Energy: Crude oil finished higher for the fourth consecutive week trading within pennies of the $109/barrel level. It looks like an overstretched rubber band in my eyes that should snap back very soon. Those willing to accept a little risk are advised to buy September $100 put options…currently near $500 per. It is apparent I was early on my Brent/WTI buy recommendation but I still like the trade. We came in from a $16 premium 5 months ago to even money today. Clients were able to offset the crack spread (long heating oil/short RBOB) and we will be looking again next week if the spreads gets narrower. I believe both products are long overdue for a setback. Natural gas gained for the third week running picking up nearly 4% this week. A dime retracement should be viewed as a buying opportunity. If the heat persists do no rule out a probe of the $4 level in my opinion.
Stock Indices: Stocks will close at their highest settlement to date with the S&P futures within $10 of 1700 and the Dow over 15500. Good news is good news and bad news is good news but do not get complacent. I have learned that when the markets are leaning one way we generally see a move in the opposite direction and sentiment is extremely bullish. Hedge large stock exposure is the advice.
Metals: Gold is at an inflection point closing at the down sloping trend line just under $1300/ounce. We will finish out the week slightly positive but this hurdle must be overcome or we trade $50-75 lower in my opinion. A breach of $1300 would likely mean $75-100 in the opposite direction. We should know the direction of the next leg by mid-next week. Silver will close 1.64% lower on the week unable to take out the $20/ounce level. Short-term I am in the bear camp until futures can take out that pivot point.
Softs: Cocoa gained nearly 5.5% this week lifting futures to 5 week highs. Today’s chart of the day goes into more detail why. I’ve advised clients to shift gears and turn from a buyer to a seller in cocoa thinking we get a retracement in the coming weeks. It’s been a while since we’ve seen any green on the sugar…enjoying a positive week putting a string of three consecutive positive days. Option buyers could probe small size in just out of the money calls IMO. A trade above the 20 day MA could see short covering to 17 in the coming weeks. Get out of bullish trade in OJ…a 13% appreciation in the last three weeks. I have bearish plays on my radar but have yet to commit any client capital. Talk about a weather market and short covering…coffee futures gained 13% only to reverse and trade lower by 8%. Allow the 20 day MA and 50 day MA to guide you with entry and exits. I will be looking to re-establish bullish plays next week. Selling puts, back ratio spreads and long futures…stay tuned.
Treasuries: The last 3 days 30-yr bonds have gone nowhere trading between 134’10 and 135’25. I see an upside breakout next week and if I am correct a trade above 136’00 should be followed by 138’00. As long as prices remain above their 9 and 20 day MAs I am friendly. While 30-yr bonds crossed the down sloping trend line 10-yr notes finished at that line just above 127’00. This marks the second positive week and 2 out of the last 3 but to get me on board the bull train it will take a settlement above 127’10 in September futures. Eurodollars have completed a 38.2% Fibonacci retracement so position/swing traders can scale into bearish trades. I still like short futures and long calls 1:1. Remember I am currently trading 16’ contracts with clients. The levels are different in each contract month but a 50% retracement is roughly 15 tics and a 61.8% retracement is 25-30 tics above current trade.
Livestock: Inside day in August live cattle at $123 again proving to be solid resistance. I’m leaning slightly bearish but have no open positions for clients. Lean hogs closed just below their 20 day MA but positive on the week. Client’s bearish trades were a slight loser this week but we will stay the course. I’m still thinking this contract can see a trade closer to 93 cents. Clients are short futures and hedged off short 96 puts…that were rolled up from 92 puts.
Grains: December corn is finding mild support near $4.90 likely due to the extreme weather in the Midwest. With the lack of cooperation from Mother Nature I think futures jump 25-35 cents in the coming weeks. I suggested a bullish trade to some Ag clients today; buying 40 cent bull call spreads in September corn. I’m friendly soybeans while prices are above their 50 day MA but on a trade under that level I think selling could intensify…that level in November is $12.57. Wheat traded lower on the week but is finding support around the same levels that held 3 weeks ago just under $6.70/bushel. My suggested play here is long December futures and simultaneously selling calls 1:1. China is buying at current levels so am I.
Currencies: The US dollar was range bound this week trying to make a decision on the next leg. Until 83.50 is taken out I say that trade is lower…not ruling out an 81 trade in the coming weeks. I believe the Pound, Euro and Swiss can be bought with tight stops. The Commodity currencies are not out of the woods yet but the Kiwi and Loonie built on last week’s gains picking up again this week and the Aussie was a slight gainer for the first time in five weeks. All three are above their 20 day MAs and as long as the 20 day supports I am mildly friendly. My pick of the litter remains the Loonie. I continue to get mixed signals from the Yen and with a close below par I’d move to the sidelines.