Commodity Update: Negative Week Ends Positively

finished 1% higher on the day and 3% higher on the week. The 8 day MA at $85.50 is seen as first support followed by $84 with resistance at $90. In the last 2 weeks RBOB has climbed 35 cents as prices are approaching the 50% Fibonacci levels about 4 cents above Friday’s close. Heating oil has climbed to a six week high as prices are just below their 38.2% Fib levels. With a close above the 50 day MA bulls remain in the driver’s seat. I expect further appreciation but the pace should slow. As long as prices remain below $3 in natural gas I am in the camp that we get a 7-10% correction. If prices penetrate that level I would change my mind.
 
Stock Indices: The Dow and S&P ended the week impressively gaining 1.7% Friday to make what was a negative week slightly positive. With price action lifting the indices back over their short term MAs, more upside is anticipated. I see little upside resistance for another 2% so the S&P should carry to 1375/1380 and the Dow 1290 next week.
 
Metals: Gold appreciated 1.5% Friday to close just under its 50 day MA at $1592. I had expected lower ground but if the dollar trades lower an inverse relationship should play out here. Above the 50 day MA I see resistance at $1625 followed by $1635 in August. Silver, which generally is more volatile than gold only appreciated 0.50% Friday unable to hold on to its early gains. I remain unconvinced prices aren’t header lower from here. We need to see consecutive closes below $27/ounce to confirm more downside. A close above the 50 day MA at $28.20 would indicate an interim low is in.
 
Softs: Sugar managed to close slightly higher for the third week in a row but the recent sideways action will likely prove to be an interim top. I expect prices in October to trade back under 21 cents in the coming weeks but I need evidence before issuing a trade recommendation. Cocoa did trade under 2200 as predicted but prices should see more selling into next week. I am bearish as long as prices do not settle above the 50 day MA; at 2225 in September. Cotton gained nearly 4% to close out the week but prices did not overtake the 50 day MA. Those short should place stops just above that pivot point in my opinion. OJ has traded lower the last four days as an interim top is in. Aggressive traders have been able to get short with stops just above the recent highs. It will take a close back under the 100 day MA in coffee for confirmation but traders can scale into bearish plays in coffee as some retracement should occur in the coming weeks.
 
Treasuries: The loss in 10-yr notesFriday was minimal but prices did probe the 9 day MA and on a settlement below that pivot point next week aggressive traders can gain light bearish exposure. 30-yr bonds finished lower today for the first loss in the last seven sessions. This is purely a spec play because there has been no confirmation but you could get short with stops above the May highs. It is a good risk/reward because when prices fall there should be a quick $3-4,000 drop and there is only $1,000 of risk.
 
Livestock:  Live cattle closed at two week lows and there is more selling to follow in my opinion. As long as prices in August remain under 118.50 I am bearish. Feeder cattle have fallen to nine month lows and while prices are oversold I do not expect prices to be done moving lower. As I displayed in my chart of the day this week a trend line as been broken that had held since late 2009. Lean hogs have completed a 50% Fibonacci retracement with prices falling in the last two weeks. A 61.8% retracement drags prices back near 89 in August.
 
Grains: December corn held its own Friday gaining just better than 1% but check out old crop closing nearly 50 cents off its highs. I’ve been saying corn is due for a correction and getting a lot of grief but I’m sticking to my guns. Is the bull market over I doubt it just a nasty correction to shake out weak longs in my opinion. Soybeans finished higher by 1.5% Friday but the indecisive action this week indicates to me that prices may be due for a correction before heading higher. I say the gap is filled 70 cents lower in November before we see our highs this summer. Wheat has advanced to thirteen month highs but like corn and soybeans I feel a correction is long overdue. This advice is more so that bullish traders should be lightening up as opposed to recommend a bearish trade. If I’m correct I would like to be a buyer on Ags on this coming correction.
 
Currencies: The dollar index failed at 84…the same level that prices reversed from in mid-May. It is too early to say this will stick but the action over the next few days is important to monitor. If the dollar does deprecate the European currencies would be where I would advocate buying…stay tuned. If stocks move higher the Yen should move lower so on that probe bearish trades with stops above the recent highs.
 
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