The TechnoMental Commodity Report
As of the Close of Business on June 29, 2022
- The S&P 500, DJIA, and NASDAQ posted marginal gains over the past two weeks – The VIX edged lower to the 28.18 level – Bonds recovered
- Ethereum and Bitcoin continued to fall – Palladium and rhodium recovered, but silver, platinum, and gold fell – Copper and industrial commodity prices plunged
- Gasoline cracks and coal prices moved to the upside, while oil, oil products, natural gas, and ethanol prices dropped
- Grains and oilseed futures fell, with wheat leading the way lower – Meat prices declined – All soft commodities posted losses with cotton plunging below the $1 per pound level
- Lumber recovered – The dollar index edged marginally lower since June 15
TechnoMental System Update
The TechnoMental System provides subscribers with eight separate potential trend following portfolios in all of the sectors covered in the weekly report including:
- Stocks and Bonds
- Precious metals
- Base Metals
- Grains and Meats
- Soft Commodities
Subscribers can use any of the portfolios, all of them, or select the ones they wish to use for investment and trading purposes. Automatic execution is available for all of the portfolios for subscribers. The benefit of automatic execution is that buy and sell orders are compiled and executed as soon as the signals come out.
See PDF for the results of the futures portfolio and ETF portfolio as of the close of business on June 24.
Watch for daily emails on rolls and reversals.
On Thursday, June 16th, the recovery after the FOMC hiked the Fed Funds Rate by 75 basis points did not last long as selling returned to the stock market in a continuation of whack-a-mole price action. The Russell 2000 plunged 4.70%, and the NASDAQ dropped 4.08%. The S&P 500 fell 3.25%, and the DJIA lost 2.42%. The VIX was around the 33 level, up over three points on Thursday. The September US 30-Year Treasury bond futures rose 2-10 in flight to safety action to the 134-23 level. The September dollar index futures contract fell 1.518 to settle at 103.417. Corn, soybean, and wheat futures prices rallied. July NYMEX crude oil futures moved $2.28 higher in volatile trading, settling at $117.59 per barrel. Gasoline and heating oil futures posted gains but underperformed the crude oil, pushing crack spreads lower on the session. The EIA reported that natural gas in storage across the US rose 92 bcf for the week ending on June 10. July natural gas futures rose 4.4 cents to $7.464 per MMBtu.
Gold, silver, platinum, and palladium prices rose, while copper continued to move to the downside. August live cattle edged lower, while the feeder cattle posted a more substantial loss. August lean hog futures rallied. July sugar futures moved higher, while July FCOJ declined. September coffee rallied, while cocoa for September delivery edged lower. December cotton futures moved to the upside. July lumber futures moved $5.50 higher to the $569 per 1,000 board feet level. June Bitcoin futures fell $825 to $20,800, while June Ethereum futures dropped $68 to $1,102.50 per token.
I was on vacation from June 17th- June 24th. On Monday, June 27th, the leading stock market indices were mostly lower, with the NASDAQ slipping 0.72%. The S&P 500 was down 0.30%, and the DJIA fell 0.20%. The Russell 2000 bucked the trend and gained 0.34% on Monday. The VIX was sitting at just over the 27 level. The September US 30-Year Treasury bond futures moved 1-00 lower to the 135-01 level. The September dollar index fell 0.281 to settle at 103.678. Soybean futures edged higher, while corn and wheat declined. August NYMEX crude oil rose $1.95 to $109.57, while gasoline and heating oil futures for August delivery moved lower, pushing crack spreads to the downside. August NYMEX natural gas futures moved higher after the selling that took the price to just above the $6 level, with the August contract at $6.546, up 26.5 cents on the session.
Gold edged lower, while silver, platinum, palladium, and copper futures posted marginal gains. August live and feeder cattle moved higher, while the August lean hog futures declined. December cotton continued to drop while FCOJ moved higher. Coffee, sugar, and cocoa prices declined. September lumber was unchanged at $581 per 1,000 board feet. July Bitcoin futures fell around $400 to $20,850, while July Ethereum was $25 lower at the $1,200 level.
On Tuesday, the bear market continued to grip equities. The NASDAQ led the way lower with a 2.98% loss, while the S&P 500 was not far behind, falling 2.01%. The Russell 2000 dropped 1.86%, and the DJIA moved 1.56% to the downside. The September US 30-Year Treasury bond futures were only 0-05 higher to 135-15. The September dollar index futures contract rose 0.583 to settle at 104.261.
