Commodity Update: Crude Oil Probes The Downside, Gold Turns Bullish

probed the 8-day 8 MA on the downside but did pare losses to close just under the 100-day MA virtually unchanged in today’s session. I’m in the camp that prices are due for a $5-8 retracement. I advised aggressive clients to gain bearish exposure with either futures or options to try to capitalize on that break. The story of late has been the strength of the distillates as I believe if it was not for the uptick in RBOB and heating oil price of Crude would be lower.

RBOB is hovering around 3 1/2 month highs just above $3/gallon but if my assessment of Crude is correct expect a correction in the coming weeks. Heating oil ended lower today for the first time this week losing 0.60%. I would not rule out a 20 cent break in the distillates and would be exiting remaining long trades. Natural gas lost 5.4% today is off 15% from the highs 2 weeks ago. Prices probed the 50 day MA for the first time since mid-June. I think prices could retrace an additional 4-&% from current levels.

Stock Indices: Stocks closed higher now for the last 5 weeks but until prices can make fresh 2012 highs my take is we are in the ninth inning of this up cycle. Sentiment remains bullish until the 9 and 20 day MAs are breached. I would be legging out of individual holdings and lightening up on positions that have participated in the most recent jump the last 10 weeks.

Metals: Finally gold closed above its 100 day MA and a bullish engulfing candle to boot. Support should come in on the December contract just above $1600 with upside resistance seen at $1645 followed by $1660. Silver maintained $28/ounce closing higher for the fifth consecutive week. The remarkable part is that in that timeframe prices have climbed less than $1/ounce. It appears a strong base has formed but I would only have small long exposure as this market has not proven itself to date.

Softs: Cocoa prices should continue to trade up in the coming weeks but do not rule out retracements along the way. Prices may have gotten ahead of themself short term so a 5% pullback may be in the cards. As long as September maintains 2300 I am bullish. Sugar has traded lower 12 out of the last 15 trading days and though I’ve advised traders to exit bearish trades I’ve yet to issue buy recommendations. Solid support is not seen for another 8-10%. Cotton lost 3% today to resume its move lower.

Prices of cotton have been heavily correlated to the S&P so I had expected a grind higher but with the USDA report today prices may be on their way lower. I would not trade futures currently but buying some out of the money puts is a viable trade in my opinion. OJ could challenge $1 and as long as the 50 day MA caps upside in November at $1.15 I’m bearish. Coffee broke the 50 day MA this week and should leak lower in the coming weeks challenging the mid-June levels.

Treasuries: 30-yr bonds and 10-yr notes lost ground for the third week in a row though his week’s losses were muted. I’m bearish as long as prices remain under their 9 and 20 day MAs.

Livestock: Live cattle remains a no trade for me as I continue to get mixed signals. September feeder cattle could go either way as well in my opinion so until I get a clearer direction I will have no buy or sell recommendations in either cattle contracts. Aggressive traders could lightly probe longs in October lean hogs as long as 75 cents holds on a closing basis.

Grains: Corn traded to a new contract high on a bullish USDA report but failed to hold onto gains ending 40 cents off highs. The fact that everyone is preaching higher corn may be enough to get this market headed south? Circumstances are pointing towards higher ground but a breach of the 20 day MA about cents from today’s close should get longs reversing or moving to the sidelines. A friendly USDA also likely contributed to the strengths in soybeans. I’m operating under the influence that beans are bullish until prices can take out $15.50 in the November contract.

Wheat data was bearish and has largely been a follower as prices gave up nearly 3% today to close over 40 cent off its highs. This was the only major Ag market to break its MA’s so next week will be interesting. My clients have missed the bulk of this run and those that have been in my only advice is don’t give back too much on a correction.

Currencies: The dollar managed a small profit this week after two losing weeks. Prices to me appear that lower ground is due as long as the 20 day MA just above 83.00 contains upside. The yen ended near its weekly highs so I would back off selling until we see what transpires early next week with fresh entries. Aggressive traders can probe bearish plays in the Aussie not looking for a collapse but as a swing trade in my opinion.

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