Commodity Update: Fear Rearing Its Ugly Head

built on Friday’s losses giving up 4% yesterday closing under the 8 day MA for the first time in two weeks. I think we can see more downside. I have a target in September of $85.50. The 100 day MA has acted as resistance in RBOB for the last three sessions and finally prices rolled over losing nearly 3%. I see the next support 7 cents lower and should be challenged in the coming sessions. Heating oil dropped 3.5% and like the two other aforementioned commodities, lower ground looks likely. A 50% Fib retracement on the move over the last month puts September back at $2.74. Natural gas remains at a five month high but a trade over $3 is not sustainable in my opinion. Broken record, but I feel $2.60 is in the cards in September.

Stock Indices: It appears from my viewpoint that an interim top was put in last week in the indices and we trade south from here. As for the S&P, prices have come off 30 points but I see another 40 points until we find solid support. As for the Dow, 300 points down and 350 more to go. With the massive spike in the VIX yesterday it is clear that fear is back in the market place. On that, selling of stocks seems likely in my opinion.

Metals: Gold closed lower but was able to pare losses closing $15 off its lows. Further downside looks likely and I’m bearish until prices retake $1600 in August. On a move lower, my target in futures is $1545. Silver continues to tread water as prices for three weeks now have traded in a $1 range. A break lower is my call unless we retake $27.50 very soon. Copper futures have lost nearly 15 cents in the last two sessions and have resumed a leg lower that should drag prices to 2012 lows in the coming weeks. Trade accordingly.

Softs: For the last three days prices have been back and forth between the 50 and 100 day MAs. A close above 2255 or below 2210 should signify the direction moving forward. My bias is lower on a strengthening US dollar. Sugar failed to follow through but prices remain at four month highs just under 24 cents. I am looking for signs of an interim top and eager to initiate short positions when I find that evidence. I think 21 cents is a more appropriate price level. Cotton lost 1% but did find support at the 100 day MA just above 71 cents. OJ lost ground yesterday, making it 9 of the last 10 days with no low in sight. $1.00 could be challenged. Coffee is showing preliminary signs of exhaustion but it will take a settlement under $1.78 for confirmation. Aggressive traders can initiate bearish option trades but for futures I would wait for confirmation.

Treasuries: New high in 30-yr bonds; As stocks and commodities come off, expect higher levels to be reached. I will be looking for a place to gain bearish exposure for clients and will not ride this trade higher. New highs in 10-yr notes as well with prices now 4% above their 2008 highs. Is this justified? I don’t think so but don’t fight the trend.

Livestock: Live cattle have been able to hold at the 20 day MA but I expect that level to give way in the coming sessions and have a target in October at 121.00. August feeder cattle were unable to retake the 9 day MA. It appears like a move lower may be under way. I called an interim low last week but I’d like to retract that statement until prices can close above their 9 day MA; I’m saying this is still a bearish market. October pigs also are headed lower until prices can settle above the 9 day MA in October; currently 79.50.

Grains: A bearish engulfing candle as $8 trade was rejected in December corn yesterday. Prices are now 20 cents off that level and could be the beginning of the correction I’ve been forecasting. A first confirmation would be a trade under the 9 day MA, a level that has rejected sales for over one month. A 38.2% Fibonacci retracement puts December back at $6.90/bushel. As of this post soybeans are lower by 1.8% and that is on top of the 3.8% loss in the day session. Prices are under their 9 day MA for the first time since mid-June. My first target in November is $15.20 followed by $14.70. Wheat is coming off one year highs losing 3% yesterday and looking to add 1.4% as of this post overnight. My first target is $8.40 in December on a correction. I’ve said this numberous times but watch for the action in oats to help navigate some of the more liquid grains. After a 40% appreciation in the last five weeks oats may be due for a correction.

Currencies: The dollar probed 84.00 and if selling continues in other asset classes expect the flight to dollar to aid in a further appreciation. The best risk/reward scenarios I see is sales in the Commodity currencies. As commodity prices and equities back off traders can be short the Aussie, Loonie or Kiwi in my opinion.

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