Commodity Update: Bullish Surprise

On a percent basis, Friday's move was one of the largest moves I can remember in Crude and the products. Crude oil recovered two weeks of losses in just a few hours gaining 9.3% or $7 on the futures. I see support at $83 followed by $81 in the August contract with resistance just under $87. RBOB was higher by 6.3% trading back up to recent resistance. The down sloping trend line comes in at $2.65 and that is my first target on the August contract followed by $2.80. Heating oil appreciated just better than 6% closing at 2 weeks highs. I’m saying an interim low has been established on all 3 products and we see higher ground ahead. Natural gas was higher Friday gaining 3.6% but my take is that we are due for a correction. The 8 day MA did support in recent sessions but on a breach of that pivot point I still predict a 7-10% retracement.

Stock Indices: Some good news out of Europe and stocks put some of the premium back into the market that had been sucked out of late with indices higher by 2.25-3%. Prices started the day bouncing off the 50 day MA and with a close near the high prices were lifted to close at the highs for the month of June. Further upside should be expected but I will be absent from playing, on appreciation more eager to sell from higher levels…stay tuned.

Metals: Gold gained 3.5% Friday to close just under the 50 day MA. $1535-1545 has supported for the last 60 days and based on Friday’s action I’m going to say that support should hold. Traders should be willing to scale into longs on dips. I had previously expected fresh lows and I no longer feel that way. Silver gained 5% Friday to get back all the week's loses and some. If we can hold onto gains into early next week I would be back in the camp that a trade over $28 is supportive and wade back into longs willing to cut losses on a settlement back below $28/ounce after we get above that level. Copper picked up 5% to trade up to its 50 day MA. A trade above that pivot point should lift copper to $3.54 followed by $3.62 in the coming weeks.

Softs: Cocoa is above its 100 day MA for the first time since mid May. Expect further upside as long as the dollar is falling. Based on the stochastic only about half of the move on this leg has played out which means we could see an additional $200 lifting September futures to levels not seen since January. Trade accordingly. Sugar was higher by 2.4% closing above 21 cents for the first time since mid May. I see more upside with resistance in October at 21.25 followed by 22 cents. Cotton closed out the week with a winner Friday appreciating 2.65%. I’m still looking for a trade back near 77 cents in December. Coffee gained 4.7% Friday and closed above the 50 day MA for the first time since January. Can I say I told you so? My next target is the 100 ay MA approximately 12 cents from Friday’s close.

Treasuries: 30-yr bonds broke down Friday, dropping nearly 2 points to close back at the bottom of the recent trading range. I like bearish exposure as long as prices remain under the 9 and 20 day MAs. Prices dropped in 10-yr notes as well but not as harshly as we settled at the 9 day MA. Expect the inverse relationship to equities to persist.

Livestock:  Live cattle are back on the move appreciating 4% in the last 3 sessions. Buy dips as I am friendly as long as $122 holds in October. After fresh lows were rejected mid-week, Feeder cattle have also raced higher in the last 3 sessions gaining nearly 3.5%. An interim low has likely formed here as traders could probe bullish trades. A 50% Fibonacci retracement would lift September futures to $156.40. Lean hogs were positive 4 out of 5 sessions this past week as prices are back near 83 cents and resistance. Buy dips as my upside target is 85.50 in October.

Grains: A friendly USDA report had grains on the move from the start and outside market influence certainly did not hurt. For specific grain info I highly recommend my colleague's work; Doug Bergman issues 3 posts daily and also special coverage on USDA reports. Corn is having trouble holding on to its gains as seen in the last 3 sessions with prices closing an average of 22 cents off highs. Book profits on longs and look to re-enter from lower levels. A 30-40 cent correction appears to be in the cards in my opinion. Soybeans are back at their recent highs but I still would like to see a correction before establishing longs. The pivot point is the 9 day MA which supported all week. On a breach of $14 in November expect $13.60 to be the next stop. Wheat finished near its highs gaining over 8% on the week but like the other Ags I think prices have gotten ahead of themselves and are due for a correction.

Currencies: The dollar broke hard trading down to the 50 day MA which was my target mentioned in previous posts on a breakdown. The trend line mentioned also was penetrated for the first time on a closing basis that has held since May. Change of tune and further downside is expected. Trade accordingly. With the dollar getting hit, all crosses were bid higher with the exception of the yen. My take for new positions is the euro and Swissie can be bought on dips with upside targets of 1.3000 and 1.0800 respectively.
 
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