Energy: Crude oil failed to get thru the 100 day MA, with prices closing marginally lower. The 100 day MA has capped upside now for the last five sessions. My target in September futures is $87, when prices roll over. That type of move should drag RBOB back near its trend line, just shy of $2.80. Consecutive closes under $3/gallon in the September should confirm an interim top. A 38.2% Fibonacci retracement in heating oil would drag prices under $2.85. Natural gas is just over 50 cents from the highs three weeks ago as prices are approaching the 100 day MA…my next target.
Stock Indices: Stocks continue to grind higher, but the alarming thing is even with prices higher, 75% of the days in the last three weeks prices have yet to make new 2012 highs. With prices treading water in the last week, unable to make any significant headway, prices may be ready to roll over. I remain bullish until indices close under the 20 day MA, but I would be shaving exposure on all remaining longs.
Metals: Inside day in gold, with prices closing back under its 100 day MA. If prices are unable to take out $1630/ounce in the next few sessions, I'd say a move back near $1570 would play out…in my opinion. Silver gave up just better than 1%, as prices for the last month have been unable to take out $28.25 on all attempts. If the trading range pattern continues, a break lower to $26.50 should play out.
Softs: Cocoa appears to have started the trade lower hinted at last week, with a loss of 2.4% to start the week. A 50% Fibonacci retracement puts September at 2260, which also coincides with the 100 day MA. Sugar has closed lower the last six sessions, thus putting prices at six week lows. There is not a reason to buy, but I do feel prices are close to finding support. I do not think prices under 20 cents are sustainable for an extended period. Cotton lost 1.8%, and is on the verge of busting the 50 day MA. If December closes below 71 cents, I would anticipate a probe of the June lows…trade accordingly. After rolling over last week, OJ prices look weak, and we could see a probe of $1, in my opinion. Coffee has lost ground the last five days, and I would not rule out further losses. It would take another 7.5% depreciation to challenge the mid-June lows.
Treasuries: 30-year bonds and 10-year notes have picked up slightly in the last three sessions, but prices have remained under their 9 day MAs to date. We could get a further appreciation, but I have advised clients to remain in bearish trade as long as the 20 day MAs cap further upside. In September 10-year notes, that level is 134'11, and in 30-year bonds, that pivot point comes in at 150'18…trade accordingly.
Livestock: Live cattle inched higher to close at 2 ½ month highs, just shy of their May highs. Prices have climbed now for the last four weeks, and although I do not think there is much left in the tank, as long as prices hold $1.24 in October, I'm friendly. In full disclosure, as I was getting mixed signals in past weeks, I have no long exposure with clients. Feeder cattle broke out of the recent trading range, adding just better than 2% today to lift prices to one month highs. Further upside should be seen, and the former resistance should now support; $141.50 in September. October lean hogs closed above the 9 day MA for the first time in two weeks with today's 2% advance. An interim low was likely established last week. A 50% Fibonacci retracement should bring the October contract back above 79 cents…trade accordingly.
Grains: Corn lost just more than 2%, but the significant development was prices closed under the 20 day MA for only the second time in the last 2 months. I had thought we were due for higher ground, but after the failed breakout to end last week, maybe finally a correction? I see no significant support until $7/bushel, which would represent a 17.5% correction from last week's highs. November soybeans gave up 2.6% to close back under their 20 day MA as well. This is a mild sign of weakness, but for me to be more confident lower ground is due, prices need to penetrate the recent lows approximately 50 cents below today's close. On further weakness, the trend line that has supported the move this entire summer comes in around $15.25 on this contract. Wheat is off nearly 6% in the last two days, closing near the bottom of the recent trading range. Support is not eyed for another 40 cents. Wheat has largely been a follower, so if we experience weakness in the Ag sector, wheat could get hit the hardest, in my opinion.
Currencies: Status quo in FX land. The only viable plays that merit your attention is the commodity currencies look heavy. Aggressive traders could scale into bearish plays in loonie, kiwi and aussie, with stops above the recent highs. Traders could also have bearish exposure in the yen, but tread lightly. If stocks sell off, the yen will likely jump higher, so have an exit strategy.
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.