Commodities Today: The Correction Has Arrived

As we hinted at all week, crude looks tired, so we figured we would get some money in play, we advised clients to buy the August $70/65 put spreads…fill today at $1,850. We expect to see a trade down to $66 in August in the next 2 weeks. We also advised clients to lighten up on their natural gas thinking the entire complex may come off; some offsets were at a slight loss, others at a slight profit. BE NIMBLE and ready to re-position long natural gas in next 2/3 weeks.

We see no opportunities in the currency market that jump out presently so stand aside.

We will continue to fade any rallies in the Euro-dollar for clients but this trade may take a few months/quarters to play out… be patient.

November soybeans were lower by 37 1/2 cents today closing below the 40 day moving average for the first time since late March. We are buyers closer to $9.75 prior to 6/30 USDA report. Corn trade idea: Sell (2) $4.40 calls while simultaneously getting long futures; filled at $413′4.

Gold and silver is a toss-up as this week both metals experienced sideways action. The trading range in July silver T-TH was only 50 cents and for the same time in August gold only $20.

Lean hogs should be on your radar, yes the fundamentals are lousy but that seems to be inconsequential of late. We may have some bullish ideas in August and October next week. Head fake in coffee and cotton yesterday as all gains from the previous session were given up today. We do like the idea of getting long coffee and cotton eventually but have yet to commit client funds.

Comments

[Larry House:]

Thanks for the useful ideas. I think a lot of us are waiting for a lower entry point for energy. The question is how much lower?

Jun 19 04:04 PM

[TradingHelp...:]

Larry, oil is a buy near $60 in my opinion. I am not even sure if we will get that low. Great article by the way.

Jun 19 04:27 PM

[Dave Wrixon:]

State of the dollar, I would guess Oil will be a buy at $80 or even $180.


On Jun 19 04:27 PM Michael Young wrote:

> Larry, oil is a buy near $60 in my opinion. I am not even sure if
> we will get that low. Great article by the way.

Jun 19 04:51 PM

[LilBob:]

On Jun 19 04:04 PM Larry House wrote:

> Thanks for the useful ideas. I think a lot of us are waiting for
> a lower entry point for energy. The question is how much lower?

For oil info I like OPEC's monthly report on the state of the oil market. There's a link to the June report below.

www.opec.org/home/Mont...

Based on what I've seen in this month's report I'm a little more Bearish than Michael and I believe we may see oil fall a little farther than $60/barrel next month. I wouldn't even be surprised if it fell into the low-fifties range.

Jun 19 05:58 PM

[sickofthehype:]

But GS told me it was headed straight to $85!

Jun 20 01:13 AM

[dcb:]

Cetin, why don't you and this troll get together. Both putting their crap on line and changing their profile to try and fool people. You understand the low life types you are associating with by your behavior I hope.

also it isn't going to fool anyone you going around giving yourself a thumbs up on your own posts with different names.

o jewCRASHED ...:
o Comments (37)
o Follow
o • Website: www.mkapital.com
.


On Jun 19 06:16 PM ZERO0 wrote:

>
> Every other country, especially China and most of Europe have goverment
> incentives to protect it's industries. No matter what you call it
> it's a form of protectionism and its inevitable. We should stop being
> naive and take care of our own house. The only ones who win if we
> don't are the multinational corporations who don't care where they
> get their hand out.
>
> good articles: is.gd/15JkN agree completely
>
> Every other country, especially China and most of Europe have goverment
> incentives to protect it's industries. No matter what you call it
> it's a form of protectionism and its inevitable. We should stop being
> naive and take care of our own house. The only ones who win if we
> don't are the multinational corporations who don't care where they
> get their hand out.
> short.to/gmu9

Jun 20 07:06 AM

[CLH:]

Oil is headed down. The last low 30-40 will be broken on the downside. The present dead cat bounce is nearly over.

Jun 20 09:14 AM

[chleoku:]

Good summary. After all the financial capital injection, now that our economy is stuck:

www.wealthalchemist.co.../

the collapse is worse than the 1929 depression and we will be stuck in a longer recovery

Jun 20 09:44 AM

[jerrydd:]

Everyone should understand that real unemployment in the US is getting close to 18% and will likely hit 20%. Things are going to get worse for a god while.

Oil and other prices are too high for so many reasons.

Jun 20 10:16 AM

[AndrewBaker:]

Interesting article. I will watch how things pan out, and I have to say I agree with your comments on crude, natural gas, corn, soybeans, gold and silver. Personally I feel there is intervention in gold and silver from certain banks trying to hold the prices down. I'm long here as I feel the odds are on increasing prices as the dollar weakens more and people realize the stock market isn't going much higher anytime soon.

Jun 20 10:31 AM

[aja8888:]

"Everyone should understand that real unemployment in the US is getting close to 18% and will likely hit 20%. Things are going to get worse for a god while.

Oil and other prices are too high for so many reasons."

Jerrydd hit it right on the head. I have too many friends/family that are out of work and have been for the last 6- 12 months. Besides slimming back, they are driving less (one sold a car and got a Vespa) and not having any luck finding jobs. What is missing in the government numbers are the folks that ran out of unemployment benefits and have no job or no current income.

