This post is password protected. To view it please enter your password below:

Password:

This post is password protected. To view it please enter your password below:

Password:

Energies For the last six weeks Crude oil has been in a $10 trading range and as of the close last week prices are just about in the middle of that range trading at $76/barrel on the front month. We suggest buying dips near $73-74 with a target of $79. For futures traders we would trail stops on longs and for option traders a possible play could be October call spreads; Friday’s close had the $80/85 at $1600.  As we’ve said in recent blogs as long as indices are trading higher we think the risk trade is on and could lift crude back near $80/barrel. The distillates should continue to take guidance from Crude as we expect to see a 15 cent appreciation on both heating oil and RBOB in the coming weeks. Natural gas closed lower for the third consecutive weak and prices are now below the $4.50 level We advised futures traders to take a loss when that level gave way. We continue to feel that purchasing 50 cent call spreads in October makes sense after the 50 cent retracement and prices being within 30 cents of what we view as significant support. With just under three months time we think it is feasible to see a 15-20% pop in prices on continued warm weather or a hurricane disturbance.

Livestock Live cattle seem to be running into some mild resistance at the 50% Fibonacci retracement level; in December at 94.50. After the near 4% appreciation in recent weeks it would be healthy for this “bull” market to take a breath. We suggest gaining bullish exposure via futures and options in December live cattle as long as prices remain above 92.00. Unless August feeder cattle can trade above 114.00 we think a correction will ensue. Aggressive traders could get short with stops just above that level but most likely our will not clients. On a pullback, the trend line at 110.00 that has supported for the last seven months should hold. Lean hogs continue to take one step forward and two steps back. We expect to see lower ground with prices potentially challenging the lows form early June, but as of this moment clients have NO exposure.

Financials
Stocks: With upside surprises in earnings this week we think the indices have a bit more upside. NO this is not a buy recommendation but rather a warning that prices could be fluffed higher allowing our clients to get short. We initially put out a sell recommendation at 1065 in the S&P but we’ve since revised our sell objective closer to 1100 on the September contract. We will first need to see a settlement above the down sloping trend line that has capped rallies for the last three months; that level is at 1073. The 50 day MA comes in at 1095 and a 100% Fibonacci retracement would lift prices to 1115’ish. Our suggestion would be to start scaling into shorts just below 1100 and we will also be purchasing September put spreads for clients. One of the newsletters that I read and am most impressed with on the financials has the S&P moving to 1125 and the Dow to 10600 by month’s end before prices roll over so do not waste all your bullets just yet.

Bonds: We do think September 30-yr bonds and 10-yr notes put in an interim top last week; bonds just above 128’00 and notes just below 123’00.  Aggressive traders could be short futures with stops above the recent highs or purchase put options as we see prices drifting to 123’00 and 120’00 respectively in the coming weeks. As we’ve said in recent posts we would like to lighten up in some of our clients’ currency plays before gaining more exposure to the financials sector being the price action is so correlated. Those not in currencies or indices are suggested to initiate NOB spreads; short 30-yr bonds and long 10-yr notes. On the agenda this week is retail sales, PPI and CPI as we see as the biggest potential market movers.

Currencies The BoE left rates unchanged at 0.50% as did the ECB at 1.0%. While there are no Central bank meetings on the docket this week some of the crosses may have reached a crossroads. The Euro has had an impressive rally gaining 6.5% in the last four weeks but prices were unable to take out the trend line mentioned last week. This line that comes in just above 1.27 and has served as stiff resistance for all of 2010, without a breach this week we would expect a trade back to at least the 20 day MA at 1.2390. The Cable did exceed our expectations on the upside but 1.5250 appears to be the ceiling and aggressive traders could gain short exposure with a target of 1.4900 followed by 1.4750. We also like the September 1.45 put for just over $500 per. The move higher in the Swissie has been relentless, though last Thursday could have signaled an interim top. On the daily chart we’ve completed a 61.8% Fibonacci retracement, prices are extremely oversold and on the MACD momentum appears to be fading. Some of clients remain short taking a little heat but have stayed in expecting .9200 in the coming weeks. All the commodity currencies were well bid last week with the Aussie gaining 4.2%, the Kiwi 3.2% and the Loonie 3.0%. We advised clients to take their profits on their bullish Loonie plays and to move to the sidelines. In my opinion the easy money has been made on longs in the commodity currencies and we do not see prices above the highs from mid-June with a retracement first…trade accordingly. The Yen is about 2 cents off its intra-week high last week and as long as indices track higher we think this is just the beginning of a trade lower. We see the Yen trading back closer to 1.10 in the coming weeks. The US dollar has lost 5.7% in the last month but that could be it for now as we’ve completed a 61.8% Fibonacci retracement. We should know early this week but if 83.75 holds in September we could see a trade back to 85.60. Additionally prices are oversold so we should get a dead cat bounce.

