Today in Commodities: As Weather Cools Markets Heat Up

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Includes: AGF, CORN, GAZ, GLD, MOO, NIB, OIL, SLV, SOYB, UDN, UUP, WEET
by: Matthew Bradbard

Commodity traders should pay attention to any extremes in weather, too much or too little precipitation, too much or too little heat...any extreme. Crude is approaching three week lows down nearly 2.50% today as of this post. In the last five weeks Crude has been a buy at these levels but past performance is not indicative of future results. If July futures breach $96 on a closing basis next stop should be around $93/barrel. We advised clients to lighten up on longs and move to sidelines if profitable on Crude and/or the distillates. We will be looking for signs of an interim bottom and long entries…stay tuned. If Crude breaks down expect a 10-15 cent break in both heating oil and RBOB…trade accordingly. Bearish engulfing candle in natural gas today with prices down 2.50%. A 50% Fibonacci retracement put the July contract at $4.45; our target. Indices will finish higher today for only the second day in the last nine trading days. On the daily chart prices appear overstretched and the bearish bias seems to be at an extreme so as a gamble traders could look to buy on weakness with tight stops. Our clients have no exposure at the moment.

The dollar failed to get above the 20 day MA again today losing 0.38%. In currencies on our radar is selling rallies in the Swissie and buying dips in the Loonie. A potential triple tip may have been made in lean hogs, tighten up stops on longs and if we fail to make a new high in the next few days book profits on longs if not already stopped out. Aggressive traders are advised to re-establish bullish positioning in live cattle. Traders could be in either August or December contracts. Minor chart damage in gold today with a close below the 20 day MA for the first time in nearly three weeks. We have a short term target of $1475/1485 in August. Aggressive traders bought July $1500 puts today with only two weeks time so be quick to take a profit or cut losses. Silver lost 4.25% today closing below the trend line that has held for nearly five months. The chart is ugly and we cannot rule out a quick trade to $33/ounce. We had previously advised buying under $35/ounce but think it was bad advice…we recommend the sidelines at the moment. Cocoa remains on our buy list as we feel the recent action is a consolidation before another leg higher resumes…trade accordingly. Sugar is a sell as aggressive clients started scaling into October put options today. A retracement from overbought levels should drag prices 7-10% lower in the coming weeks. We are anticipating more weakness in grain complex in the immediate future positioning clients for a deeper trade lower in corn and soybeans and a marginal decrease in wheat. That being said aggressive traders could be short corn or short corn against a long in CBOT wheat 1:1. Treasury traders should have rolled to September contracts and be willing to cut their losses on new highs or add to their shorts on a confirmation of the much anticipated sell off. Currently some clients who are short via options are down on the trade in both 10-yr notes and 30-yr bonds.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.