Refined product demand going forward will be the key here. Notice diesel is lower than regular (87 octane). This indicates less demand (industrial, shipping, etc). Last year, diesel was 25% higher than RUG.

Jun 20 10:37 AM

[Ponce:]

While many of you "invest" in many things, hoping to make a profit, I have been buying something that keeps going up in price everyday and that will keep me alive in what is to come...FOOD.
At this time I have food for about eight year that has gone up in price anywhere from 50-250%, and the same goes for ammo which has gone up in price (in some cases) up to 500%.
Forget about making money and consentrate in preserving what you already have, silver and gold, for tomorrow it might be to late.

"If you don't hold it, you don't own it"... Ponce

Jun 20 11:43 AM

[Elitemaster:]

yea ok go ahead and buy up some puts on oil and make me and a bunch of other people rich when late august oil is upwards of $75/barrel and you have to cover your 'tired' positions. Right on the mark with natural gas but oil ? wrong forecast my friend.. china and other BLIC nations are moving away from the dollar, removing their US debt (Tbonds) and cooperating on increasing import/export moves between each other and leaving the US on the sidelines - why do you think Russia earlier in the week boasted about the dollar.. they knew it would give it a temp burst up to give it momentum for an eventual collapse (total obvious BS); sound strategy against the inevitable fall of the weak dollar.
demand for oil decreasing ?! did you actually read the energy report this week? we were off the mark as regards oil consumption by almost FOUR times the amount (in millions of barrels a week).. so what that we have a little more stock piles than we thought, we are burning through it faster than we can say 'the dollar is falling hard'.. my advice, invest in OIL NOW asap before it skyrockets in the next few months and the dollar falls .. or better yet, invest in oil service companies with global positions (like drillers RIG/DO/etc) because China and Russia don't want to have anything to do with the dollar anymore, they are looking to the ruble now (wait until the reports start flooding in on Tuesday about the summit)..
cheers

Jun 20 02:17 PM

[willynill:]

Good article, but short-term I hear that excess water in the corn and soybean fields may reduce supply, at least in upper midwest.

Jun 20 05:30 PM

[nmelendez:]

The problem no one seems to understand is that we are going from 1 billion middle class citzens to 3 billion middle class citzens. This is a great band wagon for commodities. Need more cars, more gas, more solar cells...i.e. more of everything. Think McD's back in the 40's and that's where we are at. I like gold and silver because of the fact so many people will now be buying more jewelry. I remember when the standard was 18Kt.. What's it now, 10kt? That's why i am bullish on commodities. I believe the dollar will be devalued, not killed, just brought down enough to compete with the world. That way chinese will buy gold with renmbis and India will buy gold it their currency. I see SPY taking a tailspin in consideration that each country will protect it's market. You can invest but their stocks will be more expensive in the long run.

Jun 20 06:05 PM

[nmelendez:]

Oil back to 40 after summer. Big increases in reserves, summer utilization down, summer is almost over and not many took vacations.

Jun 20 06:13 PM

[Dialectical...:]

The first day of summer is June 21st. It is not almost over. That's not to say demand will be high this summer, just that there is still plenty of driving season left.

On Jun 20 06:13 PM nmelendez wrote:

> Oil back to 40 after summer. Big increases in reserves, summer utilization
> down, summer is almost over and not many took vacations.

Jun 21 01:16 AM

[cameroni:]

Long coffee yes, agreed. Cotton no. Keep your ear to the ground on grains though the next 30 and 60 days. I see a spike if the prairie droughts continue. Reserves in the bin are already low. Seed grain draws that down further if a bad year comes in.

This is looking like a bad year shaping up. Just my opinion. We will let the stats tell the whole story later though.

Jun 21 03:18 AM

[whisperonth...:]

Summer just started.


On Jun 20 06:13 PM nmelendez wrote:

> Oil back to 40 after summer. Big increases in reserves, summer utilization
> down, summer is almost over and not many took vacations.

Jun 21 11:38 AM

[tonym:]

Incredible post.


On Jun 20 07:06 AM dcb wrote:

> Cetin, why don't you and this troll get together. Both putting their
> crap on line and changing their profile to try and fool people. You
> understand the low life types you are associating with by your behavior
> I hope.
>
> also it isn't going to fool anyone you going around giving yourself
> a thumbs up on your own posts with different names.
>
> o jewCRASHED ...:
> o Comments (37)
> o Follow
> o • Website: www.mkapital.com
> .

Jun 21 05:17 PM

[punk_ash:]

If the correction does come, we will hear from this guy taking credit. If it does not, we will not hear from this guy until he is ready to make the next prediction. Its a nice game - this prediction thing.

Jun 22 12:35 AM

[ETF Grind:]

I'm pretty sure the correction arrived last year.

Jun 22 12:50 AM

[Maxe Paul:]

Putting your credit cards online in all there glory! VERY SMART MOVE..................... www.mkapital.com/id34....


On Jun 21 05:17 PM tonym wrote:

> Incredible post.

