Commodity Update: $1670 In The Cards For Gold

closed lower yesterday by 0.66%, trading under the 8 day MA but ending just above that pivot point. With January under $89 I am mildly bearish looking for lower trade. From here I think prices can trade 2.5-4% lower. RBOB lost 1.35% yesterday closing just under its 50% Fibonacci level. A trend line that has supported from the summer lows comes in on the January contract at $2.65 and should be the next stop. From there I see no stiff support for another dime. Trade accordingly. Heating oil the biggest loser of the day on a % basis, off by 1.71% as prices appear on the verge of breaking below $3/gallon. Under that level, next stop should be $2.95 and, in my opinion, we likely would see a pause around that price point. Natural gas gave up 1.45% though failed to make a fresh low as the 61.8% level has supported the last 2 sessions. I still need more reason to get long but bullish probes are on my radar, so stay tuned.

Stock Indices: The S&P closed at its 9 day MA yesterday, closing in the middle of the daily range, slightly negative. I am mildly bearish thinking an interim top was made Monday. Ultimately, my target on this leg lower is 1370 in March futures. My favored play is a short futures in ESH13 while at the same time selling out of the money puts 1:1. The Dow also gave up ground yesterday, registering a loss, closing at its 9 day MA as well. My objective in Dow futures is 12700.

Metals: Gold futures lost 1.7% to close under the 100 day MA penetrating $1700 for the first time since the first week of November. I expect lower trade thinking $1670 is in the cards and I am not ruling out $1640 on a total meltdown. Prices ran up nearly 17% high to low since the past summer so a correction lower should be viewed as just that, a correction. For the bull market to be sustainable--which I believe it is--we need to see setbacks along the way. Silver closed lower yesterday by 2.82% and under the 50 day MA previously referenced. A challenge of the trend line that has held since the summer puts March futures under $32.50/ounce while the 100 day MA comes in at $31.75. My stance is lower trade but exactly where I will abandon ship with clients I’m not sure. My guess is around those levels if given the opportunity. My favored play for the trade is back ratio spreads.

Softs: Cocoa traded off the upper end of the recent range, giving back a majority of the latest gains losing almost 3% yesterday. The 50 day MA held, but on a bounce in the dollar expect that to be temporary. In my opinion, rallies can be sold. Sugar ran into resistance at the 50 day MA giving back all early gains to close near their lows. If prices do not challenge those highs very soon I will be exiting this trade for clients and going elsewhere. As its stands now, they are slightly under water. Cotton lost 1.45% to challenge its 50 day MA; that is your pivot point so have stops just under that level if still in longs. I think a correction could drag March back to 71 cents. Trade accordingly. OJ has been flat of late but I think we are setting up for a trade back to $1.15 in January. Bullish coffee trade has been exhausting in recent weeks with a number of false starts. If we see a bottom or what appears to be, I may leg out of my trades for clients and buy back the bottom leg…”manage the trade.” The monster crop out of South America I thought had already been factored in, but we shall see in the coming weeks.

Treasuries: 30-yr bonds are back above their short term MAs mentioned in previous posts. If securities work lower, we should see a grind higher that I will be on the sidelines watching. March is just over 1 point from the latest highs so on a leg lower in stocks do not rule out a trade near the July highs. 10-yr notes recouped their losses from Tuesday as well, remaining above their 9 and 20 day MA. Higher ground would mean a new contract high which is my opinion at the moment.

Livestock: I’m glad, as are my clients, that I’m currently not trading cattle because when I think it's going up it goes down and vice versa. Live cattle lost nearly 0.50% yesterday to close back under their 9 day MA. I’m bearish medium term but I would not rule out a challenge of $1.31 before prices roll over ultimately trading under $1.29. Feeder cattle should track live cattle lower, but I see limited downside as solid support exists less than 1% from yesterday’s settlement. Look elsewhere. Lean hogs closed under the up sloping trend line mentioned in previous posts and is 3% lower in the last week. My objective in February remains 83 cents so expect more selling to follow.

Grains: Corn closed lower for the fourth session in a row but in that time frame prices are only off 13 cents so client longs are not getting killed though we are carrying a loss. Remain in bullish trade as long as we find buyers near current levels. A trade above $7.65 should lead to $7.80 my initial target when I initiated the trade for clients. Soybeans bounced off their 20 day MA mentioned in previous posts. As with corn, I am mildly bullish as long as the 20 day MA holds but if that level gives way all bets are off. On appreciation moving forward I see no serious resistance in January until $15.25/bushel. March wheat challenged the $8.50 level but as one can see looking at recent months, this remains the line in the sand. I have no stance with clients but would expect wheat to look for guidance from other Ags.

Currencies: The dollar gave up another 0.30% yesterday making fresh 1 month lows, but what I take away is the lack of effect it had on a number of outside markets that generally have an inverse relationship. As I said yesterday, I think we are due for a snap-back and the dollar reversing very soon. If I am correct--which remains to be seen--we should see the pound, euro and Swissie trade lower. Those probing bearish trade should have tight stops in case I’m wrong. The BoC left rates unchanged at 1.0% while the RBA cut rates to 3.0% yesterday. As long as the 50 day MA caps upside in the Loonie, bearish trade is on my radar but regarding the Aussie, I would cut losses as what should have been a bearish development had the Aussie higher by 0.56% yesterday. I think a solid base has formed in the yen and with an inverse relationship to equities I am forecasting a bounce that I expect to lift prices in the neighborhood of 2%.

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