If Stocks falter will Commodities follow?

August Crude has advanced nearly $7/barrel in just over the last week but the next hurdle will be the 40 day MA at $98. On a settlement above $98 we see little in the way of resistance until $102. The resiliency in the distillates should keep Crude moving higher in the short run…in my opinion. Natural gas closed lower by 3% today near its lowest level in one week. As long as $4.18 holds on a closing basis in August we still suggest bullish exposure. Our favored play with clients has been purchasing September call spreads anticipating a trade 6-8% higher than current levels. Today’s lower close in stocks will be the first negative session in the last eight days as is looks like a 6% appreciation in one week the bulls need a rest. Aggressive traders can sell into this strength as we feel a trade back to 1275 is in the cards in the September contract. We started initiating this trade for some clients last week and are currently carrying a loss FYI. The dollar is back above its short term MA’s likely on the IR move from China. We could get a continued bounce but sideways action between 74.50 and 76.50 is our prediction in the coming weeks…trade accordingly.

We see no forex trades that scream buy or sell but traders could take small positions long the Loonie or short the Euro . There is not a clear buy or sell signal so our suggestion would be keep your size small. Being live cattle have had trouble making new highs we would not rule out a trade lower. If we see signs of weakness in the coming sessions we may probe shorts with aggressive clients expecting a revisit of the 20 day MA approximately 2.5% lower. Gold has bounced off over sold levels advancing nearly 3% in the last two sessions. We expect this leg higher to lift prices near contract/record highs $50 higher…trade accordingly. September silver closed above the 20 day MA for the first time in one month and looks poised to trade above the down sloping trend line that has capped rallies since Memorial day. A trade to $39/ounce could come in real quick order…in my opinion. Our suggestion is to have bullish exposure in gold and silver looking for higher ground.

Cocoa closed lower today for the first time in seven sessions losing 1.2%. Prices are over bought and we will be out of all longs ideally from slightly higher levels with clients in the next few sessions. Furthermore after the 11% appreciation in the last month aggressive clients may reverse…stay tuned. Some of clients remain short sugar from over bought levels but they are still carrying a loss as stubbornly sugar has maintained at multi-month highs. We expect October to trade closer to 23 cents/lb. in the coming weeks. Agriculture has corrected in recent weeks and we would view these lower prices as buying opportunities. We like November soybeans, September wheat and December corn. November soybeans are off 6%, September wheat down by 27% and corn is lower by 15%. On a trade higher in 30-yr bonds, 10-yr notes and Euro-dollars we would be looking to be a seller from higher levels.

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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