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Weekly Outlook for Commodities
Commodities are trying to hold onto the gains they have had as you can see in the CRB index. The CRB is building a bull flag on the daily charts. However, we do not see immediate upside follow through any time soon. We remain biased to expecting a pullback in commodities in the near term. This is partially due to the stabilization we have seen in the Dollar as well as the fact that upside momentum in commodities is slowing considerably. (…)
Weekly outlook for Majors
General Market Comments:
This week we have little in the way of major reports. (…)
Weekly outlook for Commodities
Commodities remain the darling of the investment world. Let me briefly comment on something currently in the media. There is talk that speculators are responsible for the high price of Crude oil and other commodities. The people who make this argument clearly do not understand how markets work. Speculators are not responsible for the high prices, in fact, if anything the opposite is true. If the speculators were bared from these markets, that would mean less open interest and therefore more volatility. I don’t say this because I am one of the speculators, although I am, but as usual the media is doing a disservice to the public by perpetuating this lie. The only thing that would happen if you bared speculators from trading these markets is prices would go higher much faster. The reason oil is so high is due to a long history of energy and currency mismanagement here in the US. Don’t waste time pointing fingers, the solution lies in alternatives not in blame.
Energy:
Crude oil has been able to maintain its high prices. We have seen a sizeable expansion in the overall short position held by small traders which should drive the price even higher. Here again is a good example of how wrong the media has this story. The majority of small speculators are short crude oil meaning they are betting the price will fall not rise. So the argument that speculators are driving up prices is just pain stupid as if that were the case they would be betting against there own trades. We have exited crude and frankly have no interest in trading it at these levels. We do expect a sizable correction sometime soon but trying to short in anticipation of that has been a losing proposition so until we see definitive signs of a pullback we will stay on the sidelines. The potential for this market to continue blowing off to the upside remains high and we would not be surprised to see 130 tested this week. (…)
Weekly outlook for Majors
This week we have a number of important reports coming out. CPI, being one of the key reports coming out. We expect CPI will show more inflationary pressures building. We also have a week full of Fed. (…)
Weekly outlook for Commodities
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.
Weekly outlook for Majors
This week we have very few reports coming out so we should see a week with little to no trending action. We expect most of these markets to remain range bound throughout the week. Friday morning we have a few reports out that could give us some directional bias going into next week but again this week we are simply trading the range. We continue to see a macro change in trend for the US Dollar. This change in trend has already been going on for over 6 months and could continue for another 6 months. We are in no way trying to call an absolute bottom on the Dollar but for the near to medium term we continue to see the Dollar at best moving higher and at worst trading sideways. But the bottom line is at least a pause in the Dollar’s free fall if not an outright turn. (…)
Weekly outlook for Commodities
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. (…)
Weekly outlook for Commodities
General Comments:
Commodities have been trying to extend the rally we have seen but besides Crude Oil, most commodities are quite a bit below their highs. We are looking for a consolidation range to become the new near term norm. We are expecting a lot of two sided chop with little to no directional bias for some time.
Crude Oil:
Crude oil is in its speculative blow off phase and we could see it run all the way over 120 before beginning to fall back. We are still holding the puts we bought last week and are expecting to add to the position on the next spike to new highs. There is little if any justification for this price and in the near term we see downside momentum as more sustainable than upside.
Natural Gas:
We still see this market nearing a top and remain short. We are looking for the energy sector as a whole to stage a substantial correction this week.
S&P500:
As we mentioned last week, we were exiting our shorts and entering longs at or near 1325. We are now long from an average price of 1334 with stops working below 1355 so we have a 21 point gain locked in at this time. We do not expect the S&P to have much if any follow through ability if it breaks out above 1400 so we are looking to exit our longs at or near 1400 and then again begin to go short.
Bonds:
Bonds really broke down last week and we used that to exit the 119 puts we mentioned in past issues. We are now looking at buying some June 118 calls for 1k or less, targeting a move back to 120 by expiration.
Metals:
Gold had a sizeable break late last week but seems poised to get back to the rally this week. We are still holding our long Butterfly and expect to see Gold retest the 950 level this week. We will begin to exit this trade if possible once we trade above 975. Silver of course followed gold lower late last week and this is a dip I would buy with stops below 1630 basis May. Copper is still consolidating and for now we are flat this market and intend to remain flat until this market shows us what it wants to do next.
Grains:
Wheat continues to trend down and we are still targeting lower prices before we bounce. We are expecting Wheat to find support near 8.00 and would expect a sideways consolidation to begin once that point is tested. (…)
Weekly outlook for Majors
This week we have a full report schedule. We have both PPI and CPI coming out mid week and we are in the midst of earnings season. We expect to see more pressure on the Dollar as it continues to try and put a base in. We continue to expect the Dollar to bottom here against almost all other currencies the only real exception would be the Euro. (…)
Weekly outlook for Commodities
Commodities continue to chop around trying to hang on to these high prices. We continue to expect them to move a bit lower in the near term as they consolidate the recent gains. Overall we are very cautious at this time as we have lots of volatility and little directional bias in the short term.
Crude:
Crude oil did break out to new highs last week but since doing so it is lacked momentum to follow through in any real way. We are now buying puts on rallies and even selling short above 110 with stops above 111.89 basis June. We are targeting a move back to at least 100 in the near term and frankly a deeper correction could come if 100 does not hold support. We do not see crude being able to hold onto these prices in the near term as we lack any major catalyst that could propel us higher. (…)
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