Corn, soybean, and wheat futures moved to the upside. August NYMEX crude oil futures rallied $2.19 to $111.76 per barrel. Gasoline futures moved higher, while heating oil futures declined. Gasoline refining spreads moved to the upside, while distillate crack spreads fell. August natural gas futures edged 2.4 cents higher to settle at $6.57 per MMBtu. Gold and silver edged lower, while platinum, palladium, and copper posted marginal gains. August live and feeder cattle futures fell, while August lean hogs posted a loss. October sugar rose along with September FCOJ futures. Cocoa and cotton edged lower, and September coffee futures declined. September lumber was $2.30 lower to $581.20 per 1,000 board feet. June Bitcoin futures were over $600 lower and approaching the $20,000 level. June Ethereum futures were $38 lower to $1,156 per token.
On Wednesday, stocks were mostly lower, with only the DJIA posting a slight 0.27% gain. The Russell 2000 fell 1.11%, while the S&P 500 and NASDAQ edged 0.07% and 0.03% lower, respectively. The VIX was sitting above the 28 level. The September US 30-Year Treasury bond futures moved 1-21 higher to 136-26. The September dollar index futures contract rallied 0.588 to 104.849. Corn and CBOT wheat futures edged lower, while soybeans rallied. August NYMEX crude oil futures fell $1.98 to $109.78 per barrel. Gasoline and heating oil futures fell and underperformed petroleum prices, pushing crack spreads lower. Natural gas futures for August delivery fell 7.20 cents to $6.498 per MMBtu.
Gold and silver continued to lose ground, while platinum, palladium, and copper prices posted gains. Palladium was the big gainer, with platinum and copper moving only marginally higher. August live and feeder cattle and lean hog futures edged lower on the session. October sugar was one tick higher, September coffee moved over ten cents per pound higher, and September cocoa was lower. September FCOJ futures edged lower, while December cotton futures rallied the 4.0 cents per pound daily limit. June Bitcoin futures were $100 higher to the $20,275 level. June Ethereum futures fell $37.50 to $1,115 per token.
Stocks and Bonds
The stock market edged higher over the past two weeks with the DJIA leading the way with a 1.18% gain. The S&P 500 was up 0.76%, and the NASDAQ rose 0.71%. The VIX fell 4.21% as the S&P 500 posted a marginal gain.
The US 30-Year Treasury bond futures recovered by 2.39% but the trend remains bearish. Bear markets rarely move in a straight line.
Chinese stocks continued to outperform the US stock market over the past week, as the FXI rose 3.10%. Chinese stocks had underperformed US stocks for months. The strength in Chinese equities could be because of the administration’s potential plans to ease trade restrictions.
The stock market remains highly risky. Open interest in the S&P 500 fell by over 15%, while the metric in the long bond futures market edged lower over the past week. Stocks are far from out of the bearish woods and the bearish trend in bonds remains intact. Lower liquidity over the summer months could lead to more volatile conditions as buying and selling evaporate during market moves.
The bearish trends in stocks and bonds continue to support short positions. Hedge those equity portfolios with tools that allow for upside participation but protect the downside in the current environment.
The trend in the volatility index remains higher, with higher lows and a higher base level for the VIX. Selling rallies in stocks and bonds and buying dips in the VIX has been the optimal approach in 2022.
- Buy the VIXY on price weakness with at least a 2:1 reward-risk ratio. The base level on the VIX is between the 20-25 level, which is the buying zone for the VIXY instrument.
I rate short positions in the US 30-Year bond futures a hold at the 136-26 level. Expect volatility in bonds over the coming week and protect profits on short positions. I remain a seller on relief rallies.
The June US dollar index edged marginally lower over the past two weeks, but the index remained just below the 105 level and close to the recent two-decade high.
The euro edged higher and the pound lower with the pound underperforming the euro. The A$ declined, the C$ edged to the upside, and the Brazilian real posted a 2.2% loss since June 15.
The A$, C$, and Brazilian currencies are highly sensitive to commodity prices, which moved mostly lower over the past week. Meanwhile, the Brazilian currency had been making higher lows and higher highs since December 2021, but it declined over the past month. Open interest in currency futures moved mostly lower over the past weeks.
Cryptocurrency prices fell to lower lows, with Ethereum slightly outperforming Bitcoin. Ether tokens posted a 5.84% loss and Bitcoin fell by 7.66%. Bitcoin and Ethereum underperformed the asset class’s market cap since June 14 as it dropped 4.30%. The market cap fell below the $900 billion level. The number of new tokens coming to market continues to rise and eclipsed the 20,000 level.
