This week remains critical for the commodity complex. Commodities have seen incredible grown over the last 6 years or so and we continue to see signs that the bull is at the very least tired if not exhausted. We are using any remaining rallies to exit the few remaining longs we have and at the same time begin to position short for the near term. In no way are we calling an end to the commodities rally but simply a pause and consolidation over the near term. The key to all of this is of course the Dollar. If the Dollar is in fact stabilizing, then so too will commodities. Since the FOMC has signaled a pause we do see the Dollar holding recent lows. The Dollar could be dragged lower down the road due to continued trade imbalances but near term the FOMC news trumps the trade balance worries.
Energy:
Crude Oil began the week with a sharp rally that stopped out all but the strongest shorts. We are reading this as a stop hunting rally not a resumption of the trend. We expect to see Crude head fake above the recent highs only to fall back. We are put buyers above 119 targeting a move back to 100 or lower before the quarter is over. We are only buying puts here not outright shorts as the potential for this market to blow off all the way up to or through 125 remains high.
Nat Gas:
Natural gas continues to follow Crude. We are still short biased but remain on the sidelines from last week. We will buy puts should the old highs hold later this week. Overall we are still expecting this market to roll over and are waiting patiently for the entry signal.
S&P500:
Last week we mentioned that we did not expect the rally to follow through much if at all above 1400. We are now seeing that come to be. We are selling short above 1405 with stops above 1434 which is a bit wide but necessary at this time. Should we break below 1400 we will move the stops into 1421. Our first target is a move back to 1375 and then 1350.
Bonds:
The FOMC did signal the pause that most traders were expecting. As we mentioned last week we expect to see this market fall no further than 114 if it can get there at all. We are buyers of 116 calls on dips below 115-16. We will cover if Bonds close below 114 otherwise we expect to hold those calls until we retest at least 118.
Metals:
Gold did break down again last week and we were stopped out of both our longs and our call spread. We are now patiently waiting to buy the next support level which could very well be 850. We will look to buy below 870 with stops below 845, targeting a move back to at least 900 but frankly we see the potential to retest 950 as high. Silver is also a buy below 1650 with stops below 1600 targeting a move back up towards the 1800 level. Copper is attempting to break out to the upside but we are fading this rally selling short later this week should we spike above 400 again with stops above today’s spike high. For Copper to break out the growth picture in China would have to accelerate which we do not expect to see with the US and many other major economy’s struggling.
Grains:
Wheat is trying to hold support at the 8.00 level. We continue to see this market holding above 7.50 and are therefore buyers of dips to or below 8.00 with stops below 7.50 targeting a move back to at least 9.00. As we mentioned last week, we are not bullish so much as we are buying what we believe will prove to be the lower end of a new sideways range between 8.00-10.00. Corn remains a sell as long as we do not close above 634 basis July. We are still looking for Soybeans to retest 12.00 and have begun exiting our shorts on breaks below 12.55. We are then looking to go long at or below 12.00 with stops below 11.00 targeting a move back up to 14.00 later this summer.
Softs:
Last Tuesday we closed below 120 so we did not buy the calls we were looking at. This week we are looking at buying the July 125 calls for 5.00 or less targeting a move to 135 by expiry. Cocoa did break down last week as we expected but unfortunately we did not get our puts filled. We are sidelined for now but still expecting the market to trade back below 2400 in the near term. Coffee is still range trading and is now back to the mean of that range. We got stopped out of our longs at breakeven. We will look to again buy July at or below 130 with stops below 128 targeting a move back to 140 at best. Sugar has been trying to find a support level for some time. We see July holding at or near the 11.00 level in the near term but will remain on the sidelines as we feel there are simply better markets to trade at this time. We have rolled our long Cotton trades from May to July but remain long from 70 with stops at 66. We are looking to begin to exit this trade on a push above 75.
