Commodity Update: As Goes Europe, So Goes The Market

is down 3.2% this week and almost 13% in the last three weeks but I think we’re close to an inflection point. I am not calling a bottom as I think it possible we trade to $90/barrel but I will be a buyer with both hands for clients if we trade closer to $90 and that level holds. Looking at the weekly chart of WTI $90 not only serves as 50% retracement for the last three years but it also coincides with a trend line that has held for the last three years. RBOB is approaching a 61.8% Fibonacci retracement just under yesterday’s lows; at $2.89 in June. Likewise, my take is we are close to finding a value zone for this distillate. Heating oil traded down 1.2% closing below $2.90 for the first time in 2012 on the June contract. I have already advised clients to lightly start legging into longs and to establish upside hedges as I expect prices to be much higher in the coming months. Trade accordingly. I said play the breakout in recent posts on natural gas, I was just wrong on the direction.  That my friends is why you need to listen to the market and check your opinion at the door. June broke above $2.50 trading up to the 100 day MA, a level that prices have been below since July 2011. This would be a serious change in sentiment on a settlement above this pivot point. Stay tuned.

Metals: Gold hit my target, trading as lows as $1527 in the June contract. Looking deeper into the chart, a triple bottom around yesterday’s lows could be forming. The last two times prices have been at these levels, prices bounced $250/ounce or better than 15% inside of three months. Keep in mind, of course, that past performance is not indicative of future results. I would be an aggressive buyer on a further setback or even at these levels as long as $1515 held on a closing basis. Silver under $27.50, which we are currently at, has silver longs on my radar. I want to see if we see any more downside as catching a falling knife in silver is not advised. I lost a good chunk of change last September trying to do exactly that for clients, and vowed never again. Prices have been down twelve of the last thirteen sessions, so don’t be a hero. Let’s see if $27/ounce holds in the July contract. Copper broke $3.50 and I see lower ground, but do not rule out a dead cat bounce. Follow the flow here to help with other trades as they do not call it Dr. Copper for nothing.

Softs: Depending on stop placement, recent short entries could have been stopped out at a loss in cocoa as prices did penetrate the 100 day MA yesterday. I expect more weakness but stay the course and if stopped-out, remain out. Sugar has gained over the last three sessions picking up 1.6% yesterday. I like bullish exposure to potentially capitalize on a 4-5% appreciation. Weakness may continue in cotton but I advised taking profits on a trade to 80 cents which happened Tuesday. Sometimes booking profits means leaving money on the table but I am OK with this. Next support is eyed at 74 cents in July. Coffee has had trouble trading above the 50 day MA the last two days. I expect this to be short lived and look for a further appreciation to allow selling from higher levels. Stay tuned.

Livestock: Cattle continue to tread water and until we determine direction or I get fundamental news that I interpret to be market moving I suggest looking elsewhere. Lean hogs continue to grind higher. I suggest bullish exposure.

Grains: I was looking for a rally in corn and wheat (see previous post) I just did not anticipate the market to deliver in one day. Traders that gained bullish exposure trail stops and see if the market will give you more. This was a gift. July corn picked up 3.8% trading up to the down sloping trend line that has held for the last three months. A trade above $6.25 in July could mean $6.50/bushel. Wheat gained nearly 5% yesterday getting back the last two week's losses. The down sloping trend line in wheat is just shy of $6.50 in the July contract. Soybeans have danced the trend line that has held all of 2012 the last three sessions. I am not a believer yet only because I prefer buying beaten down AG products like wheat and corn as opposed to beans at elevated levels. That being said those that do not own corn or wheat could be long here as the fundamental story is likely the most bullish in soybeans. Pick your poison.

Stock Indices: Stocks traded lower for the fourth consecutive session as prices continue to slide down the slippery slope. I expect weakness to continue as regular readers already now. Targets remain 1285 in the S&P and 12125 in the Dow.
 
Treasuries: Broken record I know: Treasuries continue to trade up until they don’t. I would only get short with clients in 30-yr bonds or 10-yr notes on a settlement below the 9 day MA. Those levels are 145’12 and 133’03 respectively. Euro-dollar prices are stabilizing but as long as we do not make a new high, traders can remain in bearish trade in 2013 and 2014 trades in my opinion.

Currencies:  The dollar is making its way to 82.00, a level not seen since the first week of 2012. I think we'll hit that level but as for further ground I am doubtful since prices are already overbought and--in my opinion--the worst case scenario is already factored in. Additionally the selling in most crosses which would be the inverse relationship to the dollar appears to be slowing. This is for all currencies with the exception of the pound and Loonie. I don’t like bearish plays in the Loonie unless established over one week ago, but the pound hit my target and just broke a trend line today. This is the kind of thing I like.

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