Commodity Update: Last Week, Great For Bears; This Week, Different Story

July Crude finished the week near its lows giving up 1.7% Friday and 5% on the week. A great week for the bears but I expect next week to be a different story. I’ve advised traders to start scaling into longs in Crude thinking the $90/level will hold. I am not smart enough to know the catalyst that will trigger a reversal but check the headlines this coming week. I would have half the ultimate position you want on and add to the trade once the market proves you right. RBOB is just above its 2012 lows but after the 15% correction in the last three months I think we’re close to a value zone. I do not see prices getting below $2.75- 2.80 in July. Heating oil has competed a 61.8% Fibonacci retracement as prices here are also approaching their 2012 lows. I’ve advised hedgers to gain upside protection thinking locking in at these levels will pay off in the coming months. I believe we are within 3-4% of an interim bottom. Natural gas finishes higher for the fourth consecutive week after making a decade low. All we’ve seen is green. Readers should remember, back in March and April I said that when we bottom expect a sharp reversal, and this market has delivered. July futures are 30% higher inside of one month. As long as this contract is above $2.60 I remain friendly.

Stock Indices: Stocks fell every session last week and over the last three weeks prices are off nearly 8%. This move is far from over in my opinion. We’re just reaching the 38.2% Fib level currently. I would not rule out some congestion, but when 1285 gives way in the S&P expect 1250; As for the Dow, 12125 followed by 11800.

Metals: Gold finished the week higher by approximately $7/ounce but that does not tell the story since we had a $70 trading range. Gold briefly traded to ten month lows with prices approaching $1525. Followers hopefully heeded my advice and were buyers under the $1535 level. I see support in June futures at $1550 and from here have upside targets of $1615 followed by $1650. Bull calls spread out into August could work for those not comfortable with the volatility in futures. Silver reversed mid week to end where it started as well, but I would not characterize a $2.27 trading range on the week as flat. That range represents an $11,350 range on the standard contract. Under $27.50 I was advising long entries, and aggressive traders could still be scaling in as long as prices hold above $28/ounce. On this leg we should see a grind to $30 plus. Copper has tried to find buying, but all attempts have been rejected as prices finished near their lows, trading to their lowest levels in five months. I expect prices to continue to lose ground ultimately finding their way to $3.30.

Softs: Cocoa appears to want to roll over but if the dollar breaks down that would not be the case, so do not enter new positions, and if short, tighten up stops. Albeit very marginally, sugar did finish positive for the first time in nine weeks. As long as 20/cents holds in July futures I suggest bullish exposure. My suggested play this past week was long October futures with option protection. The easy money has been made on cotton as prices are starting to stabilize after the 15% loss in the last month. I would like to fade a rally in the coming weeks for clients. After OJ traded above $2 at the beginning of 2012 I don’t think many traders thought prices would be under $1 by the middle of the year, but that is the scenario folks. I advised clients to take shorts off weeks ago, but we could see further downside so do not try to pick a bottom. Coffee is still probing the 50 day MA as we see trades above that pivot point, but we’ve yet to see a settlement. A trade closer to $1.90 is a sale in my opinion.

Treasuries: Stocks down equates to higher Treasuries…it’s that simple. Where is the top? Tell me where the bottom is in equities and that will be your answer. When the 9 day MA gives way in 30-yr bonds or 10-yr notes that is when I think we are nearing an interim top. Continue to trail stops on any positions you add to the short 2013 /2014 Euro-dollar trade.

Livestock: Live cattle broke out to six week highs gaining 1.6% Friday. We’re nearing the 50% Fibonacci level so I would not expect much more. Feeder cattle also found their way to six weeks highs. Prices are overbought but depending on the bull’s vigilance we may try to challenge contract highs, approximately 1.5% from Friday’s close. Lean hogs remain a buy though in my opinion prices have moved 60-70% of the anticipated move so it may be better to buy setbacks.

Grains: For corn to gain 10% in one week is a pretty big deal, and that is exactly what happened this past week. If you blinked you may have missed it. Prices have retraced back to their 61.8% Fib level and I’d be looking to abandon ship on longs. In a perfect world we get another drop ahead of next month’s USDA but I may be asking too much. The move in wheat was even more outstanding with a gain of nearly 17%. This past week’s move erased two previous months of losses. I would lock in profits and move to the sidelines here as well. 2-3% daily moves in soybeans are now a common occurrence. I expect the trend line that held this week to give way as beans come back to earth. My target is $13.60 in July, so trade accordingly.

Currencies:   Bearish engulfing candle on the daily chart as the greenback may be nearing an interim top. If the dollar backs off, expect other crosses to find their footing. As usual, the yen is the exception marching to the beat of its own drum. Tighten stops on shorts in international currency crosses and let the market take you out. As for the yen, the relationship to note here is inverse to stocks, so trade accordingly.

Risk Disclaimer: