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The September U.S. dollar index futures are presently in a seven-week-old downtrend on the daily bar chart and prices just hit a fresh three-month low. The bears have the solid near-term technical advantage and have gained more downside momentum this week. See at the bottom of the chart that the Directional Movement Index (DMI) has a green ADX line reading of 35.11. Any ADX line reading over 30.00 does suggest a strong price trend is occurring in a market. The path of least resistance in the U.S. dollar index remains sideways to lower. See the near-term technical support and resistance levels on the chart. Stay tuned! Jim Wyckoff
Weakness in commodities what to do? Here are a few ideas...get short, exit longs or be prepared to buy from lower levels. We think Crude oil and the distillates have put an interim top and expect prices to fall back. We reserve the right to change our mind if September closes above $79.50. We expect a $3 pullback in Crude and 10-15 cents in the distillates and then we would re-evaluate where from there. Exit ALL remaining longs. In terms of an allocation in this sector we prefer bullish exposure in natural gas via October and November 50 cent call spreads. As of the action today prices appear to be breaking the down sloping trend line previously mentioned. The next hurdle will be a settlement above the 50 day MA; at $4.57 in September.
As of this post indices are slightly higher but the bulls seem to be running out of gas. On a further appreciation of 1.5-2.5% clients will exit their August ES 1150 calls and buy back their September ES 1000 puts. We cannot rule out a probe of 1130/1135 but we do not feel those levels are sustainable. Was a top made in sugar today? We've been calling a top for the last week and exited clients long perhaps a little premature. Prices in October closed 3.4% off their highs today. If this is the start of a correction we think a trade back to 16/16.50 happens quickly.
Treasuries broke their 20 day MA with 30-yr bonds and 10-yr notes destined for lower ground. IF we can turn a profit on our clients Euro and Swissie shorts we would like to be in NOB spreads expecting September 30-yr bonds to track back to 122/123. Metal traders fled for the exit doors today with August gold breaking nearly 2% dragging prices to three month lows. We think the 200 day MA will be in play in the coming sessions at $1147. How prices respond there will determine movement in the next two weeks. Clients would be content buying from lower levels. September silver was lower by 4% today; we would exit futures and/or tighten stops as a close below the 200 day MA may mean lower ground. Traders holding December call spreads are losing money but once this correction concludes we may buy back their top legs. Nothing has changed with our year end target as we still anticipate a trade to $20/21 ounce.
Copper failed again to take out the 100 day MA; if prices fade from here then prices should head south. If corn trades 2-3% lower in the remainder of the week we suggest buying December and covering all remaining shorts in September. Additionally we still feel November soybeans and December soy meal are buys but from lower ground; $9.40 and $270 respectively. Some clients remain short the Euro which is unchanged as of this post and short the Swissie which is down by just over 1%. Our targets remain $1.25 and .9200. If energies and metals continue to depreciate we may have some bearish suggestions in the Loonie. A failed rally today has prices looking like we could get a correction back to .9400.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
If the dollar is moving south and the indices are moving north that is conducive for commodities to trend higher. Crude is above the trend line mentioned in yesterday's blog higher by over 3% in today's session. Not to mention a bullish engulfing candle on the daily chart so yes folks it looks like higher ground is in the future. Aggressive traders in futures should use $75.50 followed by $74.40 as support in August. A possible trade idea would be the October $80/85 call spread for $1700. Natural gas has lost ground for the last five days but $4.33 continues to support. Prices are starting to look over sold and we like purchasing 50 cent call spreads expecting a rebound in the coming weeks.
Indices domestically and abroad showed strength today rising 1.50-3% climbing to fresh highs. As of this post the S&P is above the 50 day MA and we've yet to get clients short. They are prepped and we expect to make a move this week or next; at the moment we are eyeing 75 point ES September put spreads and scaling short into futures for clients. We feel there is limited upside but an additional 3-4% is not out of the question.
We advised clients to take off more of their October sugar longs today thinking a correction may be in the immediate future. Sell a rally in cotton; we are selling above 77 for clients if given the opportunity. November lumber was higher by 3.20% today closing at $219; our target is $240-250. 30-yr bonds broke the 20 day MA trading down 0.70% as of this post. We're anticipating a trade down to the 40 day MA at 124′16 unless the equity rally is derailed. Continue to buy dips in December live cattle.
August gold traded up to but failed to close above the 50 day MA. On a settlement above $1218 we would be interested in gaining long exposure for clients. September silver was higher by 1.72% now approaching the 50 day MA. Most clients have bullish exposure either via September futures or December call spreads.
Corn was a loser again today; we see support in December at $3.77 followed by $3.70.
We suggest using the current pullback to be a buyer of December contracts. The dollar down equated to other currencies moving higher at least today. Clients are positioned to take advantage of a move to .9200 in the Swissie and 1.2300 in the Euro in the coming days to week.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
As long as indices tread water or move higher money should flow back into commodities and out of Treasuries and the US dollar. Crude followed thru today and now has the 20 day MA in its sights. As we said yesterday as long as equities move higher we think we could see Crude appreciate $3-5 relatively quickly. As of this post August is higher by $1.70. For the time being we would treat Crude as a range trade with resistance around $80 and support around $70. We advise position traders to remain long as long as August holds the $73.40 level. With an additional $3-4 move north in crude we should see the distillate move approximately 15 cents. August natural gas broke $4.50 today; futures traders should take off their longs at a loss. We continue to like buying clients October 50 cent call spreads but they may get clipped a little in premium in the coming sessions. That being said scale into the trade and do not try to outsmart the market.
Sideways congestion in indices was expected after yesterday. We're looking to be a seller from higher levels in the S&P. It is my opinion we will see upside surprises on earnings that will paint a false hope allowing our clients to get short closer to 1100 in the coming weeks. We worked out of some of our client's longs in October sugar today and hope to see a higher trade tomorrow and to work out of the remainder. Inside day in cotton today; clients need a trade at/or around 73 cents in December to get filled on their gtc profit orders. OJ was lower by 5.43% today. Another 7-10% decline and we may have an interest in buying November calls for clients. Aggressive traders can continue to short Treasuries with stops above the recent highs. As we said yesterday we're looking to lighten our clients exposure in currencies before stepping into September NOB spreads.
Trail stops up on your live cattle longs; we remain bullish but prices have appreciated nearly 4% in the last three weeks and nothing moves in a straight line. Buyers were able to support silver again today with September closing flat on the day but remaining above the 100 day MA. We suggest longs in September futures and purchasing December call spreads. In our opinion gold could go either way; we would use a settlement above $1216 or below $1173 to signal the direction of the next leg. September copper failed to get above the 50 day MA today; a level that served as resistance last week as well. We would expect a trade above $3.06 to lead to a probe of $3.20-3.25. We are satisfied with the performance in grains of late but the problem is we're anticipating a setback to add to longs for clients and to remove previously placed hedges.
Tomorrow morning's USDA supply and demand report could deliver the set back we've anticipated. Use setbacks in agriculture to be a buyer. The Loonie continues to work higher and we suggest buying dips. The Swissie which some clients are currently short continues to stubbornly inch higher. We still anticipate a trade back to .9200 but if we do not roll over soon we will cut losses. As expected the BoE left rates at 0.50% and the ECB at 1.0%.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
Very suitable fireworks in the markets as we celebrate our Independence. Be safe we will be back Tuesday...enjoy your long weekend. We feel oil could have another 3-4% downside at the most before we get a bounce higher. As we voiced in recent posts we expect the $70 level to act as solid support in August. If next weeks trade finds buyers we should have some bullish plays in September or October futures and options.
Inside day in natural gas wiped out most of the previous days gains. Aggressive trades could have used today's setback to buy as we will stay long with clients as long as $4.50 supports in August. Our featured play is call spreads in October with clients. From here we expect indices to bounce; we view this as a tradable bottom but nothing more. On a bounce to 1060-1070 in the S&P we will be shopping bearish plays for clients. October sugar was higher by 2.58% today's closing at a six week high. On a run above 17 cents we see resistance at 17.45 followed by 18.35. If lucky enough to see that we advised clients to exit ALL remaining longs. On a settlement below 16 cents early next week our upside objectives would need to be reduced. December cotton closed lower all five sessions this week; our 74 cent objective is getting closer.
Aggressive traders that are ok trading illiquid markets could lightly buy November lumber as an interim low is likely in. Though volumes were light yesterday could prove to be an interim top in Treasuries; on confirmation next week clients will be looking at NOB spreads (short 30-yr bonds/long 10-yr notes). Continue to accumulate longs in December live cattle.
