Commodity Update: Silver Keeps Hitting 20DMA Wall

Flip a coin on Crude oil as prices remain range bound. Today’s inventory number should determine the direction of the next leg. Without any surprises I am mildly bearish, willing to fade $2/3 advances and buy $2/3 retracements. Play your bias in the futures markets and use options coverage as a hedge. The July heating oil/RBOB spread is a buy closer to 200 and a sale closer to 700. The current price is 470. Heating oil and RBOB re-took their 8 day MAs which gets me friendlier but I do not expect significant upside. That is my line in the sand...in heating oil at $2.8525 and RBOB at $2.8070. The same support that held in natural gas in mid-May has held the last two sessions, just above the 100 day MA. Aggressive traders could probe bullish plays with tight stops just under the 100 day MA. If risking 10 cents, your upside target should be 20-25 cents.

Stock Indices: Say it isn't so: Stocks closed lower on a Tuesday. On the opening bell today, please let’s have a moment of silence. Has the game changed? Will this time be different? Stocks are still much higher than where we started this run and H/L we have only corrected in the S&P 3.8% and 2.7% in the Dow. I continue to suggest bearish hedges, as a move under their 50 day MAs remains my call…under 1600 and 14865 respectively. The 38.2% Fibonacci level has supported the Nikkei in recent dealings with a 2.88% gain yesterday. Until we see consecutive settlements back above the 50 day MA I’m in the bear camp. That level is 13870.

Metals: Gold, make up your mind! For the last three days we’ve been back and forth and back again in a $20 trading range. As long as August futures remain above $1370 on a closing basis I’m mildly bullish short term, looking for a trade near $1450 in the coming weeks. My suggested play is in August call options. On multiple attempts, palladium has been unable to take out $760. A correction back to $720 is my call in the coming weeks, so trade accordingly. July silver continues to run into a wall at its 20 day MA. Futures must get above $22.80 the next few days or south from here is the call. Regular followers should be aware a punch below $22/ounce could get ugly quickly.

Softs: Cocoa has appreciated 4.6% in the last two sessions. Hopefully some heeded my advice recommending a buy in recent sessions. Prices halted at the 100 day MA yesterday but a trade above that level should lift futures an additional 3-4%. I’ve advised bullish options and futures plays in September. Cottongot away from me at the open, popping 7% in the last two days. We probed the 100 day MA on the highs trading above that pivot point for the first time since 5/10. On another 2.5-4% I may fade this leg. Stay tuned. I’m continuing to accumulate longs in coffee for clients in September and December contracts. Daily and weekly charts look constructive as long as $1.25 holds in the front month. Lumber appears to be headed south to fill the gap from 5/30. If so look to buy just above $290 with stops under the recent lows for the next wave higher.

Treasuries: After reaching their lows 5 days ago Treasuries have been consolidating just above those levels. I still think we get a dead cat bounce in the coming weeks lifting 30-yr bonds closer to 144’00 and 10-yr notes closer to 130’16. Trade accordingly. My aggressive clients are in NOB spreads; long 30-yr/short 10-yr. A 20-30 point bounce in Eurodollars is needed to re-establish bearish trades. If you remember I advised taking profits on half your shorts last week. As for option traders, look to buy puts after this leg higher if the market delivers.

Livestock: Live cattle gained 0.54% trading off its highs but intra-day trading to three week highs. With futures now above their 9 and 20 day MA what was resistance has now become support. Traders long August should look for an exit window closer to 122.00. Lean hogs closed at a fresh 3 ½ month high yesterday. Let’s sell. It was yesterday’s commodity chart of the day. Read it as I identified what I think is a great risk /reward scenario and a reason to probe bearish trade. If clients are stopped out I may take a few probes at this contract.

Grains: New crop corn has given up 20 cents in the last 2 sessions probing the 9 day MA yesterday. Staying consistent, I’ve said I feel the gap is filled in December and corn is back on my bullish radar under $5.35/bushel. Stay tuned. Soybeans have yet to correct as forecast, but give it time as I’ve suggested August contracts and I think we could see a break very soon. As with corn, a close under the 9 day MA would likely confirm an interim top. That level in July is $15.05/bushel. Wheat is 5% off its lows, established 5/21. The 20 day MA which had acted as a ceiling now is acting as a floor. $7.50-6.70 is my objective in December. Trade accordingly.

Currencies: The dollar closed under its 50 day MA the last two sessions. More selling is expected. Am I a dollar bear? Not really, but corrections do happen after a near 7% run from February to the highs made in mid-May. With the dollar faltering we should see further appreciation in the cable, euro and Swiss. The yen failed to advance at its 20 day MA but I still feel there is gas in the tank; On a trade closer to 1.0100, exit stage left on remaining bullish plays. The commodity currencies gave back a good portion of the prior day’s gains yesterday. Was yesterday a head fake? The Aussie is my lone pick in these three crosses but the recent lows must hold. I’m still expecting a trade back above par in the not too distant future.

Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.