Jun 22 09:19 AM

[Mad Hedge F...:]

Actually, it started two weeks ago. It looks like the worm has finally turned. Hedge funds that rushed headlong into piling on new risk positions as recently as last Friday are now unwinding them today just as fast. All last week the smart money was selling to the late comers, newbies, and wanabees. The Viagra is starting to wear off. It’s time to take short term trading profits on crude (USO), commodities (DJP), all stocks (SPX), emerging markets (EEM), short Treasury bonds (TBT), all currencies (FXE), and junk bonds (JNK, HYG). I love all these things long term, but suffer from a short term tolerance for paid. When the best case scenario is sideways, I’m outa there. Look for decent bounces in risk reducing positions like the dollar ($USD), short dated Treasury securities (CSJ), and defensive sectors like utilities (IDU). It has been obvious to me that all of the good, long term holds were rolling over on shrinking volumes right at 50 or 200 day moving averages, since last month (see “Sell in May and Go Away” at madhedgefundtrader.com...). All of a sudden burgers on the back yard BBQ, booking campsites at Big Sur, and visiting those long lost, but nearby relatives looks like a better choice. I’m having a “staycation” this year to save money. Instead of Italy’s Amalfi Coast, you’ll find me dining at my local cheapo Italian restaurant with the nice Roman mural painted on the wall, the red checked tablecloths, and the plastic grapes draped over the doors. Please pass the parmesan cheese!

Jun 22 09:56 AM

[conceptwizard:]

All previous lows will be retested. Even Oil.

Jun 22 02:39 PM

[Sheik Rattl...:]

Oil at $35 is an amazing deal if it does retest. I'd say below 60 is pretty low risk.

Jun 22 05:49 PM

[Dmseaman:]

Hey guys I am just a novice investor stuck in Iraq for a few more months, interested in getting into soybeans for a short term play. Any guidance on how I can get into that, looked for some ETF's couldn't find anything, should I just go with an Agro play like MON? Thanks

Jun 23 07:11 AM

[jeandit75:]

Oil as any commodity will double bottom before heading higher. Don't forget this rally was (cause its over now) based off thin air: 1) thanks to some great manipulation from the accounting authorities ending the M2M while the FED was busy manipulating all economical reports in order to help banks raise equity and clean B/S, 2) China massively re-stocking and even building super excessive stock of iron ore and copper trying to convince people that its stimulus is providing growth (while its not - look at the negative electrical consumption as the ultimate proof), 3) brokers multiplying buy recommendations on commodity, other fellow banks and REITs to try to keep up with the positive spin in the market. They don't care if they are right since they are making tons of money having you believe all that crap (as a proof GS will distribute record bonus to their employees as soon as TARP is reimbursed).Those who can't see this great manipulation are set to cry in the fall when the S&P hits 600 or below while Nat Gas at $2 and oil at $35.

Jun 23 03:01 PM

[tunaman4u2:]

Boy that correction lasted a long time eh? Oil up 3%? Pathetic... inventory report should prove very bearish me thinks.

Jun 23 04:02 PM

[MarkitWacha:]

You're right.

Sideways it is. These huge T bond auctions are reducing M2, and are sapping the liquidity out of the whole market. Everywhere I look the risk/reward is gone.

I actually wish the fed would start buying treasuries with jingodigitation again, because these auctions of treasuries are a force for another, deeper, recession. They're taking money away from commodity purchasers.


On Jun 22 09:56 AM Mad Hedge Fund Trader wrote:

> Actually, it started two weeks ago. It looks like the worm has finally
> turned. Hedge funds that rushed headlong into piling on new risk
> positions as recently as last Friday are now unwinding them today
> just as fast. All last week the smart money was selling to the late
> comers, newbies, and wanabees. The Viagra is starting to wear off.
> It’s time to take short term trading profits on crude (seekingalpha.com/symbo...),
> commodities (seekingalpha.com/symbo...), all stocks (seekingalpha.com/symbo...),
> emerging markets (seekingalpha.com/symbo...), short Treasury
> bonds (seekingalpha.com/symbo...), all currencies (seekingalpha.com/symbo...),
> and junk bonds (JNK, HYG). I love all these things long term, but
> suffer from a short term tolerance for paid. When the best case scenario
> is sideways, I’m outa there. Look for decent bounces in risk reducing
> positions like the dollar ($USD), short dated Treasury securities
> (seekingalpha.com/symbo...), and defensive sectors like
> utilities (seekingalpha.com/symbo...). It has been obvious
> to me that all of the good, long term holds were rolling over on
> shrinking volumes right at 50 or 200 day moving averages, since last
> month (see “Sell in May and Go Away” at madhedgefundtrader.com...).
> All of a sudden burgers on the back yard BBQ, booking campsites at
> Big Sur, and visiting those long lost, but nearby relatives looks
> like a better choice. I’m having a “staycation” this year to save
> money. Instead of Italy’s Amalfi Coast, you’ll find me dining at
> my local cheapo Italian restaurant with the nice Roman mural painted
> on the wall, the red checked tablecloths, and the plastic grapes
> draped over the doors. Please pass the parmesan cheese!

Jun 27 12:05 PM