Grains With the quarterly USDA report and supply/demand report at our backs, the driving forces in grains should be the weather, exports and outside market influence. In both corn and soybeans the coming week’s weather will be critical in the crop development and ultimately the final yields. As we’ve said in past commentaries we are not meteorologists but we do expect something to go wrong. Whether it is too much precipitation, not enough, too hot or too cold, apart from ideal conditions, it should have a bullish impact on pricing. December corn has appreciated 15% in the last two weeks lifting prices back near four month highs. This has allowed some of our clients to make money while others still tread water being we’ve yet to lift their hedges. We are still bullish and do expect higher prices so those still holding hedges do not fret we expect to see a pullback in the coming weeks. Traders who have yet to take advantage of this move look to buy on a setback; we will look to get long closer to $3.80 with an upside target of $4.40. November soybeans closed over the 200 day MA for the first time since the beginning of May last week. Strive to buy 20-30 cent setbacks and remain long as long as $8.90 supports. Even more impressive than soybeans has been soy meal as December soy meal has appreciated 12% in the last five weeks. We suggest gaining bullish exposure here as well; support is seen at $263-268. Both KCBOT and CBOT wheat have moved over $1 in the futures market just since the 6/30 USDA report. Much of this may be due to short covering but just like corn and soy beans we believe wheat is a buy on retracements. We will say again this week that the recent lows in the grain complex may not be re-visited in 2010 and could serve as a major low.

Softs Cocoa seems to be finding its footing at 2950 but we would not rule out a probe to 2850 on a dollar rally this week. We would be willing to start scaling into longs for clients around those levels if we do get prices to back off 3-4%. Clients were able to trade out of a good percentage of their October sugar longs late last week but some still remain in as we just missed their limit orders. A doji star followed by a bearish engulfing candle is generally not a very bullish recipe in any market. On a rally back above 17 cents we would exit all remaining longs for clients at a profit or loss. The fact that December cotton could not penetrate 73.50 we expect a bounce from here. Clients that were short from higher levels were advised to move to the sidelines. We would be willing to sell again closer to 77/78 cents. OJ prices collapsed 9% last week but we would like to see additional 5-8% depreciation before we’d be willing to gain long exposure in November juice for clients. Coffee could go either way, we mentioned potential short opportunities in recent weeks but we would refrain from either direction currently. Lumber remains about 12% off its lows two weeks ago and as long as $200 holds we think a trade 10-15% higher could play out in the coming weeks.

Metals “Dr. Copper” closed back above the 50 day MA for the first time since mid-April when prices were trading near $3.50 or almost 15% higher than current levels. We expect prices to climb to $3.25-3.30 in the coming weeks and likely find a top around the same time the S&P rolls over late July early August. August gold seems to be finding some interested buyers around the $1200 level which could serve as solid support without a market catalyst to drag prices lower. We suppose prices could make an attempt at $1174 which currently serves as the 100 day MA and 50% Fibonacci retracement. We would be a buyer for clients on such a set back. The other scenario that would get clients long again would be consecutive settlements above the 50 day MA; at $1217. Resistance is eyed at $1230 followed by $1260. The 100 day MA served as a magnet in silver last week as prices did not wander far from that level; in September at $17.92. We’ve advised clients to scale into longs in September futures as long as $17.25 hold and we’ve also been purchasing December call spreads for clients. It would take a trade over the trend line at $18.30 for silver to gain some upside momentum. On that we would anticipate a trade back above $19/ounce in short order. 

