"Reflation" is a term not used in quite some time, but if commodities continue to surge higher -- as they did this week -- expect this word to re-emerge. The 20-day MA has supported Crude for the last four sessions; in June at $107.70. We’re still expecting a trade lower, but on a settlement above $111/barrel, we would exit shorts. Natural gas will end higher on the week, but we still need to see a trade above the 200-day MA to get more long interest; our target remains$4.45/4.50 in July. The 50-day MAs remain the pivot point in the indices; in the S&P at 1310 and 12100 in the Dow. We maintain a slightly bearish bias, but we will need to see prices retreat next week or we will likely move to the sidelines with clients.
The dollar maintained the 75.00 level, which is a psychological support line that needs to hold or expect an additional 2-3% slide. Aggressive traders can scale into shorts in the euro or look to trade the yen/euro futures spread mentioned in yesterday’s comments.
Use the current set back in lean hogs and live cattle to scale into long exposure.
Gold and silver ended higher on the week at fresh record highs in gold and multi-decade highs in silver. On the week, the trading range in June gold a whopping $43 and in silver just over $3; why I bring this up is: With bad timing this can be painful, so be careful. The train has clearly left the station and we choose not to jump on at this time with clients.
Cocoa traded 1% higher again today but has yet to trade above the 100 day MA … stay tuned. Clients were advised to lighten up on their CBOT/KCBOT wheat spreads today as the spread has moved nearly 50 cents in the last two weeks. Continue to wait for lower trade in soybeans and corn to be a buyer. We opted to start gaining long exposure in July soybean meal for some clients today.
30-yr bonds and 10-yr notes broke out to new three week highs today … stay the course with bullish exposure.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.