Commodity Update: Silver Too Far Too Fast?

has gained the last six sessions lifting October futures to their highest close in 13’ as we are fast approaching the 12’ highs. I see little gas in the tank and have advised aggressive clients to establish bearish trade anticipating a trade back to the 50 day MA in the coming weeks, in this contract that level is $101.60. I advised clients to put the crack spread back on when September widened to over 10 cents…as of this post we are trading 12 cents wide. I am expecting a trade back into 7-8 cents premium to heating oil this coming week. Natural gas closed Friday higher on the week for the first time in 4 weeks, higher by 4.40% and roughly 25 cents off its lows. The 8 day MA should support as I am still looking for the gap for recent weeks to be filled. I’ve suggested bullish trade in October and November contracts.

Stock Indices: The S&P finished lower for the second week in a row giving up better than 2% this week and 55 points of its record highs. Friday, futures closed just off their weekly lows and below the 50 day MA. This coming week we should see a challenge of the 100 day MA in my opinion currently 28 points under Friday’s settlement. The Dow is nearly 600 points off its record highs trading 2.2% lower on the week. Friday’s settlement is only 30 points above the 100 day MA, so on a breach of that level expect the next support level in September futures 14750/14800.

Metals: Gold gained just better than $60/ounce on the week and is trading almost $200 off its lows, made at the end of June. As long as the 50 day MA holds at $1308 the sentiment is bullish. A trade above the 100 day MA at $1383 would push the next resistance level up to the 38.2% Fibonacci level at $1435. Bullish trades should trail stops as I do not trust the most recent leg. Silver picked up 12.28% on the week closing Friday above its 100 day MA for the first time since mid-December 12’. As long as the 100 day MA supports, expect higher trade. The next resistance level is seen at $24.80; the 38.2% Fib level. I think we’ve gone too far too fast and aggressive clients have started to fade this rally. Larger clients via December futures and others purchasing September $20 puts, Friday’s settlement was $60.

Softs: Cocoa closed Friday slightly lower on the week with all trades in September above 2475 being rejected. I think futures could fall back 4-6% in the coming weeks…trade accordingly. Sugar gave up 1.45% Friday, causing a slight loss on the week which marks the first losing week in five. A trade slightly lower back near the 50 day MA would get clients probing bullish trade in 14’ contracts next week. Cotton closed out the week strong, higher by 1.67% Friday and nearly 5 cents higher on the week. I have advised clients to establish bearish trades at these levels. Short December futures with an options leg or to establish back ratio spreads. I think cotton is 6-10 cents too high. OJ held $130 on a closing basis with futures basing out this week. Speculators can probe bullish trade looking for a dime and willing to risk a close under $130. Coffee closed Friday slightly lower on the week as we were unable to reclaim the 50 day MA. Work into bullish trade in December with an options leg for protection. I see solid support at the recent lows and think a $130 trade in the coming weeks is feasible.

Treasuries: 30-yr bonds gave up another point Friday and closed just above 13’ lows. The path of least resistance remains down as sentiment remains bearish as long as futures are below their 9 and 20 day MAs. 10-yr notes were in the red 4 out of 5 sessions on the week last week, but have yet to trade below their July lows. Expect that in the coming weeks as lower trade looks likely. Continue to fade rallies in the Eurodollar and build a position ahead of next month's FOMC. I do think that on a penetration of the July lows we could experience a further leg lower. My suggestion remains trading in 16’ contracts.

Livestock: Higher trade was rejected in live cattle on Friday, with October closing 1% off their highs. I like the idea of starting to work into bearish trade…expect trade ideas in the coming week. Early in the week last week it looked like we had a shot at 90 cents in October lean hogs but a mid-week reversal put futures back under 87 by Friday’s settlement. On a further retracement into next week I think futures find support near 85 cents. For now I am on the sidelines with clients.

Grains: For the first time in five weeks corn will close in the green almost 20 cents off the recent lows. On the near 2% loss Friday, futures are back under their 18 day MA but the 9 day MA still stands as support, in December at $4.59. Aggressive traders could probe bullish trade with stops just below that pivot point. After four positive days that lifted November soybeans to their 61.8% Fib level, futures were in the red Friday. Aggressive traders could probe bearish trades with stops just above $12.70. December soybean oil reversed just below its 50% Fib level closing at its 18 day MA Friday. I opted to book a small profit on client’s bullish trade on Friday and will look to re-establish bullish trade in the coming week from lower levels if given the opportunity…stay tuned. The last two days of the week last week, the 9 day MA currently at $6.50 contained upside in December wheat. Until futures close above that pivot point, stand aside.

Currencies: On the week, the US dollar closed higher by 10 ticks. We will need to see a penetration of the 20 day MA to see buying pick up in my opinion. The pound ended the week last week near 2 month highs and though talking my client’s position I like bearish trade at these levels. I do not see futures above their June highs and think it viable to see a trade back to the 50 day MA and under in the coming weeks. That level in September futures is 1.9% below current trade. The commodity currencies were higher on the week but if metals and energies correct as I anticipate expect, a reversal in trade. I have no capital committed but bearish plays are on my radar.

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