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

Energies Crude oil prices dropped nearly $7/barrel last week and could challenge the lows from late May. We don’t read too much into the sideways action in the last five weeks and instead view it as a trading range. As position traders well know there has been enough movement to trade Crude from both the long and short side. As it stands now if $69/70 is challenged and holds we will be looking for long opportunities with clients. I would expect to have some ideas in September and October contracts this week…stay tuned. With Crude oil falling nearly 9%, RBOB and heating oil have also stalled dropping 8.5% and 10.5% respectively. Like crude we expect the lows made in late May to act as solid support in the distillates; these levels are just below $1.90 in the August contracts. Natural gas is trying to find its footing but to date has run into resistance at the 20 day MA; in August at $4.87. As long as $4.50 holds in that contract we favor long exposure with clients. Presently we’re advising scaling into long futures in September and October as well as purchasing October call spreads. Perhaps on warmer temperatures or potential hurricane threats we see an attempt at $6 in the coming months.

Livestock Live cattle have not been able to wander too far from the 20 day MA but we feel it is just a matter of time. We continue to advise accumulating longs in December live cattle at these prices thinking we could see 95/96 cents in the coming months. On a settlement above 93.50 in the December contracts this should be confirmed. Feeder cattle appear to have made an interim top and are expected to retrace; we see support at 111.40 followed by 110.60 and then 109.75. Continue to use rallies in October lean hogs as selling opportunities as the path of least resistance should continue down. We expect prices to depreciate another 2.50 – 3.50%. As long as the demand continues to taper off, as is normal in the summer months, we advise bearish exposure.

Financials
Stocks: Ten out of the last eleven sessions indices have declined dragging prices to fresh 2010 lows and the lowest levels since September 2009. Though we will not get long we do expect a rebound in the immediate future. We expect to see prices lift 4-6%; this would carry the S&P to 1055-1065, the Dow to 10000-10150 and the NASDAQ to 1800-1825. Selling would then resume and we will be looking to get clients short the S&P into the fall to ride the next leg lower to sub 950 level. We see no reason, with the lacking consumer confidence, unstable job market, horrific housing numbers to see anything more than a dead cat bounce. We are far from doom and gloom, but get real, look at the most recent financial numbers. Those who feel speculating on indices falling is immoral should at least consider hedging their portfolios. Do you forget how you felt in 2008 when the stock market was falling apart?

Bonds: Fear is driving prices of Treasuries higher and yields lower but take a step back and digest 2.90% for 10-yr notes and consider that investors are essentially locking in a loss. The rational perhaps is a small loss is better than a big loss elsewhere but I would rather look for more. As for trading we think both 30-yr bonds and 10-yr notes are too high but we’ve felt that way for several weeks. Examining the charts, if last week’s highs are not re-visited this week we would say an interim top is in. Aggressive traders could get short either instrument with stops above the highs. We will likely be moving clients into NOB spreads (short 30-yr bonds/ long 10-yr notes) this week. Long dated Euro-dollars in the later part of 2011 should be in your radar as they appear to be rolling over again. We would suggest scaling into shorts with tight stops and adding to the position if this proves to be an interim top.

