Commodity Update: Hedge Equities Or Lighten Up

completed its 61.8% Fibonacci retracement in early dealings Thursday, before reversing and closing high by just better than 0.50%. It could go either way from here. I am leaning slightly bullish only because I think the dollar gets clipped plus circumstances in Syria will have an effect. Those testing the long side may need risk to $91.50 in July. The RBOB/heating oil spread mentioned in previous posts was a winner moving a nickel off its lows from Thursday, in the right direction. Every penny in this spread is $420, so you do the math. I advised clients to book and run and may actually go the other way today. Stay tuned. As for directional suggestions in RBOB and heat I have none currently. Since calling an interim top, natural gas prices have come down 35 cents and are on the verge of busting the $4 level. I see support in July at $3.95 followed by $3.85. Trade accordingly.

Stock Indices: Today is month end. So far in May the Dow is higher by 3.6% with the S&P adding 3.8%. I am still searching for a bigger correction into June, targeting a trade back to their respective 50 day MAs. It is a broken record and I do not want to be the guy saying I told you so because I’ve been calling for a 5-10% correction for several weeks and have been wrong. My message should be clear--hedge a large equity position or lighten up.

Metals: The move forecast in gold could be underway as Thursday futures appreciated 1.45%. We ended the session just under the 20 day MA which a settlement above should cause tremendous short covering. In case you’re not a regular reader I am calling for a move back near $1475 in the next few weeks if not sooner. My suggested play is options in August contracts. Silver challenged its 20 day MA in early dealings but backed off its highs to finish up 1.06%, 37 cents off its highs. As long as $22 holds I am mildly friendly but before any real size is put on I’d like to see a confirmed breakout; Trade above $23.35/ounce. On that, expect $24.25. Not to hurt any feelings because I am an earnest silver bull longer term, but short term I would rather be a seller from higher levels. I think we can get one more washout to shake out all remaining weak longs…stay tuned.

Softs: Cocoa has completed a 61.8% Fibonacci retracament and seems to be finding support at current levels. The report From ICCO forecasting a larger deficit for 12/13 than what had previously been anticipated should be supportive. This has piqued my interest enough to probe bullish trade. My suggestion is lightly buying futures and selling out of the money calls 1:1. I think we could jump 5-7% in the next few weeks. There will come a day for sugar but it has not arrived yet. Do not rule out a 15 handle. Cotton traded below 80 cents for the first time since late January. All shorts should be exiting as I may be a buyer next week; stay tuned. Coffee continues to consolidate at 3 year lows. My suggestion is, get some skin in the game as I think your Kolatta is going to be a premium in months to come. You should be scaling into this trade adding once the market proves you correct. Lumber closed the daily limit and surprise, it was higher for a change; As we speak, in the overnight market a gap higher. Is the bottom in? Several weeks ago I suggested testing the waters $35-45 above current trade. Thank goodness for stops. I think traders should try again as I view a 10% jump in the coming weeks a possibility.

Treasuries: I took a loss in June NOB spreads for clients of just over $1,000 per spread and some aggressive clients choose to roll out until September contracts. I think we can offset the June loss there. My feeling is an interim low was established Thursday in the Debt complex, short end (Eurodollar) to long end (30-yr bonds, 10-yr notes) of the curve. In a perfect world we play the NOB spread on an appreciation and then re-establish bearish plays in the Eurodollar after the run up.

Livestock: A bearish engulfing candle in live cattle yesterday with a 1.12% loss. If we do not see a recovery today cut losses on remaining open bullish trades. Lean hogs continue to grind higher but we are failing to hold on to the bulk of the gains. Longs that have been fortunate to participate in the swift 4% jump should book profits.

Grains: Old crop corn and soybeans have started to track lower as I think they will lead new crop contracts lower. I’ve advised new crop corn longs to take partial profits and anticipate a trade south short term filling the gap in December 25 cents under current trade. Reestablish longs after that event. Yesterday’s chart of the day outlined my bearish soybean call. Yesterday again I advised buying $1 bear put spreads in August beans…a 40-60 cent drop is my call. Wheat again failed to get above its 20 day MA yesterday…for the last five days this has been the story. However I think we have a happy ending as bullish traders should be rewarded for their patience. It just may take longer than I originally estimated. A trade in December near $7.50 remains my objective.

Currencies: The US dollar gave up 0.75% to close at 2 week lows and under its 20 day SMA and 34 day EMA. This of course is on the daily chart...for a longer time frame look at today’s chart of the day where I examine the weekly chart going back 3 plus years. Bottom line, I think the dollar's days are numbered short term. 81.20 is a 61.8% Fibonacci retracement. The Swiss and Euro are above their 20 day MAs for the first time in 3 weeks as more buying should lift these crosses higher. The Cable also came out guns blazing yesterday higher by 0.63%. My first objective in June futures is 1.5420. Be prepared to exit Yen longs on trade that approached 1.0100. For those Commodity currency traders the Loonie and Aussie should be on your buy list. Objectives are as follows a trade back to par in the land down under and to our neighbors just north .9800/.9850.

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