Commodities continue to try and hold these high levels but as a whole we see more and more cracks in the armor. With the exception of Crude Oil and Rice, most other major commodities are already well off of their highs. We continue to see a consolidation taking shape over the coming months and perhaps years. We do read the current action in the Crude Oil complex as a sign of a near term top.
Energy:
Last week we mentioned the possibility of blowing off to about 125 before pulling back. We have seen that play out almost to a T. We are now short from the close On Friday and looking to hold thru Tuesday of this week. We could see a much larger fall on the back of Wednesday’s inventory report but we will cross that bridge when we get to it. Over all we believe that the action we saw in Crude oil last week is nothing more than an emotional overreaction to fear. We expect crude oil to move sideways to lower over the near term. We expect a new range to begin forming between 110-125. Remember, “nothing cures high prices like high prices.” Longer term we may in fact see much higher prices, but near term we feel it is safer to be trading from the short side than the long.
Nat Gas:
Natural gas is still trying to hang on to its gains. We are also expecting this market to pullback to above 10.00 by months end. We then expect this market to also trade within a range between 10.00 – 12.00 over the coming weeks. .
S&P500:
The stock market remains range bound. We still see nothing on the horizon that would break us out of the range in either direction. We expect we will see the S&P drift back down to the 1350 level before the month is out. Bottom line is sell rallies above 1400.
Bonds:
Bonds did dip briefly below the 115 handle. We used that to buy calls that we are now already exiting for a profit. We continue to be buyers of dips in bonds so long as support above 114 continues to hold.
Metals:
Gold continues to struggle with the rising Dollar. We expect to see gold trade sideways to lower over the near term. We see gold having the ability to fall to $750 before any major long term support shows its head. Silver too should track lower in the coming weeks. Silver could fall all the say back to 14.00 before finding solid support. Copper did not follow through as we warned in past issues. We are happy to short copper anytime it trades above 400 as that price is unsustainable in the near term.
Grains:
Wheat is still trying to hold support at the 8.00 level. We continue to see this market holding above 7.50 and are therefore still buyers of dips to or below 8.00 with stops below 7.50 targeting a move back to at least 9.00. Corn remains a sell as long as we do not close above 634 basis July. We did exit our shorts on beans last week but missed our long entries so we are now waiting for a pullback to reenter longs. Bottom line here is buying dips in beans and wheat while selling rallies in Corn.
Softs:
OJ cannot seem to hold onto rallies. We are holding calls now but will exit if July closes below 110. Otherwise we will hold on targeting at least 130 by expiry. Cocoa is breaking down as we suspected it would and we are still targeting a move to 2400 before this slide finds support. We reentered Coffee long at 130 and have now moved stops up to at least breakeven giving us a risk free trade. We will begin exiting near the 140 handle but will hold onto about 25% of the trade for a possible breakout above 140. Sugar is forming a bear flag which points the way down to support near the 11.00 level. We are sill sidelined in Sugar but may become buyers once support is tested. We are still holding our long Cotton from 70 with stops at 66. We are looking to begin to exit this trade on a push above 75.