Currencies The BoE is expected to leave rates at 0.50% as is the ECB at 1.0% this week. The Euro is back above 1.25 closing at a six week high last week. In the last three weeks talk of the Euro going to parity has been ignored by market participants as prices have appreciated nearly 6%. The test this week is how prices react to the trend line just above 1.27 that has held since December 2009. We see upside resistance at 1.2825 followed by 1.3045. We will be looking to get clients short the Pound but need to see signs of either a top here or bottom in the US dollar. We do anticipate a trade back to 1.4500 in the coming weeks but could we see 1.5500 first? The Kiwi and Aussie we feel have more downside after a bounce early this week. The easy money has already been made on shorts as prices have declined 4% and 4.7% respectively. We are catching a failing knife in the Loonie with clients suggesting them to buy September around the .9400 level. Prices have come down nearly 5% and though clients may take a little heat initially we expect prices to trade back to .9650 so we favor the risk/reward being long at these levels. If you don’t like catching falling knives what about jumping in front of freight trains? Aggressive traders that agree we could get a bounce in the indices could look for bearish plays in the Yen. We feel prices have gotten ahead of themselves and could move back closer to the 20 day MA at 1.1100. A new trade recommendation last week was a bearish play in the Swissie which we established Friday. Clients went short futures and sold a September put against their futures 1:1. Our initial objective on shorts is .9150. The dollars safe haven status is being questioned as prices have now come off just over 5% in the last three weeks. We expect more downside and feel things could really come apart if prices violate 83.75.

Grains Traders holding bearish positions into last week’s USDA report were caught with their pants down in corn and wheat as prices are 13% and 12% off their intra-week lows. December corn has finally breached the trend line that has acted as resistance for several months and we think it is a green light for higher ground. We expect to see a partial fill of the gap created on the USDA report last week and would advise using that set back as a buying opportunity. In December corn we would use a buy objective at approximately $3.65 and a sell objective of approximately $4.20. On a pullback in either KCBOT or CBOT wheat we should have some bullish trade ideas. We will also be shopping longs in November soybeans and December soy meal for clients but from lower levels…stay tuned. We are operating under the assumption that the lows we are in the process of making in the grain complex will serve as the lows for 2010 so trade accordingly.

Softs 3000-3050 should continue to act as resistance in September cocoa and though clients have no exposure our feeling is prices should chop lower. On a trade closer to 2800 we may have some bullish ideas…stay tuned. October sugar closed at a two month high last Friday and looks poised to challenge the 17 cent level; a price not seen since mid-April. As long as prices remain above 16 cents we could see higher ground. Upside resistance is seen at 17.30 followed by 18.00. Those still carrying longs in October should view a trade at those levels as an exit door. December cotton was lower all five sessions last week losing 4.4%. Clients are advised to have bearish exposure in futures and options expecting a violation of 74 cents. OJ closed at 3 ½ month highs last week and is within 4.5% off the contract highs. Those wishing to be long could purchase call options but we think there are better places to be. As we voiced last week coffee looks to be in the process of making an interim top and we would expect prices to retrace 10-20 cents in the coming weeks. Lumber prices have exploded over 15% in the last two weeks and we expect more to follow. Clients were light buyers of November calls last week as that would be our suggestion on how to position a trade back to $250. 

Metals August gold was hit hard dragging prices under the 50 day MA for the first time since late March. Without a settlement above $1218 early this week we think $1170 could be in play. Our clients have no exposure but are prepared to buy December if we see a trade at the above mentioned price. At this point we cannot rule out a trade as low as $1125 but we do not expect it and if it were to happen it likely would be a temporary spike lower and that price would not last. September silver got drilled last week as well with prices closing below the 100 day MA for the first time since 6/4. If you notice that lasted only one day so this week’s activity is critical. We have used the 8.5% correction in silver to gain bullish exposure for clients via December call spreads and also have advised them to start scaling back into September futures. At the most we could see $16.70 but we view the current prices as a buy being when silver reverses it generally happens on a dime. We expect to see $20/ounce so if we are 50-75 cents early that is viewed as acceptable. Copper continues to take one step forward and two steps back. We see resistance at the 20 day MA with support in September at $2.80 followed by $2.70. We would use trades higher as selling opportunities as we anticipate copper to see $2.50 before we see $3.25 again. 

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

Energies Crude reversed direction last week closing near $79/barrel and breaking out of the descending triangle that buoyed prices since the beginning of May. It could be on technical buying as the 20 day MA supported last week though tropical storms heading towards the gulf may also have contributed. Some of our clients got long options last week; purchasing September $76/85 1:2 call spreads. As long as $78 supports the August contract we will likely start working client’s long futures. Our upside targets currently are $80.30 and then $82.80.  Based on our projections in Crude we should see the distillates trade higher as well; we would expect RBOB to outpace heating oil though both could see 15-20 cents appreciation relatively easily. As long as $4.70 continues to support August natural gas traders can lightly start working long. Examining the chart one can see since mid-May prices have been in a 50 cent trading channel and we are currently at the lower band. We suggest September or October 50-75 cent call spreads; September $5/5.50 $1660 settlement Friday, October $5.50/6 $1310 settlement Friday.

