Bullish engulfing candle in 10-yr notes

Crude oil futures, August 2, 2013
Crude oil futures, August 2, 2013

Energy: Today’s chart of the day was on Crude oil…give it a read. If we see follow through into next week it will confirm for the second time that $108 is stiff resistance. I am operating under the influence that is how we play out and this could drag futures under $100/barrel. As of this post RBOB is below its 8 day MA trading down by 1.29% on the day. This would be the second consecutive losing week. Heating oil maintained above its MAs and only 4 cents off its highs. Products found support at their 38.2% Fibonacci levels this week and I expect those levels to be challenged next week…stay tuned. In September futures those levels are in RBOB at $2.9250 and in heating oil at $2.9775. In the last 2 weeks natural gas has given up 50 cents and closed out the week near 13’ lows. I think we will find value around these levels and have opted to start working clients into back ratio spreads in October and November. My first objective is the gap 20 cents above current trade.

Stock Indices: Record highs were made in the indices this week and even on a weak NFP # today we will finish in the green. Perhaps the market thinks the Fed will continue to support…have we gotten back to the point where bad news is good news as the Fed will continue to serve as a backstop? The S&P above 1700 the Bulls are in the driver’s seat. The Dow will finish just points below 15600 closing up 100 points higher on the week. The path of least resistance remains up. View a hedge as your insurance premium…an insurance you hope you do not need.

Metals: Gold closed up nearly $30 off it lows today but still lower on the week. The two key levels I see are the 50 and 20 day MAs, currently at $1325 and $1299 respectively. All week upside was capped at the 50 day MA. I am looking for a 50% Fibonacci retracement dragging December back to $1265. A bullish engulfing candle to end the week in silver retaking its 20 day MA, currently at $19.73. Lower trade remains my call as I see September futures under $19/ounce into next week.

Softs: The key pivot point in cocoa is the 20 day MA, currently at 2287 in September. I advised clients to close out bearish trade and will look to fade a rally into next week. Three weeks in a row sugar has quietly crept higher gaining 5.4% off its lows. If 14’ contracts settle back 1.5-2% next week I will be pricing out bullish strategies. OJ has traded lower the last 2 weeks. After an 18% appreciation I think it is time for some back and fill. Two ways I advised clients to get in bearish exposure this week…short futures against a sale of a put option 1:1 or back ratio spreads in November. Coffee gave up 3.27% on the week after making fresh 4 year lows yesterday. We did hold on today managing to close out the week strong. It will take a trade near $122/124 for me to think the worst is behind us. My favored play is long December futures with an option hedge, preferably a sale of a call options 1:1.

engulfing candle in US 10 YR T-Note
US 10 YR T-Note

Treasuries: A bit of a disappointment in the NFP # today coming in 20,000 jobs light at 164,000 and unemployment remaining at 7.6%. The average range the last 3 days in 30-year bonds is 2 points or $2,000 per session. Not for the faint of heart. It appears we are trying to find a value zone and on a trade above the 9 and 20 day MAs next week look for a rally to ensue. Those levels are just above today’s highs at 133’31 and 134’7 respectively. A bullish engulfing candle in 10-yr notes today with a settlement above the 9 and 20 day MA should set the tone into next week. Next upside resistance is seen at 127’10. Also a bullish engulfing candle in Eurodollars. Use further upside to scale into bearish trades and continue to build a net long position in 16’ futures. Its days like this that clients are glad they have either small size and we will add length from higher levels of hedged off will long dated calls 1:1.

Livestock: October live cattle lost ground 4 out for the last 5 sessions completing 50% retracement on the week. I see lower trade and see prices drifting near $123.50 into next week. As long as the 9 and 20 day MAs contain upside I am in the bear camp. Those still short August lean hogs should take a loss if we see a trade above $100 net week; current trade is 0.75% from that level. Lighten up on bearish trades in October and trail stops above the 9 and 20 day MAs. I am bearish but will learn from my blunder trading August with client’s letting the trade get away from us a bit.

Grains: Until the 9 day MA is retaken December corn trades lower. That pivot point comes in at $4.75/bushel. Looking at H/L dating back to 08’ a 61.8% Fibonacci retracement was completed this week. Corn is trading at its lowest levels since October 10’ and if farmer selling continues we likely will see a $4.50 trade. 3 out of the last 4 weeks soybeans have been in the red lower by 18%. November is trading under $12/bushel and I do not see stiff support for another 30-40 cents. Like corn it will take a settlement above the 9 day MA to get my attention on bullish trade, that level is $12.20. 5 out of the last 6 days wheat has managed a positive close but futures have not really gotten anywhere only closing 15 cents off recent lows. Support is seen at the 9 day MA and resistance at the 18 day MA. If we get a run to the 50 day MA 15 cents above current trade use that as an exit. I do not think Ag is the best sector to be playing in currently .Yes wheat remains the best house in the worst neighborhood but Id prefer plating on an entirely different block.

Currencies: After 3 negative weeks the US dollar managed to close positively this week. The 34 day EMA capped upside today but I’d expect a push through that level into next week. Based on my chart of the day earlier in the week I’m calling for the gap in the chart to be filled on the daily’s from 7/10 into 7/11 at 83.64 in September. I used the 1.09% advance in the Pound to get clients back into bearish trades in the Cable; hoping for the same result. Early in the week we bought an options strategy for $800 able to nearly double up mid-week and then we executed the same play today for some clients just under $900. My target in the coming weeks is $1.5000. I will likely probe the Swiss and Euro with futures with tight stops early next week with clients…stay tuned. All three commodity currencies were hit and if metals and energies trade lower as expected I anticipate that trend to continue. If forced to choose one I like bearish trade in the Loonie with an objective of .9500.

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