RCM Commodity Update: Lower Trade In Crude Oil?

closed under its 18 day MA again with a lower high and lower low. As long as the 9 and 18 day MAs contain upside I am looking for lower trade. In today’s chart of the day I outlined a bearish trade idea short WTI/long Brent. Just a reminder a 38.2% Fibonacci retracement in the September contract puts futures under $100/barrel. A bearish engulfing candle in RBOB today off by 0.84%. This was the first settlement since 7/2 under the 18 day MA. The 50% Fib level comes in just above $2.88. Though higher trade was rejected at its 8 day MA heating oil maintained a positive close just above $3/gallon. I like the crack spread long heating oil/short RBOB which gained 3 cents today. I’m looking for a trade near 600 to let go of clients open positions. If it happens a great trade picking up a nickel in 3 trading sessions, $2,100 per spread. Natural gas broke down today off by 2.55% trading at 5 month lows. Do not rule out a fresh 13’ low which would drag front month 4-4.5% lower. I’m on the sidelines with clients.

Stock Indices: Hurry up and wait will be the mantra until about 2pm on Wednesday when the FOMC makes an announcement. Inside day in the S&P trading marginally lower. 1700 remains upside resistance while I still think bears can take the S&P near 1650 on a bearish reaction mid-week. Not over all trade but in terms of high and low close the Dow for the last 7 sessions has been in a 60 point range. Talk about watching paint dry. Expect the direction of the next leg to be determined this week between the FOMC and NFP #. I have no exposure here outside of small put exposure in the ES with select clients but I do think hedges for those large stock holders is merited all things considered.

Metals: Inside day in gold closing at its 20 day MA up $7 on the day. For the last 5 days futures have traded in a $40 range not wandering too far from the 20 day MA. Expect that to change in the next few days as a $50-75 move should play out by this time next week. My bias is lower but instead of getting clients in bearish trade if I am correct I’d rather just be a buyer from lower levels. Silver gained a dime and was able to dance the 50 day MA which has held on all probes the last 2 sessions. I expect that to change and a trade under $19.66 should get bearish momentum traders more active in my opinion. A 50% retracement of the action off the lows on 6/28 puts September under $19/ounce. If I am wrong and we move north instead of south upside resistance is seen at the 20 day MA, currently $20.75.

Softs: Cocoa lost 2.27% getting within a few dollars of its 20 day MA and on its lows $12 from its 50% Fibonacci level. Those in bearish trade should be looking for an exit level closer to 2230/2245 to take partial profits (60-80% of the trade). Sugar gained 2.73% to close above its 50 day MA for the first time since 5/6. We probed that level in late June but this is the first settlement above that pivot point. Pullbacks that hold the 20 day MA should be purchased. For longer term futures traders I will be looking towards 14’ contracts that hold a slight premium. Coffee closed 1.10% lower at its lowest close since 7/12. My suggested play remains long December futures with some sort of options hedge.

Treasuries: 30-yr bonds stared the week on their heels failing to get above the 9 and 20 day MA closing in the red. Continue to use those levels as pivot points, in September at 134’20 and 134’14 respectively. 10-yr notes too closed in the red in between those two pivot points (9 and 20 day MA). A trade higher should be capped at the 126’22.5 level while downside support is eyed at the down sloping trend line near 126’00. Expect sideways action until we get a clearer picture on tapering moving forward come Wednesday. I’ve suggested bearish exposure in 16’ Eurodollar after the rebound in recent weeks. Those wanting less exposure but still flexibility are advised to buy calls 1:1 against their short futures.

Livestock: Lean hogs appear to reached an interim top 3 days ago and have trade lower since. Fresh entries should be looking towards October contracts while clients that have started with August should get some redemption in the near future. I am targeting a move near 94 cents in August futures. Those getting into October are advised to use the same strategy we utilized in August…short futures against a sale of out of the money puts 1:1. Based on current trade I like selling either 82 or 84 strikes.

Grains: Today marks the sixth consecutive losing day in December corn. As long as we do not see a lot of farmer selling at current levels we should experience a bounce in the order of 25-35 cents in the near future. The first resistance is seen at the 9 day MA, currently at $4.88. A trade above that level should be followed by a trade near $5.10 in my opinion. Inside day in November soybeans though lower trade has been rejected the last 2 sessions, hinting $12.10/bushel being a value zone…stay tuned. Perhaps the biggest move that I missed is soybean oil which in December has lost the last 5 sessions and is lower 11 out of the last 13 days since peaking on 7/11 and dropping 8%. It is premature to call a bottom but bullish trades are being monitored by yours truly. Expect trade ideas this week or next. December wheat has held at $6.60/bushel the last 3 days trading higher 2 out 3 sessions. On a settlement above the 9 day MA look for buyers to re-emerge. Currently that level is $6.68. My suggested idea is long futures with an options hedge...either buying puts or selling calls 1:1.

Currencies: The US dollar is very close to a dead cat bounce in my opinion. Not a fresh start to a bull market just a 1.0-1.5% advance. The gap that was formed on 7/10 has yet to be filed which would also complete a 61.8% Fibonacci retracement. For someone that does not trade a lot of FX I’ve seen a number of great set ups of late. Last week I advised bearish plays in the Loonie and bullish plays in the Yen. Today I issued some bearish plays in the Pound for some clients. If it has not moved yet I will make it tomorrow’s chart of the day. My stance is we are seeing resistance at the 61.8% Fib level and we could see pries back off 200-330 points by this time next week. I have opted for both options and futures trades with clients trying to capitalize on this perceived depreciation. With the strong correlation in the European majors FX traders could also probe bearish plays in the Euro and Swiss.

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.