It was encouraging today in the metals to see little down side follow thru. Gold was slightly higher but unable to close above the 50 day MA. We will let the dust settle before making any calls. Trade lower was rejected in silver with prices closing just above the 100 day MA; in September at $17.83. We suggest buying silver as prices have come down 7.5% this week. Use set backs in corn, wheat and soybeans to be a buyer as we think the lows are in. Our favorite remains corn as we suggested clients to buy December next week on any retracement. As for currencies we have three ideas, long the Loonie, short the Yen and short the Swissie. For specifics do not hesitate to contact us.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People's lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.
People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit - through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision - nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.
And at the heart of it all are those dreadful OTC derivatives again! Banks try and lean on major oil companies because they have exactly the kind of credit-worthiness that they themselves lack. In fact, major oil companies, conversely, spend large amounts of time both denying Banks credit and trying to get Bank risk off of their books in their trading operations. Oil companies have always mistrusted bank creditworthiness and have largely considered the banking industry a bad financial joke. Banks plead with oil companies to let them trade beyond one year in duration. Banks even used to do losing trades with oil companies simply to get them on their trading register... a foot in the door so that they could subsequently beg for an extension in credit size and duration.
For the banks, all trading was based on what the early derivatives giant, Bankers Trust, named their trading system: RAROC - or, Risk Adjusted Return on Credit. Trading is a function of credit bequeathed, mixed with the risk of the (trading) position. As trading and credit are intertwined, we might do well to remember what might happen to global liquidity and markets if BP suffers what many believe to be its deserved fate of bankruptcy. The Intercontinental Exchange (ICE) has already been and will be further undermined by BP's distress. They are one of the only "hard asset" entities backing up this so-called exchange.
If BP does go bust (regardless of whether it is deserved), and even if it is just badly wounded and the US entity is allowed to fail, the long-term OTC derivatives in the oil, refined products and natural gas markets that get nullified could be catastrophic. These will kick-back into the banking system. BP is the primary player on the long-end of the energy curve. How exposed are Goldman sub J. Aron, Morgan Stanley and JPM? Probably hugely. Now credit has been cut to BP. Counter-parties will not accept their name beyond one year in duration. This is unheard of. A giant is on the ropes. If he falls, the very earth may shake as he hits the ground.
As we are beginning to see, the Western pension structure, financial trading and global credit are all inter-twined. BP is central to this, as a massive supplier of what many believe(d) to be AAA credit. So while we see banks roll over and die, and sovereign entities begin to falter... we now have a major oil company on the verge of going under. Another leg of the global economic "chair" is being viciously kicked out from under us. Ecological damage is not just an eco-event on its isolated own. It has been added to the list of man-made disasters jeopardizing the world economy. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.
All the counter-party risk associated with the current BP situation means the term curve of the global oil trade has likely shut down. Here we have yet another credit-based event causing a lock-up in markets that will now impede trade and commerce. It looks like an exact replication of the 2008 credit market seizure could ensue all over again - and it could probably be a lot worse. The world is in a far more delicate state now.
Although never really discussed, the world is highly reliant on BPs provision of long-term credit to many core industries. Who makes good on all the outstanding paper that so many smaller oil, gas and electricity companies, airlines, shipping companies, local bus, railway and transportation networks that rely on BPs creditworthiness and performance for? It doesn't take a genius to figure out how this could all unwind. If BP has to be bailed-out, like a bank, the system will have to print even more unimaginable amounts of money.
The market, intellectually lazy and slow to realization, as it often is, probably has not woken up to it yet - but the BP crisis could unleash damage similar to the banking crisis. A BP failure through bankruptcy could make Lehman look small in comparison, and shake the financial house of cards we live in even more severely. If the implicit danger of the possibilities imbedded in such an event doesn't make an individual now turn towards gold at full speed, it is likely that nothing will.
By Jim Sinclair at JSMineset via Oilprice.com who offer detailed analysis on Oil, alternative Energy, Commodities, Finance and Geopolitics. They also provide free Geopolitical intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com
After making a new high Crude failed and closed almost $2 off its' intra-day high. We suggest exiting all remaining longs as we suspect a set back. We anticipate a challenge of at least the 20 day MA; in August that level is $75.15. We're not suggesting getting short but rather moving to the sidelines. Natural gas finally filled the gap we'd been calling for today; at $5.865 on the August contract. Aggressive traders could scale into longs with tight stops though they'd be catching a falling knife. The more prudent move may be to see if the trend line at $4.80 holds. In a perfect world $4.55-4.65 in August serves as the ideal long entry.
