Europe Sneezes – Markets Catch a Cold

Energy: Crude oil will trade down by just better than 2% dragging prices to 4 ½ month lows with prices hitting my next support level; a 50% Fibonacci retracement at $94. If this level gives way expect the next stop to be the 61.8% level at $90/barrel. Those scaling into longs should have been stopped on their first leg when $95 gave way. I will be looking to re-enter longs market depending in the next few sessions…stay tuned. RBOB broke down as well failing to re-take the 8 day MA. I only bring this up because a fellow trader I was speaking to today pointed out how well the 8 day MA has been working as a pivot point in recent weeks…check this out in the entire energy complex. Next solid support in the June contract comes in at $2.88/gallon. Heating oil reached a 5 month lows losing 1.6% today. I see solid support at $2.85 and expect this contract to find value just under today’s prices. Natural gas lost 3.6% with prices rolling over and stopping at the 8 day MA. As I said last week a break below $2.35 or above $2.50 would set the tone. From where I stand it looks like we will get a retracement of the recent 50 cent appreciation…trade accordingly.
Stock Indices: Stocks globally felt the pain of Europe today with US indices breaking to their March support levels losing just over 1%. I think we can see 12450 and 1310 respectively in the Dow and S&P in the session to come. If things get really sticky a 38.2% Fibonacci retracement off the lows from October and highs in March would not out of the question. That would drag prices to 12125 and 1285. My suggestion would be too lighten up on profitable trades in your stock portfolio. To take it a step further look to at some allocations in commodities on this pullback or managed futures. Inquire to get the track records on specific managers.
Metals: Gold lost 1.7% today as gold is fast approaching its December 2011 lows just as forecast. Expect this pressure to continue. The key to me will be how the market reacts as prices near $1530/1535 in the June contract. The 100 day MA on the weekly chart comes in at $1515. A level that has supported since prices got above that pivot point in December 2008. Silver has lost ground 10 of the last 11 sessions notching a loss of just over 10%. Prices are now within 75 cents of my target of $27.50. We should see that level hold but be patient because if it gives way $24/25 could come into play. Every $1 move in futures on the standard contract is $5,000 so tread lightly until there is evidence of a bottom. Copper lost 3.7% today trading within ticks of $3.50. My target at $3.30 stands and the quicker equities fall apart the quicker that objective should be reached.
Softs: Cocoa fell off from overbought conditions. The inverse relationship to the dollar and correlation to the Pound should accentuate this move. Trades approaching 2300 should be sold with a target of 2150 In July. Sugar held onto slight gains but I still want more evidence of a bottom because although I expect a bounce the fundamental picture is far from bullish. Let’s give it a few days to make sure the 20 cent level will hold. Book profits on any remaining shorts in cotton on a settlement above 80 cents in July. Prices are 1.4% below that level as of today’s close. Coffee prices continue to tread water. It will take at least a 4% appreciation for bearish plays to be back on my radar.
Treasuries: Yields broke down and prices surged on the long end of the curve lifting 30-yr bonds to 9 month highs and 10-yr notes to contract highs. Approaching 1.5% on 10-yr yields are you f-in kidding me. The market is forcing investors to take risk…not the best scenario. An investor asked me today how high can we go…my response was until it cannot. That being said the trend remains up and until we get settlements below the 9 day MA prices are headed higher. In June 30-yr bonds that level is 144’6 and at 132’24 in 10-yr notes. For a trade it appears 2013 and 2014 Euro-dollars are headed lower. Traders should be short with stops above the recent highs. On a further depreciation look to scale into more size.
Livestock: There are no trading opportunities in live or feeder cattle from my standpoint. By that I mean prices could go either way so until I get a clearer picture I’m content on the sidelines. Continue to scale into bullish plays in lean hogs. Prices have appreciated 3% but I view this as just the beginning. My suggestion is long exposure with futures with some type of stop protection with options; either selling calls or buying puts.
Grains: I am waiting for corn to either bottom at these levels or take another leg down. Once it is determined an interim low was established expect bullish trade recs. Ditto on wheat as prices appear that they are starting to stabilize. Soybeans closed under their 50 day MA for the first time since December 2011 when prices were $2/bushel cheaper. However the trend line that has supported prices since December held, let’s see how this holds up in the coming sessions. I am still looking for more downside but like the other grains I would be interested in gaining length once a bottom is determined. In November that would likely be closer to $12.50.
Currencies: Weakness and uncertainty in other markets contributed to the dollar’s advance today and will lift prices higher if it persists. Above 81.00 the next resistance is seen at 82.00. Weakness should continue in all other crosses with the exception of the Yen as long as the dollar catches a bid off the fear premium. The Aussie and Kiwi will continue to be the biggest losers on further commodity weakness. The Pound stalled today but on a breach of the 34 EMA I think my target of 1.5950 comes into play.
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