There's Your Answer

I’ve never seen so many “blah” earnings reports in stocks that go higher. Seriously. Go figure. We’ll call it a stalemate day. But out of days like today, there are some things I’m seeing that I want you to know about.

Natural Gas Exporting May Fuel Energy Sector

Economically sensitive sectors like energy failed to generate investor enthusiasm in 2011. Fears of a mammoth depression in Europe as well as a slowdown in China hampered share prices of mainstays from Anadarko Petroleum (APC) to Southwestern Energy (SWN).

Oil or Gas?

Hydrocarbons have become the lifeblood of this modern era.  And with a huge economic incentive for finding and extracting them, drillers have scoured the world in search of this finite resource.  When they do find it, there is nothing more thrilling than bringing this raw form of energy to the surface.

Recognizing Correlations

The dollar and Treasuries breaking down and commodities and equities advancing…is this correlation back? The 9 day MA In August Crude has shifted to support now at $93.50 with resistance at the 18 day MA at $96.50. We remain cautiously bullish with a target in August future of $100/barrel. Crude 2% plus advance was driven by the 4.25% appreciation in RBOB and 3.25% gain in heating oil. Hedgers should have at least 40% of their fall hedges in place using the recent set back to gain ground. Natural gas closed lower for the first time in four sessions …stay the course as $4.50 should be obtained in coming weeks…in my opinion.

The indices are getting close to our objective being the 50 day MA is 1307 and the 100 day MA is 1309.50 in September S&P futures. Failure to breach those levels in the coming sessions would likely mean a trade back to 1275…trade accordingly.

The dollar index broke the MA’s mentioned in previous posts and we should see a trade back near 74.00 into next week. As we alluded to yesterday with a trade higher in commodities the commodity currencies outperformed today; the Loonie higher by 1.27%, the Aussie 1.39% and the Kiwi 1.75%. Our pick is the Loonie and strength in the metals and energy complex should help lift prices to 1.0400. Remain on the sidelines in livestock looking for a lower long entry in both lean hogs and live cattle. 

Gold and silver have likely began their next leg higher with gold advancing $11/ounce today and silver picking up an impressive 3.75%. August gold should find its way back to $1550 in the coming weeks and in September silver we should see $37/ounce.

We hit our target in cocoa today and have advised clients to start lightening up. We see little resistance for another $150 so cut your size if you have multiple positions as opposed to leaving the entire trade. October sugar failed to make a new high but our clients  bearish trades are still way under water…this should be a winning trade in July if you’re willing to stay with it…again our target is a trade back near 23 cents in October futures.

USDA report out in the AM tomorrow so expect fireworks. We will carry longs in CBOT wheat and soybean oil into the report and be willing to buy corn and soybeans on a break. The chart in wheat looks the best as long as this week’s lows hold.

Three days running 10-yr notes and 30-yr bonds might finally be breaking down. Just a touch more and we will be putting in profit orders on clients shorts. Also one could fade rallies in long dated Euro-dollars…late 2012 contracts is our suggestion.

Commodities Wrap 06.27.11

We could see investors taking some risk off in the coming sessions so don’t be afraid to move to the sidelines or have a short bias on some of your positioning. Crude will close slightly lower today but $90 remains support as August has not settled below that level the last three sessions. If RBOB and heating oil are able to trade higher the products  may lift Crude off the mat. Today RBOB gained 1% and heating oil was higher by approximately 0.40%. Far from a rally but signs of a preliminary bottom. We see a potential triple bottom in natural gas as well as $4.20 gas supported August. We’ve suggested gaining bullish exposure in September contracts to clients in recent sessions. A 50% Fibonacci retracement  should get prices back near $4.60 BTU.

Indices should end 1-2% higher with equities look poised to trade back near their 100 day MA; in the S&P at 1307 and 12160 in the Dow. The dollar made a  new high and failed losing 0.60% today. My gut tells me we’re heading south from here but wait for  confirmation.  If cash is raised and traders take risk off look for the Yen to continue south. We will likely be fading any rallies with a target of 1.2000 on the September contract. Lean hogs  gave up 3.10% today closing below the 20 day MA…expect continued weakness. Live cattle lost nearly 2% and we expect more selling here as well…trade accordingly.

Gold lost 0.33% while silver was the bigger looser down over 3%. We are buying this dip for clients with 3 plus month time frames. This is catching a falling knife but when buying premium we’ve found it is cost effective to buy on big down days. The suggestion has been October call spreads in gold and December call spreads in silver.  Cocoa picked up 1.21% as it should make a run at the 200 day MA in the coming sessions; in September at 3060. October sugar traded lower but well off the lows paring losses in late dealings. We’re still targeting 23 cents in this contract…trade accordingly. Corn and wheat lost ground today while soybeans were a marginal gainer. We suggest light long exposure  in agriculture into Thursdays USDA. Some of our clients are in CBOT wheat and soybean oil and will likely be buying corn and soybeans in the coming sessions. 30-yr bonds broke the 20 day MA but 10-yr notes are still about 1 basis point above that pivot point. On consecutive settlements  below that level perhaps an interim top is in place.

Summer Doldrums

It does not take much in the way of volume to move markets in thin trade so be careful. Wind was taken from the bulls sales in Crude this week as prices traded down to seven month lows. August Crude is finding buyers at $90/barrel but that level will need to hold or prices could see $85 in the coming weeks. Some clients are long from higher levels and I’m thinking we see $95 before $85. The distillates will need to bottom before we see any upside in Crude as well.

Strange Times For the Natural Gas ETN (GAZ)

Unlike mutual funds, ETFs are bought not from the company that creates and manages the products, but from other market participants. While that arrangement is responsible for many of the benefits of ETFs-such as intraday liquidity-it also introduces some potential pitfalls. Specifically, using market orders can be potentially hazardous as it introduces the possibility of paying more for a security than it is actually worth. Whereas mutual funds are bought and sold at NAV, ETFs change hands at whatever price clears the market.

Teucrium Launches Natural Gas ETF (NAGS)

Teucrium, the issuer behind the only pure play corn ETF on the market, has doubled the size of its ETF lineup with the introduction of the Teucrium Natural Gas Fund (NAGS). The new fund will offer investors another option for gaining exposure to natural gas futures contracts through the exchange-traded structure.

Shot/Chaser: this Morning's WSJ Article on the Oil Drilling Ban

In this Irishman's parlance, here's the shot... the WSJ article that's making the rounds today: Drilling is Stalled Even After Ban is Lifted An excerpt:

The Downside of Obama's Latest Stimulus: the Jobs it Will Kill

Ever since the President announced his latest $50 billion infrastructure proposal-- don't call it "stimulus"-- I've been meaning to write about what's worst about the plan: how he intends to "pay for it."