Today In Commodities: Tug Of War

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Includes: BALB, CAFE, CANE, CORN, DBA, DIA, FXA, FXC, GAZ, GLD, IAU, JJCTF, MOO, OIL, SLV, SOYB, SPY, UDN, UNG, USO, UUP, WEAT
by: Matthew Bradbard

Energy: Crude closing lower today makes it six days in a row but more so than that what I picked up today was that again selling being rejected. On average in the last three sessions prices in June futures have closed almost $1.50 off their respective lows. My suggestion would be scaling into long futures with some type of option protection. Possible ideas would be a long in a forward futures months and selling either out of the money calls or buying out of the money puts. I would abandon this trade at a loss on a settlement below $95 in June.RBOB has already carved out a bottom and started to bounce higher by 11 cents from Monday's lows. As long as $2.95 support for June I am sticking to my guns saying an interim bottom is in. If that is how this plays out expect the next advance to find its first resistance at $3.11 in June. Heating oil is trying to make a bottom as well ... on a settlement above $3.01 I would be more convinced. I've advised hedgers to take advantage of the 25 cent break to make sure they have at least one-third of their hedges in place. If this support holds I will be attempting to put my client's hedges up to the 50% level before we get back over $3.10/gallon. A trade at $2.50 in June futures completes a 50% Fibonacci retracement in natural gas. Next resistance is seen at $2.65. As long as the 40 day MA supports just below $2.30 I am friendly.

Stock Indices: Stocks finished .50% lower but well off their intra-day lows. The pattern is similar to oil as further selling has been met with buying. The difference being is I think bears win this tug of war and take stocks 2.5 - 4% lower. My target on the downside in the S&P is 1,310 and in the Dow my target is 12,450.

Metals: Gold closes below $1,6000/ounce today giving up almost 1%. Prices are down over 5% in the last two weeks but I think we challenge the December 2011 lows approximately another 4% from today's close. July silver traded below $29/ounce for the first time since early January. While we closed above that pivot point I think in the coming session we penetrate that level and head toward my target of $27.50. Copper is lower by 10 cents in the last two sessions but I do not see any support for another 10 cents so expect further selling. Though I rarely trade this instrument it is one of the best barometers of overall sentiment so a 20 cent loss in one week is bearish ... trade accordingly.

Softs: Let's see if July sugar can hold the 20 cent level the next few sessions before buying. Coincidence or not check out a weekly chart of sugar. Prices bottomed last year around this price and in mid-May only to gain 50% within four months. Past performance is not indicative of future results. Continue to trail stops in cotton but do not initiate fresh positions as prices are oversold. I remain bearish as long as July futures remain below 88 cents. Orange juice is showing signs of life managing its first positive close in eight sessions. Trail stops just above $1.25 in the July contract as to not give back too much. I am still waiting for a bounce to gain bearish exposure in coffee for clients.

Treasuries: 30-year bonds and 10-year notes are showing signs of exhaustion with both instruments closing well off their highs. If we see June 30-year bonds close under 144.00 and 10-year notes less than 132.00 I'd be more inclined to call a top. Until then it is too risky to wade into outrights. Traders wanting exposure in this complex could try a NOB spread - short 30-year bonds and long 10-year notes 1:1. I would not suggest this as the spread has blown out almost 2 basis points in the last week. This could be a big trade but I think we're still too early. Trade recommendation: Scale into shorts in late dated 2013 or 2014 euro-dollars with stops above their contract highs. Great risk to reward.

Livestock: Live cattle broke out of the flag and pennant formation I spoke about yesterday. We should see further buying lift prices to the next resistance at 118.15 in June. I am on the sidelines with clients. Feeder cattle went the other direction losing 0.50% today to close back under the 20 day MA. One would think we get further deprecation but I do not expect too much of a divergence in prices between live and feeder cattle so I would be on the sidelines here as well. Lean hogs have appreciated for the last three sessions and traded above the nine-day MA for the first time in one week. A settlement above that level - 85.00 in June - would reverse my expectation from bearish to bullish. Traders could scale into longs in June with a 89.75 target running stops just under 84.00 if we get a close above 85.00 this week.

Grains: Corn got hit for 2.5% today erasing all the previous week's gains. A trade under $6/bushel and buys are back on my radar ... stay tuned. I just want to insure that we hang just under that pivot point because if we bust support under $6 there is another 60 cents before prices meet any serious support. Wheat is at $6 so let's see what the next few sessions bring. Similar to corn I do not want to rush a buy because if prices clear $5.85 there is likely 40-50 cents more of selling. The idea would be to have long exposure at the best price possible heading into the June UDA report which is still six weeks away. Soybeans appear to be closing lower for the second week in a row which had not happened since early January. Prices are down by roughly 75 cents but I think this first leg is only half way done so expect further depreciation. A trend line that has held all of 2012 comes in at $13.95 in the July contract. Expect this to come into play this week or next.

Currencies: The dollar index traded to 80.40, a level that had previously acted as resistance. The test will be if we can clear 80.50 in the coming sessions. My inclination is if we see a leg lower in equities the dollar makes its way toward 82.00 in the June contract, if we see an orderly sell off we stay below 81.00 ... trade accordingly. The aussie and loonie continue to see weakness so long as commodities are pressured so if short trail stops. Trails tops in the Cable as well willing to add to the trade on a settlement below the 20 day MA - in June just above 1.6100.

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.