The short-term trend in the dollar index is bullish, while the medium and long-term trends remain higher after making a new high at 105.565 on June 15. The long-term euro trend is lower and could be heading for parity against the US currency.
Cryptocurrencies remain in bearish trends. Bitcoin had been straddling the $30,000 level and probed below $20,000 over the past two weeks. Ethereum has so far held the $1,000 level.
- We are long the FXC ETF at $76.32 and the FXA at $69.58 levels. I rate FXC a hold at $75.81 and FXA a hold at $68.11.
- I favor long positions in the dollar index as it is an implied short position in the euro currency. I continue to favor a long position in the dollar index, which slipped from last week. Leave plenty of room to add on further price weakness.
- We are long the BITQ ETF product at an average of $7.11 per share level. IO rate BITQ a buy at $5.85 but would not add to current positions until lower levels.
- I remain long Coinbase shares (COIN) but am not adding to the long position. I rate COIN a hold at $49.75 per share.
Rhodium and platinum posted gains over the past two weeks, while palladium, silver, and gold moved lower. Rising rates and a strong dollar have been a bearish combination for gold, silver, and platinum as they are financial metals.
While I remain bullish on the sector for the long-term, the short-term gold and silver trends are bearish. However, every significant dip over the past years and decades has been a buying opportunity in the precious metals. Patience is required in the current environment. I will be adding to physical long positions at lower levels but did not buying over the past two weeks.
Trends are lower across-the-board. Platinum failed at above the $1,000 level. Gold and silver have been weak. While palladium and rhodium rallied since June 15, the price action over the past months has been bearish. There is not much to say about precious metals other than to stand on the sidelines, add to physical long positions on lower lows, and avoid excessive risk. I will be looking for spots top buy mining stocks and diversified ETF products but have not pulling the buying trigger in the current environment. I am following trends when it comes to short-term trading but buying physical in my investment positions. The short-term trading hedges my long-term physical long positions.
- We are long the SILJ ETF product that holds junior silver miners. I rate SILJ a hold at the $9.86 level.
- I recommend holding 5% to 10% of portfolios in gold.
- Keep GDX, GDXJ, SIL, and PPLT on your radar. On a significant dip, I recommend a scale-down buying approach leaving room to add on further weakness. We are flat these ETF products as of June 29.
Be careful and pick your spots in the precious metals, the short-term trends are bearish, but the longer-term path of least resistance remains bullish. There is no change from two weeks ago.
Energy prices moved mostly lower over the past two weeks, with losses in WTI and Brent crude oil, gasoline, heating oil, distillate refining spreads, ethanol, and natural gas. Meanwhile, gasoline crack spreads and coal prices moved higher. WTI oil and oil products rolled to August, while Brent will be rolling to the September futures at the end of June.
Volatility in natural gas continues to be frightening. US futures prices fell by over 12% over the past two weeks.
Meanwhile, energy continues to be in the spotlight as the war in Ukraine and Russia’s retaliation against sanctions create supply shortages.
Inventory data from the API and EIA revealed that stockpiles of crude oil fell, and oil products moved higher for the week ending on June 24. The API reported a significant rise in crude oil stocks for the week ending on June 17, and while gasoline inventories rose, distillate stockpiles declined. The EIA did not report any inventory data for the week ending on June 17 because of a voltage and systems problem. The tensions with Russia make the systems issue curious at the EIA as hacking could have caused the problem. However, the EIA has been quiet on the subject. According to the EIA, US oil production rose by 100,000 barrels to 12.1 mbpd for the week ending on June 24. Production is creeping closer to the March 2020 13.1 mbpd all-time high, but the US is filling the void for Russian production shortfalls and the lower level of energy commodities flowing to Europe because of NATO’s support for Ukraine.
The EIA will report natural gas inventory data on June 30 for the week ending on June 24. The current expectations are for a 78 bcf injection. As of June 17, natural gas in storage across the US was 12.3% under last year’s level and 13.2% below the five-year average. The number of US oil rigs operating rose by ten to 594 for the week ending on June 24 while natural gas rigs moved three higher from the previous week to the 157 level.
Oil, oil products, coal, and ethanol remain in mostly bullish medium, and long-term trends. Short-term trends turned bearish. Expect lots of two-way volatility.
Natural gas volatility remains at a frightening level, testing the nerves of even the most seasoned traders. Expect lots of price swings across the energy sector as the war in Ukraine and tensions with Russia are the primary factors driving prices.
Energy could continue to ignore the strong dollar and rising interest rates, but an elevator ride to the downside as we witnessed in natural gas could be on the horizon for the oil market. Be careful as we are in unprecedented times in the oil market. I would be a buyer of oil on any significant correction.
