Energy: Crude oil closed above the 40 day MA for the first time in three weeks approaching the $106 level in the June contract. I advised all shorts to get out on this move. Seasonally should the market set an interim top ... yes ... and do the fundamentals justify prices at these levels ... no. I learned a long time ago that sometimes that does not matter and the market currently says higher, not lower. RBOB is getting hit looking like we will get a test of the 100 day MA very soon. Demand is not there and prices should roll over. My expectation is that on a settlement below the 100 day MA the sentiment will shift bearish; that level is $3.06 in June. Heating oil has been stuck in a 2 1/2 cent range but should move out of that range on tomorrow's inventory report. A trade above the 40 day or below the 18 day MA will likely set the direction. Those levels in June are $3.2285 vs. 3.1730. In just over one week natural gas has appreciated almost 19%. This is the quick pop I had mentioned in previous weeks that I wanted to be in for. Trail stops on longs and with prices now above the 40 day MA for the first time since late February don't be shocked for another 5-10%.
Stock Indices: The Dow has traded to a fresh 2012 high while the S&P and Nasdaq lag. All indices are appreciating but the S&P and Nasdaq have yet to reach their March highs. I am not comfortable at these levels and with NFP this Friday I would be in cash into the report unless carrying a healthy profit on longs. Sell in May and go away may not hold true this year but there is a compelling track record and history sometimes repeats itself so stay alert. Do not rule out an interim top in the next few sessions.
Metals: Copper likely is in the eighth inning of the current move as the market is starting to look tired. On a settlement below $3.80 in June prices should start retreating back to $3.60 ... the level prices bounced from in recent weeks. Until that happens I am mildly bullish. It will take outside markets moving lower to get copper moving south again so monitor other metals, energies, ags, etc. As long as gold remains below he 100 day MA; $1676 in June I suspect we start to see prices back off. Not a total meltdown but a trade back to the recent lows. What cannot go up will in most instances move down and that seems to be the case in silver failing to maintain $31/ounce in July.
Softs: Cocoa reversed yesterday's losses, gaining 4.5% today to stop out any recent shorts on today's five-week high trade. This was the second failed attempt ... look elsewhere. Cotton can be sold but do not have high expectations as the risk /reward is about even so this is not the best trade option. Orange juice lost over 6% today to bust previous support and drag prices to 20 month lows. Viewing the weekly chart we've completed a 50% Fibonacci retracement. A complete 61.8% would drag prices lower by an additional 10.5%. Coffee gained 2.5% today making it the third positive session in a row. The trend line comes in just above $1.90 in July and as prices approach that level bearish plays would be back on my radar.
Treasuries: 30-year bonds will close under their 20 day MA today which is a preliminary sign of an interim top though the 10-year notes traded to that pivot point and held. I would like to see both instruments below that pivot point to call an interim top. Aggressive traders can initiate NOB spreads; short 30-year bonds/long 10-year notes 1:1. It is too early to say this is the top but when Treasuries roll over I expect there to be a 1 basis point or $1,000 of profit in the NOB spread. As for risk you could get away risking about half of that premium in my opinion.
Livestock: It may take a little work for live cattle to get moving but if you look at the risk to reward dynamic in June with stops below the recent lows and a target of a 38.2% Fibonacci retracement. You are looking at 4 ½ cents of profit ($1800) and 2 ½ cents of risk ($900). Scale in lightly and let the market prove you right. Same advice in feeder cattle scale in as prices are now above the 20 day MA I expect follow through. On the May contract prices should lift back near $1.52 into next week. Lean hogs are ugly and expect lower lows. The 15% drop in recent months should be reflected in lower bacon prices so stock up because we all know bacon makes everything taste better.
Grains: Corn dropped nearly 1% but I want much more ... like a trade closer to $6 in July to consider longs again for clients. As I'm always looking at spread opportunities in the grains I think I found one that merits your attention. Buy November and sell July soybeans. July has over $1 premium to the deferred month and just over one month ago the spread was half that level. If you are concerned about risk of a trade higher in July maybe manage risk with buying calls in July. Those traders not wishing to get creative can remain long November as long as the trend line holds; it comes in at $13.50. Wheat lost almost 2% and another 3-5% I may be interested in probing longs again for clients ... stay tuned.
Currencies: I thought we would see a challenge of 78.50 in the June dollar index but we may get a bounce from just above those levels based on the current action. A settlement over 79.00 the next few days would lead me to believe a further bounce is due ... stay tuned. The commodity currencies experienced some pressure ... can they be used as a forward indicator predicting a trade lower in key commodities? Trails stops in the pound as when prices correct we could get a large candle lower as we've seen a 3% appreciation with very little give back in the last two weeks. If and when we see profit taking prices should trade back to at least the 20 day MA at 1.6020 in June. There is no reason to give back that much in my opinion.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.