RCM Commodity Update: Crude Oil Closes Lower, After Hitting Highs

After four positive days that lifted Crude oil futures to nearly$8/barrel, we closed lower today as fresh highs were denied. I do not know if today will serve as an interim top but I believe we are close to turning south and we will see WTI crack under $100/barrel very soon. A 50% Fibonacci retracement drags August back near $95. The August crack spread traded to 7 cents before reversing and trading back to a dime as of this post. Traders that were long this spread should be taking a profit as it has leapt 10 cents or $4,200 per spread in the last 2 weeks. I have no positions in the products with clients but think we are close to a retracement here as well, we could back off 10-15 cents/gallon short term IMO. Natural gas gained 3.4% closing above the 8 day MA and probing the 18 day MA. An interim lows was established last week. I think this leg could lift futures near $4…trade accordingly.

Stock Indices: The S&P has crossed back over its 50 day MA, what was resistance should now become support, in September futures at 1620.A challenge of the closing highs is only 25 points from current trade. The Dow too crossed that pivot point at 14990 currently trading 170 points above that level. To challenge its closing highs we are talking just over 150 points. Until fresh highs are made I would use a further appreciation to establish light downside hedges.

Metals: Today’s chart of the day was palladium which experienced a 2.63% gain in today’s session and has quickly put on 11% in the last 2 weeks. For more precise details and chart levels read the report. Gold showed signs of life today gaining 1.83%. Only a small victory as futures were lower by 3.13% last Friday. As long as $1200 holds on a closing basis we may have a tradable bottom here. I am not getting super bullish so do not misinterpret me but $3-40 of risk vs. $60-100 of upside is my take at current levels short-term. $18.67 may serve as a double bottom in September silver futures...the last 2 days lows. The jury is still out so tread lightly. I’ve yet to give fresh buy recommendations in futures but I do like the idea of back ratios spreads. A September just out of the money 1:4 at current levels can be picked up for around $1000. Contact me for more exact details. If the bulls can show some moxie the next couple days I think we have a chance of seeing a trade north of $20 this week.

Softs: Cocoa futures are back below their 20 day MA giving up 1.36% today. I like bullish trade and would use today’s set back and further price deterioration as a buying window as long as the recent lows hold. Sugar is finding mild buying interest just above 16 cents. There is chart damage evident with prices at fresh lows so we may be premature trying to pick a bottom. Keep any bullish exposure on a short leash. For five days December cotton has failed to take out the 20 day MA, currently at 85.85. Forced into the market I’d rather be short but I have no bullish/bearish client exposure currently. For the last 5 days OJ has appreciated and as of today’s settlement we are a dime above the most recent lows. Continue to buy dips as I feel further appreciation is to come. Say it is not so, two consecutive positive weekly closes in coffee and this week we started with a 1.81% gain on Monday. In fact today was the first settlement above the 20 day MA in September futures since 5/15. I’ve suggested bullish exposure in September and December contracts and remain in that camp.

Treasuries: 30-yr bonds gained 0.64% today which in normal circumstances would be a big deal but this barely puts a dent in the rout from last week, on Friday bonds gave up nearly 3 points. Chart damage has occurred and clearly Treasuries have become a fade rallies market. I’ve suggested anyone playing a bounce to have stops just under the recent lows. This will not be a trade I participate in with clients. That being said we could experience a 2-4 point advance in a hurry. Lower trade was rejected in 10-yr notes with futures closing higher by 0.50%. My advice would be the same with stops placement and as for a rebound 1-2 points in this instrument would likely be the equivalent of 2.5-4 points in bonds. If the market delivers a bounce in 16’ Eurodollars I would be eager to be a seller from higher levels with clients. One of my favorite strategies currently in this complex is short futures and buying calls 1:1 - contact me for more details.

Livestock: August live cattle continue to dance around the 9 day MA. That level is currently at 122.15. I’m still thinking a 50% Fibonacci correction is in our future dragging August near 120.60. I love it when a plan comes together. Leah hogs are cooperating with my client’s bearish exposure losing 2.25% today and off 4.6% since that bullish front page WSJ article and near $100 trade 2 weeks ago. I see August under 94 cents this week and would not rule out a 61.8% Fib retracement dragging prices under 93 in the coming weeks.

Grains: Have oats put in an interim low? As of this post corn is 10 cents off lows made earlier in the day and back above $5/bushel. I’ve yet to put my client’s capital to work here but the aggressive type could look to probe bullish trade with tight stops in my opinion. Even on a short covering bounce I think we could experience a 20-30 cent appreciation from current trade. The standout in the Ag complex today was soybeans with November adding 1.95% lifting futures back above the 50 day MA. We likely have reached a tradable bottom here. Look to gain bullish exposure on setbacks targeting a trade back to $12.80/13.00 bushel in November. In March 2009 the S&P put in lows of 666 and I’m not sure the significance of that number but will that same level serve as an interim low in December wheat? Of late we’ve been probing the 9 day MA on the upside and I’d like to see a settlement above that pivot point to call a low…that level is $679’4. My suggested strategy is long futures and simultaneously selling out of the money calls 1:1.

Currencies: Inside day in the greenback as 84.50-84.75 may prove to be formidable resistance. The last time (late May) futures we’re at these levels an interim top was established and followed by a 5% drop. Past performance is not indicative of future results. Intuitively if the dollar rolls over we are likely putting in interim lows in European currencies. I think the next few days will tell the tale but aggressive types can probe bullish trade in the Euro, Swiss and Pound with stops under the recent lows. Perhaps the most aggressive is the Pound but if we overshot to the downside we could see the most snap back. Close out all remaining Yen bearish plays as I think the tide is shifting...expect bullish probes to come. The Commodity currencies should see upside from here. I will not trade the Aussie as the wounds are still too fresh but I am pricing out bullish trade in the Loonie as I see a trade back to .9700 in the coming weeks.

Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.