A failed rally in indices as the 50 day MA acted as stiff resistance...this may sound familiar as we forecast this exact scenario in recent posts. From here aggressive traders could fade rallies in the S&P and ES. Today most clients started to buy September ES puts. First target in the futures is 1075 followed by 1045. October sugar gained 3.77% today closing just under 16 cents. We continue to feel this contract is a buy near 15 cents and a sale near 16.50 cents. Traders still holding October longs COULD get a push to 17/17.50 but if that lucky we would suggest exiting the trade. We continue to suggest selling December cotton at these levels anticipating a trade back under 75 cents is in the future.
September lumber was lower by 4.28% today reaching a seven month low. Bottom pickers this commodity should be on your radar. We advised clients to exit their NOB spreads at a small profit this morning when 30-yr bonds could not breach 122′20 and it appeared equities were rolling over as to their inverse relationship. Apparently the market liked the Cattle on feed report as cattle were well bid today gaining nearly 1%. We continue to suggest bullish exposure in December live cattle. Lean hogs were higher by 2% today; prices have retraced 61.8% in the last two weeks. We're not suggesting shorts yet but our bullish objective was obtained today.
Key reversal in the metals today; we liquidated ALL clients bullish gold and silver today. As for gold if the trend line gives way at $1235 we could see $1155-1175 soon there after. We will be looking to re-establish longs for clients after the coming wash out (as we see it). Silver made a new high and failed forming a bearish engulfing candle on the daily chart. We expect $17.80 and potentially $17.25.
Corn is allowing us to lift our July hedges for clients and get more length in the September options and December futures. As we've said use this set back as a buying opportunity. Trail stops on your longs in soybeans and soy meal. We would need to see $2.40 in July oats to hit clients profit objectives in their July $2.50 oat puts; current price $2.64′4. The US dollar likely bottomed today and if indices move lower the dollar should gain this week. Our upside target is the 20 day MA at 87.30. Clients were advised to cut losses on their Yen puts today; a loss of $328/per including our fees. Our featured currency play is bearish exposure in the Loonie with clients via futures and options expecting a trade to .9550 in the coming weeks.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
A supportive inventory report aided energy prices today with Crude oil and the distillates putting in another positive showing. We feel prices are overdue for a setback so we advise tightening up stops and lightening up on longs. On a pullback we would not expect much more than $3-5. At that point we would be a buyer again for clients. With natural gas prices unable to push thru $5.20 this could be day one of the pullback we had anticipated. A 38.2% Fibonacci retracement would also fill the gap from Friday we mentioned yesterday. We will be looking to be a buyer of September for clients if prices come off an additional 4-6%. We expect another 20-30 points higher in the S&P but think the 50 day MA at 1140 could be a significant hurdle.
If October sugar trades above 16.50 in the balance of this week we will be working out of most of our clients remaining longs. Risk to reward we still like the idea of short exposure in December cotton with tight stops or put options. September 30-yr bonds will close below the 20 day MA for the second day in a row but we've expected more of a breakdown. It may take the last gasp of air from sock traders to break Treasuries. Clients remain in bearish positions expecting 120/121 in September 30-yr bonds. Continue to work long December live cattle via futures and options. We suggest light exposure ahead of Friday's Cattle on feed report and then we will be adding to positions next week as long as we get no curve-balls on the report.
Sideways congestion in gold and silver as metal traders are trying to figure where from here? If we see new highs in gold and buying does not come into the market we will be offsetting those positions in the next few sessions. Stay tuned and we will let you know the outcome if we make a move for clients. Most clients have bullish exposure to silver but are growing impatient of the non-action. Those carrying large positions long corn we advised to establish some hedges or to lighten up on their longs taking some money of the table. We think there is more upside but we could get a setback in the short term.
We pulled back the order on the wheat we mentioned in recent commentaries; buying CBOT wheat and selling KCBOT wheat. Not because we do not like the trade...we do. We need to exit other positions before feeling comfortable gaining more exposure for clients. Traders could have been filled at our suggested limit today (25 cent premium to KCBOT). We suggest risking 8-10 cents looking to make 20 plus cents on the spread. Clients remain long the Euro expecting 1.2600, short the Yen expecting a trade below 1.08 and we put on a trade in the Loonie for some clients today. We think the upside should be capped at .9850 and could see prices give back after the 4.25% appreciation in the last week. Clients went short futures and sold puts against their position with an initial target of .9600.
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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