I expect crude oil to rise to a new all-time high over the coming months, but the rally could come from a lower level. Expect product prices to continue to make higher highs, but a correction would not be a surprise from the current loft levels. Any trades or investments in natural gas require a plan and lots of discipline. The move from $9.664 on June 8 to a low of $6.01 on June 27 is a reason the risk-reward dynamics are critical for success. Oil could experience similar price variance over the coming weeks and months.
Volatility creates opportunity, but it has wiped out many natural gas and energy market participants over the years. Be careful in energy markets, only initiate long or short positions with clear risk-reward dynamics before executing any buy or sell order. Nothing has changed since June 15 in my view of the energy sector.
- We are long the OIH ETF. I rate the oil services product a hold at $238.29 per share.
- We are long PBR, the Brazilian oil company. I rate the stock a hold at $11.83 per share.
- We are long APA Corporation. I rate the stock a hold at $36.10 per share.
As I wrote last week:
“We are long at much lower levels, so I would protect profits.”
APA fell by over 20% over the two past weeks.
I favor the leading oil companies, including CVX, BP, XOM, and the XLE ETF product. The prices have rallied significantly in 2022, and higher highs are likely on the horizon. I am holding a portfolio of these companies at current prices but have no specific price recommendations as I rate them a hold instead of a buy at current levels. I will add to long positions at lower levels.
I am using BOIL and KOLD for short-term natural gas trades on the long and short side. These products are leveraged, so they are only appropriate for short-term trades. Use price and time stops when dipping a toe into the natural gas arena on the long or short side.
CBOT wheat led the way lower over the past two weeks, while corn posted a significant loss. Soybeans also moved to the downside since June 15. December soybean crush spreads at $1.54 cents per bushel rose1.50 cents from June 15, which tells us nearby soybean meal and oil prices marginally outperformed the raw oilseed futures. August ethanol at $2.6300 per gallon wholesale declined 6.41% with corn futures. Corn is the primary ingredient in US ethanol production. The August gasoline-ethanol spread widened significantly from 96.05 cents on June 15 to the $1.0933 per gallon level, with August NYMEX gasoline at a premium to August ethanol swaps.
The KCBT-CBOT wheat spread fell 15.50 cents to a 61.25 cents premium for the KCBT hard red winter wheat over the CBOT soft red winter wheat since June 15. At 61.25 cents, the spread remains well above the long-term norm of a 20-30 cents premium for the KCBT wheat, a sign that consumers continue to hedge their future requirements because of supply concerns. The spread dropped with wheat’s price since the previous report. Aside from feeding the world, corn and beans play an increasing role in powering the world as the demand for biofuels rises. The fundamentals continue to favor the grains, but bull markets rarely move in a straight line. I view the corrections as buying opportunities.
Corn, soybean, and wheat futures corrected, and short-term price action remains mostly bearish. Wheat futures rolled to September, with corn and soybean futures rolling to the new crop months, December, and November, respectively. Open interest soybean, wheat, and corn futures fell sharply over the past two weeks during the contract rolls. Longs likely exited risk positions as prices corrected lower.
- We are long the WEAT ETF product. I rate WEAT a hold at $9.48 per share.
- We bought the CORN ETF at $28.54 per share or lower, leaving plenty of room. to add to the long position on further declines. I rate CORN a hold at $26.25 per share and will look to add another unit at lower levels.
I will be a buyer of the JJG, JJA, and the SOYB ETF products on any significant price corrections, but am flat as of June 29. The ETFs moved lower since June 15, and I will begin accumulating long positions on further weakness over the coming week and in July.
Put ADM and BG on your buying radar as I will be watching these stocks for potential long positions over the coming days and weeks.
Base Metals & Industrial Commodities
Lumber rallied as the July contract rolled to September. Cameco’s physical uranium price remained steady at the $47.75 level over the past two weeks. Iron ore and the Baltic Dry Index moved lower, and base metals prices plunged with tin, copper, and nickel leading the way lower. Higher rates, a strong dollar, and the threats of recession weighed on industrial metals and mineral prices. Copper’s price action is signaling economic contraction. LME copper stocks rose while COMEX inventories moved lower over the period. The combined inventories edged higher by 489 metric tons since June 14. Aluminum inventories continued to fall. Zinc and nickel stocks declined, while lead and tin inventories moved higher. Higher rates increase the cost of carrying inventories, which is bearish for the sector. Meanwhile, the strong US dollar only added to the selling pressure. The industrial metals are signaling danger for the worldwide economy.
