Trudging Along

Energy: Inside day in Crude oil closing higher by 1%back above the critical $90/barrel pivot point. I expect this level to serve as support as prices track higher into next week. Continue to scale into longs anticipating a trade back to $95 in the coming weeks. I will likely advise longs to add to their position on a close above $95 in July. Both RBOB and heating oil are fighting to stay above $2.80 in the July contract. With prices extremely oversold and Crude poised to reverse I think we bounce from current levels. I suspect we could get a 15 cent rally in the distillates without too much of a headwind. Natural gas gave up just over 3% closing at the 8 day MA. As I’ve said if that level gives way an interim top is likely in place. Aggressive traders should be getting short with stops above the recent highs…see previous posts. A 50% Fibonacci retracement would drag prices in July back to $2.45.
Stock Indices: The indices closed back over their 9 day MA as a bounce is under way. I’m not looking for much more than that as the S&P and Dow should only see moderate upside. I would not think more than 3-4% in the next few weeks before we see prices head south once again. I see resistance in the S&P at 1365-1380 and in the Dow 12800-12900 should cap rallies.
Metals: Gold trading has been dicey of late but as long as $1535 holds as it has on previous attempts traders can buy on dips. My first target would be a re-visit of the previous highs…then $1615 the 50% Fibonacci level in June. I’m getting a number of traders interested in silver and I will voice to you what I have told them…as long as prices hold onto $28 I am friendly but you need to have the stomach for this metal as it has and will continue to be more volatile than gold in my opinion. A settlement above $29 should lead to a grind to $30.50…trade accordingly. Although I feel the fundamentals point towards lower copper if we see outside markets gather some upward momentum copper could bounce 15-20 cents. This is not a buy rec but if short institute some type of risk management, i.e options or futures stop.
Softs: Cocoa has lost over 10% in the last three weeks and prices are over stretched to the downside in my opinion. Do to rule out a bounce especially if the dollar backs off. Sugar failed to a make a fresh low but things still look ugly. I would be on the sidelines waiting for evidence of a bottom. Cotton gained 3.5% bouncing from oversold levels. I think we get a decent bounce here so put on your hedges or exit if short as to not give back too much profit. My targets in the July contract are 79.50 followed by 82.00. The selling is slowing but coffee should see lower ground. A bearish engulfing candle on the weekly chart is not a strong bullish condition trust me.
Treasuries: Treasuries traded below but closed above their 9 day MA. However in overnight trading prices are under those pivot points. Going into tomorrow a settlement below 147’16 in 30-yr bonds and 133’18 10-yr notes should be interpreted as an interim high is in on Treasuries. On a retracement I see 4 basis points in 30-yr bonds and 2 in 10-yr notes as your first downside target. The NOB spread looks like a viable play as charting the spread a solid base has formed in the last 6 sessions. You don’t need to risk more than $1000 per spread and I view the profit potential to be approximately $1750-2000.
Livestock: Cattle paused today gaining slightly but I would think there is more depreciation to come on this leg in both feeder and live cattle. As I’ve previously stated I think we get a 3% correction from current levels in live cattle. As for September feeder cattle my target remains 157.50. It looks like lean hogs will try to test the previous lows in early May so be patient and see if those levels hold before rushing into longs.
Grains: Corn was creamed today losing over 4% almost retracing the entire move from previous weeks. Let’s see into the weekend if $5.75 holds in July and then we will react next week and have some recommendations. July wheat found support at the 9 day MA /38.2% Fib level but I view that as temporary and expect prices to be 15-20 cents lower very soon…trade accordingly. Soybeans were higher by 1% but until prices close back above the trend line I am in the bear camp, that level is $14.05 – 1 4.10 in July. Two other markets I typically do not discuss I wanted to mention; oats and soybean oil. As for oats they telegraphed a correction to come in grains as they started to fall apart the beginning of this week losing 12% this week. Soybean oil is finding buyers just above a fresh 2012 low. If I am correct on my assumption in Crude this commodity should be bought. Run correlations on the two markets and you may be surprised. A 38.2% retracement would put prices in July back at 52.25. From currently levels that would represent a $1650 move …the margin is only $1215 per contract..HMMM.
Currencies: The greenback gained for the third day running but these levels are not sustainable in my opinion. Once prices close under 82.00 I would expect to see an orderly correction. All crosses could see further weakness and they certainly are not to be bought but if short trails stops or have options protection because I’m expecting a sharp reversal soon.
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