Today in Commodities: Trading Independence

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

June has come and gone …to all a happy Independence day…see you in July. Crude should finish slightly higher but again today prices were unable to take out the 18 day MA; in August at $96.25. On a trade above that level our next target would be the 40 day MA at $98.80. At this juncture we’re assuming an interim bottom was established this week just above $90 in the August contract. As RBOB and heating oil trade higher we feel they could propel Crude back near $100/barrel. Wild trade in natural gas today with a 21 cent trading range… at the end of the day a bullish engulfing candle should mean higher ground. We’re thinking another 5% from here and have advised longs in September. In the last two weeks indices have gone from over sold to overbought and at this point we feel the 2% advance in the last four days is too much. We will likely be selling into this strength as we anticipate a return to 1275 in the coming weeks.

The dollar has lost ground the last four sessions and we maintain a trade back under 74.00 in the coming weeks. The commodity currencies remain the standouts and the Loonie is the pick of the litter in my opinion. On their lows August live cattle completed a 38.2% Fibonacci retracement…we expect a trade to the 20 day MA another 2% from current pricing. Lean hogs posted a 2 1/2 week low doing minor chart damage so expect more downside. Bearish engulfing candle in gold with a settlement below $1500/ounce. As long as $1485 holds in August on a settlement basis we suggest remaining in bullish plays. We hold small long overexposure with some clients in silver but we would like to see a settlement above the 9 day MA in the coming sessions to be convinced the downside is behind us. That level is just above $35/ounce in September.

Cocoa advanced to a two month high and has gained nearly 7% this week. We continue to work out of long for clients thinking we’re nearing an interim top. It appears we’re seeing triple top in the making in sugar as prices broke just over 2% today. Our clients' shorts are under water but if you stay the course we should see a significant break in the immediate future. Remember we were at 23 cents just over one month ago and that remains our target in October. Bearish is an understatement in terms of the reaction by grain traders to this morning’s USDA report with corn and wheat trading down their respective price limits. We suggest buying corn closer to $6/bushel as prices will likely be limit lower (45 cents) tomorrow. Some clients are long soybean oil and wheat and though painful today we feel will be profitable in the next two/three weeks. The numbers today were bearish corn but my interpretation was neutral to mildly friendly in the other grains and talking to farmers I think the USDA has discounted the less than ideal weather way too much. We advised clients today to offset any short exposure in 30-year bonds and 10-yr notes. If they want to keep exposure in this complex we advised moving to the short end of the curve in December 2012 contracts.

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