RCM Commodity Update: Sharp Correction Possible In Crude Oil

Higher trade was rejected in Crude oil with futures ending just below $106/barrel. I’m looking for a sharp $4-5 correction very soon. My favored way to play is long Brent and short WTI 1:1. As of this post that spreads in September picked up 30 cents today, a small victory. Trading near $2.50 I expect to see this spread close to $7 in the coming weeks. Both products were higher today, RBOB gaining 0.75% and heating oil 0.61%. For the first time in several months RBOB traded at a premium to heating oil, this should be short lived. My suggested play is the crack spread long heating oil and short RBOB. I believe money will be made by RBOB falling more than heating oil in the coming weeks. Forced in the market I would prefer to be on the long side of natural gas with stops under $3.50 but currently I have no client exposure.

Stock Indices: After 10 consecutive positive days we will finally see red in the stock indices with the S&P giving up 6 points and the Dow 25 points as of this spot. The path of least resistance remains up but Bernanke is speaking tomorrow and Thursday so do not rule out fireworks. Some of my aggressive clients waded into bearish trade today. Two ideas buy inexpensive $200-300 July put options looking for a 1-2% move in the coming sessions or for those wanting more time 1:2 back ratios in spreads in September. On lower trade I see the first significant support levels at 1635 and 15100.

Metals: Higher high and higher low in gold with the highest close since 6/21. In 3 weeks prices have climbed better than $100/ounce. We are far from out of the woods but do not discount the yellow metal that could. Today’s chart of the day takes a longer term look at gold and why it may merit your attention. The 20 day MA that had served as resistance should now act as support…at $1265. The next upside hurdle is the down sloping trend line and then the psychological $1300 level. For several weeks now I have gravitated towards $1335/1345 and that I believe to be our next stop. The 20 day MA held in silver gaining 0.48% to close just below $20/ounce. A jump over that hurdle should get futures north of $21/ounce in my opinion. A 3-5% appreciation would open up a perfect window to jump out of on the September 1:4 back ratio spreads. The 50 day MA comes in at $21.40.

Softs: As a special added feature I mentioned three soft commodities in my chart of the day today. There are times when I’m trading and I cannot hit the broad side of a barn but of present it seems to be clicking - pay attention to my posts, particularly in softs.

Cocoa surged 3.06% today closing above its 50 day MA for the first time since mid-June completing a 61.8% retracement. Resistance is now support. In full disclosure I started working out of clients bullish trades and will close out more trades in more appreciation tomorrow. A bearish engulfing candle in sugar today down nearly 1% trading under 16 cents for the first time since July 10’. Still searching for signs of a low. OJ picked up 2.25% today reaching its 50 day MA. That two for one sale at my local grocery store may really be contributing to demand? Trail stops. Coffee has added 6 cents in the last two sessions closing at its highest level since mid June. If prices remain above $125 do no rule out a test of $130. The recently purchased December back ratio spread will be exited on a fresh high tomorrow

Treasuries: 30-yr bonds probed the 20 day MA settling above the down sloping trend line mentioned in previous posts. My next objective is 136’00 though I am not ruling out 138’00 depending on Fed speak in the coming sessions. 5 out of the last 7 session 10-yr notes have fought to close in the green closing above the 20 day MA today for the first time since 5/2. Though futures have probed that pivot point several times this is the first settlement above it. The down sloping trend line is seen in September near 127’10…next objective. Eurodollars continue to quietly March higher picking up an additional 2-5 points today. My favored play is short 16’ futures against long calls until an interim top is established.

Livestock: $123 continues to act as resistance in August live cattle. Every attempt at that level in the last 3 weeks has been rejected…will this continue? A close back under the 9 and 20 day MA would signal lower trade is ahead. Lean hogs gained 0.78% but the same level that rejected recent trade at 96.70 capped additional upside. I’m still looking for a trade south of 95, 94 and potentially 93 to close out bearish trade for clients.

Grains: Corn is back above its 9 day MA gaining 1.44% today on lower than expected crop ratings. It’s no secret that hot and dry weather can affect yields in the Farm Belt. On speculative trade I’d prefer to be a buyer under $5/bushel. In the last two sessions all of last Friday’s losses were erased with November soybeans gaining 1.78% today and 0.52% yesterday. A trade above $13/bushel likely lifts futures near $13.30, the highs from early June. Higher trade was rejected in wheat with December settling just under the 9 day MA. Any bullish entry under $7/bushel is a good bet if you have some risk tolerance in my eyes. My favored play remains long futures while simultaneously selling calls 1:1.

Currencies: The greenback gave up 0.67% to end at its lowest level since 6/25 below all short term MAs. European currencies and commodity crosses all gained traction. My lone pick remains bullish trade in the Loonie .9550 could prove to be solid support. Let’s see if the tail can wag the dog...weakness in the metals contributed to the depreciation in the last month here but if we can get some strength in the metals complex can we see a bid in the CAD? The Yen has attempted to breach par the last few sessions but on a closing basis that level has held. A trade above $1.0100 should get bulls fully committed short term in my eyes with a $1.0400 target.

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.