European Contagion

Energy: Overnight it appeared we were going to have a nice jump start to the week but as we draw to a close on the session Crude appears to close lower by 1%. However a base looks to be forming and my take is still to be scaling into long positions around these levels anticipating a trade near $90/barrel in the coming weeks. On its highs RBOB tested the 18 day MA, a level that has served as resistance since late March. Though prices are down 1.5% on the day prices seem to be basing out as we’ve been in a trading range for two weeks now. A loss of just better than 1% in heating oil but support held as $2.60 remains the line in the sand in the August contract. A broken record I know but I see a bounce in this complex coming. Natural gas picked up 6% today and has gained over 20% in the last 3 sessions. As I voiced last week a summer low is likely in and I see appreciation moving forward. My suggestion is to gain bullish exposure expecting prices to trade over $3 in the coming weeks.
Stock Indices: Even with today’s lower close stock indices were able to hold above their 50 day MAs. These levels should serve as your pivot points, in the Dow at 12640 and in the S&P at 1338. I think we could see another 1-2% appreciation and then if we consolidate around those levels I will likely advise to start probing shorts…stay tuned.
Metals: Gold closes above the 50 day MA for the third day running. I see that level supporting on a closing basis roughly $10 below the current price. Gain bullish exposure with a first upside target of $1665/1670. Silver continues to tread water back and forth between $28-29 ounce closing marginally lower today. While not my favorite risk/reward trade currently as long as prices remain above $28/ounce I remain friendly. Copper traded to a 3 week high above $3.45 before backing off and closing just shy of $3.40. I expect a grind higher and have a trade over $3.50 on my radar.
Softs: Cocoa closed back under the 50 day MA giving up 2.6% today. A correction lower appears to be underway as all longs should have been stopped out if they were trailing stops as suggested. Observe the inverse relationship to the US dollar. The July contract in sugar closed above the 50 day MA for the first time since early April as prices look to continue on their path upward. As for October prices are at a 4% discount and a better value in my opinion. Contact me for trade suggestion in futures and options. December cotton has appreciated over 10% in the last 2 weeks but I think we see an additional 7% as my first target is 77 cents. I’m not as interested in buying as I am selling from higher levels.
Treasuries: 30-yr bonds and 10-yr notes continue to dance just above their 9 and 20 day MAs. I would expect sideways action until the FOMC meeting…which is the next few days. My inclination is to be gaining bearish exposure but I would like to see how the markets react first. This is my take on futures trades those wanting some exposure before we get confirmation are advised to buy put options but tread lightly.
Livestock: October live cattle find mild support around $121.00 but I expect this to be temporary and see further downside. Feeder cattle took a breath today as well but further downside is expected there as well. Do not rule out a challenge of the April lows. Lean hogs are roughly 2% off their recent highs but I’m still eyeing a trade under 80 cents on the October contract…trade accordingly.
Grains: 5.5% leap in prices in December corn today. Ideally traders were gaining long exposure in recent sessions as suggested. I like scaling into longs ahead of the USDA report at month end. I’m expecting a trade back near $5.20/5.25 to be met with buying. Soybeans traded to 1 week highs closing back near $13.50 in November but I am not a buyer here unless we see prices under $13/bushel. December wheat can be bought with stops under the recent lows.
Currencies: The dollar traded higher for the first time in 5 sessions back above the 31 day EMA. We may get a bounce but I do not see prices above the 20 day MA at 82.80 in September. Traders long other crosses I would take off the trade and be in cash headed into the FOMC meeting. I will issue new trade recs in a few days.
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