Energy: All yesterday’s gains were given back in Crude oil today with losses of 1.75% putting prices under $92/barrel. The 50 day MA has capped upside the last two sessions and until July gets above $94 expect sideways to down action. Above $94 I am a lot friendlier. I continue to trade my bias on short term swing trades with options protection for aggressive clients. I did opt to reverse on the spread and have client’s long heating oil and short RBOB. I generally would want to be the other way this time of year but the spread narrowed so much it made it irresistible…they call it the “crack spread” for a reason. Spread will settle around 300 today and I am looking for a trade back near 700. Natural gas closed in the red all 5 sessions this week closing out under $4 as previously forecast. Not to put a feather in my cap as this was a fairly easy call. Support is seen in July at $3.95 followed by $3.85.
Stock Indices: Is a correction upon us? S&P closed out today off 1.48% and 56 points off recent highs as the Dow lost 1.43% at 2 week lows. Next stop should be 14,800 in the Dow and a move under 1600 in the S&P. The Nikkei broke a trend line that has held since November 2012, the Russell 1000 was down nearly 2.75% today. Shots across the bow folks as a correction may have begun. Hedge large equity exposure or lighten up!
Metals: That gold rally was short lived as a day after I anticipated a breakout…BAM…a bearish engulfing candle. The 20 day MA caped upside the last 2 sessions, we must see a trade above $1412 early next week to see the bulls return. I do feel that if $1370 can hold on the downside it makes sense to have light bullish exposure. Silver gave up nearly 2% today but did hold above the critical $22/level. If that level breaks expect the selling floodgates to open… in my opinion. On the week gold managed a sight “W” while silver was off by 1.06%.
Softs: Today’s chart of the day was cocoa…read it. We consolidated in a $40 range the last three sessions and my interpretation is she’s taking a breath before a leap higher in the coming weeks. Not a major move I am just looking for $125 or 5.7% from today’s close. This week marks the fourth consecutive losing week in sugar with futures fast approaching 16 cents. A bottom has yet to be determined. Wowzers 9 days in a row cotton has traded lower. Will there be any discounts on our clothing on this reduction in prices? I think not. I advised traders to close out bearish trades at 80 cents so my current position is the sidelines. Coffee bears and bulls are participating in a tug of war as we try to find the next direction. I think we have found a value zone just above 3 year lows…of course I am speaking my position as I am advising clients to buy September and December contracts. When a tree falls we yell TIMBER but what if lumber goes up an expanded limit 2 days in a row then what? Lumber futures advanced $30 jumping 10% in the last 2 sessions. I had a conference call with1 of the 3 surviving lumber traders this AM and he thinks we can see a return back above $325…which makes sense to me as this is just a 38.2% Fibonacci retracement…trade accordingly.
Treasuries: Before trading Treasuries in the coming weeks pop a Pepto as volatility is to be expected…over a $2100 trading range in September 30-yr bonds today. I like the NOB spread think 30-yr bonds outperform 10-yr notes as we see a slide in equities and assets shift back into his complex. The plan remains play the dead cat bounce buying the NOB and then reversing and get into bearish trade on the short end of the curve in 16’ Eurodollar contracts.
Livestock: We got the recovery we needed in live cattle today to confirm we want to remain in bullish trade. Today August futures gained 1.18% to close above its 20 day MA for the first time in 4 weeks. My objective to exit is 121.50 in August futures. 8 out of the last 10 weeks lean hogs have gained ground lifting futures to 4 month highs in August contracts. I think the easy money has been made on bullish trade and I am expecting a setback. I would be willing to be after a 2.5-3% retracement.
Grains: Corn failed to hold onto most of its gains today but a solid week as December gained 25 cents/bushel. I expect a setback that fills the gap from 5/24 and then I am willing to re-explore bullish trades with clients. Soybeans gained 1% today which is contradictory to my trade rec but take note that we are closing well off highs all week…today nearly 15 cents. A break of the 9 day MA which supported all week then sellers should be in control. A sharp 50 cent selloff is still my call. Wheat gained 0.90% above the 20 day MA which had capped upside all week. I believe this is the beginning of a leg higher and my objective in December is $7.50-7.55.
Currencies: The 50 day MA supported the last 2 sessions in the US dollar but we should get through that level. My only concern is that if we see a nasty sell off in stocks we may see the flight to quality here so be cognizant of that into next week. Back off fresh bullish entries in the Pound, Euro and Swiss until we get further confirmation. I see value in the Aussie and Loonie at these levels but if energies and metals get hit look out below. Some clients have open bullish trades in the Aussie and we are taking on water. Outside of the dollar the Yen was the lone gainer today…in fact we gained 5 out of the last 6 sessions. I think we can see 1.0100 in the next 2 weeks…trade accordingly.