Today In Commodities: Crude Fights Back

|
 |  Includes: CAFE, CANE, CORN, DBA, DIA, DTYL, FXY, GAZ, GLD, IAU, JJC, MOO, OIL, SLV, SOYB, SPY, TMF, UNG, USO, WEAT
by: Matthew Bradbard

Energy: Crude managed to fight back and regain its 100 day MA closing just above the $103 level in May. I remain bearish and would stay in that camp until we see prices penetrate $104-104.50 on a closing basis. My take is the next leg lower should get prices below $100 toward my $97.50 target. Even with crude marginally higher the distillates were hit today, RBOB and heating oil were lower by 2.5% and 1.75%, respectively. If they break last week’s lows I think some of that weakness would spill over to crude and be a drag on prices. Natural gas prices continue to meander around $2. I would not suggest probing longs until we see storage draws or a bullish technical pattern ... neither have happened.

Stock Indices: As long as prices stay below their 50 day MA in stock indices I’m constructive and looking for lower ground. In the Dow that level is 12,925 and the S&P at 1,372. Both daily and weekly charts appear to be forecasting an interim top.

Metals: The 100 day MA remains the ceiling containing any additional upside in gold futures. Aggressive traders can sell up to that level - $1,685 in June thinking the next leg will drag prices under $1,600/ounce. My take is we see $1,550 before we see $1,750. An upside breakout failed to materialize last week which has silver back near its latest lows. A breach of $31/ounce in May futures should pressure silver back under $29. Copper is approaching its 61.8% Fibonacci retracement with prices near 3 1/2 month lows. From here I expect a test of $3.50 before any substantial bounce in May.

Softs: Sugar has resumed its downward slide losing nearly 6% in the last two sessions. Do not rule out a test of where prices were one year ago, approximately 7% from current levels. As coffee is making fresh contract lows we may not get an opportunity to sell near $2 as hoped. I would not be establishing fresh futures positions but buying put options could be a viable play. An efficient way to do so could be ratio spreads, selling the nearby strike and buying multiple out of the money contracts.

Treasuries: Continue to let 10-year notes and 30-year bonds trade higher from the sidelines. There will come a time to sell but as long as the momentum remains up here and down in equities stand aside. I am expecting a challenge of the contract highs in both instruments very soon.

Livestock: If cattle prices were able to settle back and consolidate closer to their nine-day MA I may be willing to probe longs with some clients in live cattle ... stay tuned. That level in June is approximately 115.50. June lean hogs have been slammed in recent sessions dragging prices to one-year lows. With the voracity of this recent leg expect further downside. Prices may approach 80 cents, a level not seen in 2011 or 2012.

Grains: With the exception of rice which has steadily traded higher the last month ags were red today. I continue to operate under the influence an interim top is in place in ags and I see downside risk in the short run. Corn, wheat and soybeans were all lower on average 1% depending on the contract month. I advise bearish exposure in any of those thee aforementioned grains and still like the corn/soybean spread mentioned last week: Short SX12 and longs CZ12.

Currencies: The pattern in the yen remains bullish with prices advancing to six week highs today and closing above the 20 day MA for the first time in over two months. The inverse relationship to the stock market should continue but being my target was reached I advised longs to move to the sidelines last week. I do not see any clear buy or sell signals on other crosses as this sloppy trendless trade is not good for swing trades. Day traders can continue to play as long as new ranges are not established but that is not my strength.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor’s needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.