oil met resistance at their 100 day MA the last 2 sessions; in August at $2.8860 and $2.9685 respectively. A 3.67% gain on a bullish engulfing candle in natural gas as futures finally closed above the 8 day MA. I think we can get a quick 25 cent advance on top of the 14 the market delivered today…trade accordingly.

Stock Indices: A near 1% gain today has the equity market closing near 1 week highs ahead of the FOMC meeting that gets underway tomorrow. The support line that has acted as a floor remains the 50 day MA, in the S&P at 1605 and that level in the Dow is 14890. I remain very cautious and do not view it as a healthy sustainable move if we first do not get a deeper correction. My advice for weeks has been a hedge against exactly that.

Metals: The 20 day MA continues to act as a magnet in gold futures as we’ve been unable to retake that pivot point since breaking under that level 6/7. As long as $1350/1355 holds expect sloppy sideways action. I’ve yet to cut losses on bullish August option trades but if we do not see a trade above $1415 this week I will likely advise clients to cut losses…stay tuned. Silver made an attempt at $22/ounce but failed to close above that critical pivot point ending just shy of that level. What worries me about both metals is if we stage a rally in the dollar what effect that could have on? Additionally the lack of outside market influence has me concerned. Keep your size small until we get a clearer picture.

Softs: Cocoa is back under its 100 day MA giving up 1.69% today trading within $3 of my 2200 target in September. The easy money appears to have been made but this market but cocoa has a tendency to move too much and on a dollar appreciation expect further pressure as I am not ruling out 2100. I told traders in bearish trade to unwind 75% of their shorts on trades under 2200. In 2 short days sugar has appreciate nearly 5% erasing the 2 previous weeks of gains. Albeit this could be short covering I believe we have gas in the tank. I lightly started working into 2014 bullish trade in longer term swing trades today. A 38.2% Fibonacci retracement puts March 14’ over 19 cents….HMMMMM. Aggressive traders can sell cotton with stops just above the recent highs. After a near 10% advance in the last 3 weeks a setback is overdue in my eyes. A trade back to the 50 day MA represents a move of just under a nickel. Coffee gave up early gains to close 0.44% lower just above the recent lows. I continue to think coffee is a sleeping giant and see prices significantly higher in the coming weeks. A hefty short position can be dangerous when a market is so overextended…in my opinion.

Treasuries: The 20 day MA capped upside in 30-yr bonds and 10-yr notes today with both instruments in the red. 30-yr bonds will need to retake 140’00 in the coming sessions we futures will likely test last week’s lows. In 10-yr notes we must take out 129’20 on the upside on a closing basis to see additional upside. We’ve bounced off the recent lows in Eurodollars and though there may be additional upside I think swing traders can work partially into longer term trades from the short side. After the dust settles on the FOMC this week they can add to the trade.

Livestock: For the last 2 months trade near 118.00 in August live cattle have been defended. While I am not bullish at current levels those in long trades should use any rebound as an exit window. It is very marginal but lean hogs have closed lower the last 3 sessions. I am operating under the influence an interim high was established last week and we get back and fill from current trade. A 50% Fibonacci retracement in August drags prices near 93 cents …trade accordingly.

Grains: A 1% gain and bullish engulfing candle in corn as lower trade was rejected. I think buying December corn just above $5.25/bushel will look like a sound trading decision in the coming months. My suggestions remain sell $5 puts or buy at the money calls. August soybeans reversed to close just above its 20 day MA 22 cents off intra-day lows. I’m searching for 40-60 cent break but days like today are frustrating. Talking to a few farmers today they agreed we should get a break. The question is if it happens in June or July? Trade under $7/bushel has been rejected the last 3 sessions in December wheat. I am recommending a buy at current levels thinking prices make their way back to the upper band of the range approximately 50 cents above today’s settlement. Gain bullish exposure via futures and sell out of the money calls 1:1.

Currencies: Since breaking under the 50 day MA on 6/3 the dollar index has only gained 3 days…today being one of them higher by 0.15%. A dead cat bounce remains my call with a near term target of 82.25. Today’s chart of the day was the Swiss franc…like the Euro and Cable I think all three European crosses can be sold with tight stops above the recent highs. The Aussie will need to close above the 20 day MA at .9535 to see additional upside. I expect metals to tread water but I am bearish energies therefore I am bearish the Loonie. I am looking for a trade back to the 20 day MA, currently at .9710. On an additional 2% advance in the Yen I’d be willing to work into bearish trade. We may not get there before futures roll over so stay alert for a change to our bearish entry.

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.