Livestock December live cattle have quietly advanced 2.7% off their lows 2 ½ weeks ago closing near their highs for the month. We continue to favor the risk: reward scenario scaling into longs in futures and options in this contract. We feel in the weeks to come we could see prices find their way back near 95/96. Feeder cattle too are making their way to higher ground closing out last week at their highest level since mid-May. Clients have no exposure however we feel prices will continue to grind higher. Fridays’ hogs and pig report was viewed as neutral to mildly bullish. We are thinking lean hogs made an interim top last week and aggressive traders can be short with stops above the recent highs. Being demand for pork generally declines in the summer as consumption decreases lower trade is also supported by fundamentals. A 50% Fibonacci retracement off the most recent leg would drag prices in August back near 81.50.

Financials
Stocks: Indices have traded lower five out of the last six sessions losing 3.3% in the S&P and 2.6% in the Dow. This move allowed clients to exit their ES puts at a 41% net profit. Clients now have more cash ready to sell on a dead cat bounce. We opted to book a profit ahead of the G-20 not because we think the downside is done but rather that we could get a bounce into next week. In this environment we’ve learned to book profits and cut losses as market sentiment can change with no notice. We would be looking to re-institute bearish plays for clients if the S&P was to trade near 1100 and the Dow near 10325. Most of the trades in the indices we do are speculative in nature but those investors with large stock portfolios should consider some sort of hedge being we do expect indices to make their way 10% lower in the coming months. Contact us for details on how to hedge your stock portfolio. We could have a volatile week depending on the reaction from the G-20 and the fact that Q2 ends this week. Our plan is to be defensive as we expect lower pricing in the weeks and months to come.  

Bonds: Undoubtedly the trend has been higher in Treasuries for the last three months but for the last six weeks we’ve really had sloppy sideways action. Unless we get a mass exodus from securities we do not see much more upside in 30-yr bonds or 10-yr notes. That being said if we fail to trade above 126’00 in 30-yr bonds this week we may take a stab at out right shorts. Furthermore we may position clients in NOB spreads (short 30-yr bonds/ long 10-yr notes). Currently our only exposure with clients is August 122’00 bond puts; they are carrying a slight loss.  Euro-dollars are at or near contract highs and though this should be on your radar based on the Fed’s current outlook we do not feel we need to have anything more than very light exposure. We do expect this trade to be a huge trade but it may not come to fruition until 2011 or 2012.

Currencies The US dollar has lost ground for the last three weeks and is back below the 31 day EMA. We think the path of least resistance is down but would not rule out one last gasp at the 20 day MA; which in September comes in just above 87.00. Our downside objectives would be 84.75 followed by 83.75. In the last three weeks the Euro has appreciated five cents but we’ve gone from an oversold market to an overbought market on the daily chart. While Europe is far from out of the woods cleaning up their financial mess the sentiment in the Euro has shifted and we think there is more upside. The talk of the Euro going to parity is slowing and we think you could see 1.28 in the coming weeks. Last week the Pound closed at a seven week high back over 1.5000. This move has been impressive and unexpected at least by me but the bottom line is we’ve completed a 61.8% Fibonacci retracement and we expect very little appreciation from here. We should have some bearish suggestions this week. Just in the month of June the Swissie has appreciated 6.5% taking it to levels not seen in two months. The easy money has been made on longs though we think we could see continued upside. Aggressive traders could buy dips as long as prices hold .9000. The three commodity currencies; Aussie, Loonie and Kiwi will follow commodities higher or lower. We have no long or short suggestions at the moment. If we were to see prices 2-3% higher we would likely be looking for short plays for clients. The Yen has been on a tear lately, appreciating nearly 4% in the last three weeks. Longer term we expect more upside in the immediate future we expect prices to come back and test the 20 day MA; in September at 1.1000.

