Whippy action in the Treasuries complex

US 30 Year Treasuries (T-Bond), July 27, 2013
US 30 Year T-Bond, July 27, 2013

Energy: Crude oil will close under its 18 day MA but on its highs we failed at the 8 day MA. I remain bearish but did have some clients lighten up as not to be short large size over the weekend. I still think a trade under $100/barrel is in the near future. On higher trade next week I will re-establish size for clients. For fresh entries I like buying September crack spreads at 100…long heating oil short RBOB. This spread came in from 500 to near even money as of this post. I think we are back at 500 in the coming weeks. As for outright directional plays I am looking for lower trade. I just feel RBOB will get hit harder. My objectives in September futures are $2.88 in RBOB and $2.93 in heating oil. Natural gas has closed lower 5 out of the last 6 sessions off just more than 20 cents in that time frame. Let’s see if the same support that held in late June holds into next week. I would be cautious until futures retake their 8 day MA, in September currently at $3.68.

Stock Indices: The focus next week will be on the FOMC and NFP #. A very modest loss but the S&P finished lower on the week for the first time in five weeks. If we fail to get above 1700 again next week I would expect prices to start leaking lower. My first target in September futures is 1645. The same end result with the Dow lower by 5 points after four positive weeks. 15600 happens to be the upside resistance while support comes in around 15150.

Metals: The 20 day MA in gold served as a magnet all week as futures did not trade $20 above or below that pivot point. Forced onto the market I would prefer bearish trade but in full disclosure I have no client exposure. I think we get an opportunity to be a buyer from lower levels…closer to $1250 would get longs on my radar. A trade above $1360 would get me turned around and convinced we see higher trade before lower trade. Silver lost 1.01% but did hold on a challenge of the 50 day MA at its lows. Play a breakout below $19.60 or above $20.50. My bias is towards lower trade thinking we are under $19/ounce next week. Like gold I would prefer to be a buyer on lower trade than be short with clients. Palladium appears to have reached an interim high trading lower 3 out of the last 4 days closing $30 off recent highs. My objective in September futures is an additional 3-4% depreciation.

Softs: Mixed bag in cocoa but buyers failed to hold onto their gains even on the positive sessions. On the week futures were lower by 1.31%, the first negative close five weeks. I am operating under the influence we see lower trade in the coming weeks dragging futures 4-5% lower than today’s settlement. Sugar registered its second positive week albeit a minor victory futures ended above their 20 day MA. Do not rule out a challenge of the 50 day MA at 16.71 next week. Two sided trade in coffee this week on an inside week closing lower by 0.29%. I am bullish but we will need to get above the 50 day MA which we have failed to do on every attempt and to really get moving north in my opinion. That level in September futures is $126. My favored play is long futures in December with some sort of downside options hedge.

Treasuries: Whippy action in the Treasuries complex as the debt complex is trying to get its bearings. Much of this should be cleared up next week if the Federal Reserve clarifies their message on the “Taper Caper.” 30-yr bonds finished slightly lower after two positive weeks. Continue to allow the 9 and 20 day MAs guide you on trade direction. Futures ended Friday between those to points? 10-yr notes closed out the week just above the down sloping trend line. Flip a coin on direction short-term. Let the dust settle and be in cash into the Fed meeting and then work into trades once a direction is determined. Eurodollars closed just under their 38.2% Fibonacci level. My favored play here is short 16’ futures against the purchase of out of the money calls 1:1.

Livestock: For three weeks now live cattle have tread water with October between $125-126. I’m looking for a 50% retracement to drag futures near $124 in the coming weeks. Lean hogs closed Friday down approximately 1% depending on the contract month. For fresh entries I like bearish exposure in October while some clients remain in August positions that we’ve been in for several weeks. More pressure next week could get us finally out of this trade. My objective remains a trade closer to 94 cents.

Grains: Corn finished in the red all 5 trading sessions with December off by just better than 25 cents/bushel on the week. I’m not bullish but I do think we should get a 25-35 cent bounce very soon. My grain guru would prefer to fade this rally than buy so I am heeding his advice…stay tuned. On the week old crop soybeans were lower by almost 10% on favorable weather and heavy famer selling. November traded within 20 cents of their recent lows but did not feel as much pain lower by 4% on the week. As long as November futures remain under $12.60 I’m in the bear camp. As I said yesterday wheat remains the best house in the worst neighborhood down by 2.4% on the week. I like bullish trade in December futures and using options as a hedge. We are seeing good exports under $7/bushel and this should continue to support pricing.

Currencies: The dollar index has closed lower the last three weeks but in my eyes most of the damage has been done. I’m looking for a bounce to the 50 day MA in the coming weeks, in September at 82.90. Traders may get another opportunity to probe bearish trade in the European crosses next week…stay tuned. On a relatively slow week I had two FX trading recommendation this week. On Wednesday short the Loonie and yesterday long the Yen. Let’s check the scorecard…the CAD has been flat but should not get above the 61.8% Fibonacci level at .9750 or I am wrong & as for the Yen we gained 1.39% today on its way to $1.0350 IMO.

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