Recognizing Correlations

The dollar and Treasuries breaking down and commodities and equities advancing…is this correlation back? The 9 day MA In August Crude has shifted to support now at $93.50 with resistance at the 18 day MA at $96.50. We remain cautiously bullish with a target in August future of $100/barrel. Crude 2% plus advance was driven by the 4.25% appreciation in RBOB and 3.25% gain in heating oil. Hedgers should have at least 40% of their fall hedges in place using the recent set back to gain ground. Natural gas closed lower for the first time in four sessions …stay the course as $4.50 should be obtained in coming weeks…in my opinion.

The indices are getting close to our objective being the 50 day MA is 1307 and the 100 day MA is 1309.50 in September S&P futures. Failure to breach those levels in the coming sessions would likely mean a trade back to 1275…trade accordingly. The dollar index broke the MA’s mentioned in previous posts and we should see a trade back near 74.00 into next week. As we alluded to yesterday with a trade higher in commodities the commodity currencies outperformed today; the Loonie higher by 1.27%, the Aussie 1.39% and the Kiwi 1.75%. Our pick is the Loonie and strength in the metals and energy complex should help lift prices to 1.0400.

Remain on the sidelines in livestock looking for a lower long entry in both lean hogs and live cattle. Gold and silver have likely began their next leg higher with gold advancing $11/ounce today and silver picking up an impressive 3.75%. August gold should find its way back to $1550 in the coming weeks and in September silver we should see $37/ounce. We hit our target in cocoa today and have advised clients to start lightening up. We see little resistance for another $150 so cut your size if you have multiple positions as opposed to leaving the entire trade. October sugar failed to make a new high but our clients bearish trades are still way under water…this should be a winning trade in July if you’re willing to stay with it…again our target is a trade back near 23 cents in October futures.

USDA report out in the AM tomorrow so expect fireworks. We will carry longs in CBOT wheat and soybean oil into the report and be willing to buy corn and soybeans on a break. The chart in wheat looks the best as long as this week’s lows hold. Three days running 10-yr notes and 30-yr bonds might finally be breaking down. Just a touch more and we will be putting in profit orders on clients shorts. Also one could fade rallies in long dated Euro-dollars…late 2012 contracts is our suggestion.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

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