Grains USDA quarterly grain stocks report out Wednesday What looked like the beginning of trade higher in corn two weeks ago was largely erased last week as December corn lost 5.8% taking prices back within a dime of the 3 ½ year low. Clients are advised to use the current set back in corn to buy September call options and December futures. We are not smart enough to predict the future but any of these possible outcomes would be bullish for corn; a smaller carry over, a lower yield, increased ethanol usage, weather problems, increased exports to China, or a weakening dollar. We think several of these scenarios are likely do you? Clients have no exposure in soybeans or soy meal but would be willing to re-examine longs from lower levels; under $9 in November soybeans and closer to 250 in December soy meal. We wish not to take out right positions in wheat though prices look like they could re-test the lows from early June. We will continue to work the order in September CBOT/KCBOT wheat spread for clients at 30 cent premium to KCBOT. Our clients July oat put options went off worthless last Friday; a loss of $225/per. We feel prices can back off they just ran out of time; those willing to stay with the trade could look at September options. You should be able to buy the September $2.50 for under $400/per.

Softs September cocoa broke above the trend line we had mentioned in recent posts closing higher by 5% last week. Continue to use the Pound and dollar to help navigate you in this market. We see no reason to be long or short currently with support at 3035 and resistance between 3160-3190. Our upside objective at 16.50 in October sugar was nearly realized as prices traded within 2 ticks last Friday. Sugar closed at the highest levels we’ve seen since late April though we feel we need to see new developments to see higher ground as outside markets can only lift sugar so far in our opinion. Those still in sugar should use 15.50-16 as support with no significant resistance until 17.25-17.50. As long as December cotton stays below 80 cents we’ve suggested clients to have short futures in addition to purchasing put options. Unless we get a surprise from the USDA this week we expect prices to drift below 75 cents in the coming weeks. OJ could go either way and until we get a better feel we recommend the sidelines. Coffee has appreciated 25% in the last two weeks lifting prices to twelve year highs but even if prices move another 25% it will be without our clients. This moved happened too quickly and unfortunately the train has clearly left the station we do not want to jump on at this juncture. Last week we saw the worse housing numbers in multiple decades but that is in the past and we trade futures. Aggressive traders could scale into longs in lumber as we’re getting preliminary signs that we may have bottomed after a 45% route in the last three months. On futures we would recommend a stop below the most recent low. As for options this market is extremely illiquid so be cautious. You could buy an at the money September call for $1400/per.

Metals As most followers and clients know I utilize charts to aid in my trading decisions and rather you agree of not one must be impressed how prices in August gold have not been unable to penetrate the trend line that has held in gold since the March lows. While it is a challenge to get overly bullish a market near its all-time high I remember when Crude punched thru $100 a few years ago and how it was tough to be bullish and we all know how that story played out. I will voice to you what my manager told me at the time; “suspend your disbelief…this is a new market.” Clients have no exposure but a new record high looks like it could happen at any moment. We just do not feel comfortable having clients in both gold and silver at the same time and most of our clients have bullish exposure in silver currently. Buyers should emerge in August gold between $1235-1240 and on a trade above $1265 we could see $1300 soon thereafter. July silver ended last week virtually unchanged but what we took away from the price action was bullish. The fact that prices could not break the 20 and 50 day MA’s we like being long with clients. Some clients have worked back into September futures while others have December options exposure. We suggest buying out of the money call spreads in December. Last week some clients bought $20/25 1:4 call spreads in December silver. (They were sellers of the $20 call and bought 4 $25 calls /cost $600 plus fees). In the last three weeks September copper has bounced 13% reclaiming the $3 level and getting back within 4 cents of the 50 day MA. Prices have not been above the 50 day MA since late April when prices were trading near $3.50 on this contract. Though we expect the pace to abate we do expect higher ground; resistance is seen at $3.21 then $3.32. It would take a settlement below $2.90 to believe we are headed south again.                                                                                                                                                                  

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