Short-term trends are now decidedly lower. As I wrote on June 15:
“In the current environment, the potential for lower lows in high as the sector has become a falling knife over the past week. Rising inflation is bullish, but tight monetary policy is bearish.”
The industrial sector followed through on the downside and remains in a bearish trend as of June 15.
- We are long FCX at $11.37. At $30.29 I rate the position a hold but as have written over the past weeks, “I recommend protecting profits.”
- We are long the PICK ETF product at $23.38 per share. I rate PICK a hold at $36.69 but also recommend protecting profits.
- We bought CCJ at $22.60 level adding to long positions below the $20 level and rate the uranium producer a hold at $21.76. I would leave room to add to the position on further declines.
- We bought the DBB ETF product at the $22.38 level. DBB holds long copper, aluminum, and zinc positions. I rate DBB a hold at $20.13 and would leave room to add to the position on further declines over the coming weeks. I suggest sitting tight on DBB in the current environment.
GLNCY, BHP, and RIO posted declines over the past two weeks. I remain flat these companies as of June 29 as the short-term trend is bearish. I will begin nibbling on these stocks in July at lower levels to build long positions.
Meat prices continued to move lower since June 15. Nearby August live cattle posted the most significant decline. The feeder cattle’s losses were smaller, and lean hog futures posted the smallest decline.
The August lean hog versus live cattle ratio fell to the 1.2761:1 level on June 29 from 1.31130:1 two weeks ago as the spread fell away from the long-term norm of 1.4:1. Pork is historically more expensive than beef as consumers watch their pennies at the butcher counter.
The 2022 grilling season is now in full swing with the July 4th holiday this weekend. The demand for animal proteins in the US tends to move higher during the summer months.
The medium-term trends on the weekly charts reflect higher lows and higher highs and are steady. While meat prices edged lower over the past weeks, the weekly trends remain constructive and modestly bullish.
- We bought the COW ETF product at the $37.02 level, leaving room to add on declines. I rate COW a hold at $36.81 per share.
All soft commodities posted losses over the past two weeks. The Brazilian real fell, the dollar rallied, and higher interest rates caused selling across the overall commodities asset class. Cotton suffered a long-overdue correction and led the way lower, but the price moved up the daily limit on June 29. Cotton fell below the $1 level. FCOJ dropped, while cocoa, sugar, and coffee experienced marginal declines of under 1% over the period. Sugar futures rolled to October, and coffee, cocoa, and FCOJ to September. Cotton futures rolled to the December contract.
All soft commodities experienced substantial open interest declines because of the rolls to the new active month contracts, which cotton and FCOJ shedding over 10% of the total number of open long and short positions.
Sugar continued to consolidate in a directionless 18-20 cents range and is near the bottom end of the trading band. The medium to long-term trend remains higher above the 17.60 level.
Coffee remains in a long-term bullish trend. After probing above the $2.40 level, the price corrected below $2.30 per pound.
Cocoa fell through the bottom end of the $2400-$2800 per ton range, but the move likely reflects increased volatility around the roll period. Cotton plunged as the price of December futures was far below the July futures price because of the steep backwardation in the cotton futures market. FCOJ is a very illiquid futures market, exacerbating price volatility.
I view a continuation of selling in the soft commodity sector as a buying opportunity but leave lots of room to add on further declines as picking bottoms is dangerous given the price variance. The bearish price action continued over the past two weeks.
- We are long the CANE ETF product. At $9.30, I rate it a hold but expect higher highs in sugar, so would add on price corrections that hold the 17.60 cents level on the nearby ICE sugar futures contract.
- We are long the JO ETN product. At $61.87, I rate it a hold and would add to long positions on a scale-down basis to the $1.76 level on the nearby ICE coffee futures contract. I expect that coffee futures will eventually reach $3 per pound or higher.
- We were long the BAL ETN product and took profits on 90% of the position over the past weeks and months. I sold the balance of the long position over the past two weeks and am flat at the $65.28 level on June 29.
- We are long the NIB ETN product. I rate NIB a hold at $25.48 per share after adding another unit at $26.82 on June 9.
A Final Note
Markets require caution over the coming weeks and months. Expect some window dressing on June 30, and holiday-inspired conditions on Friday and next week. The summer season could see less liquidity and more volatility in the current environment. Approach markets with a risk-reward plan and stick to the program.
I returned from Florida with a case of COVID and am on anti-viral meds. Be careful in those airports, they are petri dishes for this virulent virus!
Happy Fourth of July!
Thank you for your continued support!
Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.