Commodity Update: Crude Closes Higher

closed 1.42% higher as the 100 day MA supported yesterday, currently at $91.65 in February. Another $2 move higher would complete a 61.8% retracement and put futures back near their October highs. This is a reach, but possible in my opinion. I still like the idea of scaling into bearish trade. My favored recommendation for clients is shorting April futures while selling out of the money puts 1:1. I am anticipating a $4-5 break in the coming weeks. RBOB gained 1.21% but stalled at the recent highs with February still under $2.80. If my assessment is correct in Crude, expect RBOB to trade roughly 15 cents lower in the coming weeks. A move back to the 50 day MA is just better than a 13 cent decline. Heating oil has failed to get above its 100 day MA after several attempts in the last 2 weeks. This resistance level is at $3.06 in February. I expect to see this contract closer to $2.90/gallon in the coming weeks. Trade accordingly. The biggest mover in this complex was natural gas which closed down 3.52% but intra-day traded lower by nearly 9%. I currently have some clients long via April option spreads. This trade is down 50% and I advised clients to double down yesterday. I think within that time we can at least see a trade back north of $3.50 which should get them out at a profit.

Stock Indices: The S&P reached my objective at 1385; the Fibonacci level reached 61.8% late in 2012, but we did not stay there for long. Some clients opted to lighten up which was smart in hindsight as traders that stayed the course have moved back into a losing position with the S&P gaining 70 points or 5% in the last 2 sessions. No it is not justified and I think we are back under 1400 in the coming weeks. That being said, the wild volatility is likely to stay as the market digests the fiscal cliff dilemma. The daily charts are also text book in the Dow, as a 61.8% retracement was completed a few days ago and then we proceeded to rally 550 points or 4.3% in the last 2 days. Prices are at 2 month highs and could take a stab at their fall highs but I do not think they are sustainable. A trade back under 13000 in March futures is in the cards, in my opinion.

Metals: Gold closed up 0.78% having gained 6 out of the last 7 sessions picking up nearly $50/ounce from the lows last week. I see further appreciation ahead and have advised clients to buy dips. I am friendly as long as prices remain above their 200 day MA; currently at $1668 in February. Silver gained 2.58% to close above the 200 day MA. We’ve likely turned a corner and we should see higher ground ahead but this will not be a smooth ride. We could correct $1 before we see much higher ground so do not get too long just yet. Like gold, I will be buying dips for aggressive speculators. Those that timed fresh long entries last week should book partial profits in gold and silver in my opinion.

Softs: Lower trade was rejected Tuesday and then yesterday cocoa closed in the green for the first time in 2 weeks. I have shifted from bearish to bullish and would be willing to probe bullish trade as long as 2200 holds in March. Prices should work their way back to 2350 in the coming weeks, in my opinion. Sugar closed higher by just under 1% at 3 week highs. We have moved to overbought levels but I still think there is gas in the tank. Some clients remain in bullish May and July call spreads. Buying was rejected in cotton as prices closed under the 9 day MA for the third day running. I anticipate lower trade and see March under 74 cents in the coming weeks. OJ is down almost 20% in the last 2 weeks as the easy money has been made in my opinion. I am bearish as long as March futures are under $1.20 though I think the easy money has been made. Coffee advanced 3.89% to close above its 20 day MA for the first time in 3 weeks. Those still long calls or short puts should have an opportunity to unload their options at more favorable levels in my opinion, over the next few days.

Treasuries: 30-yr bonds gapped lower and closed down 1.21% just above 2 week lows. The momentum is bearish as I would not rule out further depreciation and a challenge of the October lows. March futures will need to remain under 147’00 for me to remain bearish. Over the course of 2 days 10-yr notes gave back the previous week of gains as prices are trading just above 132’00 in March. I would not rule out further selling, but prices need to stay under 132’16 on a closing basis for me to remain bearish. Long dated Euro-dollars (2015 & 2016) have also started to leak lower and should be on your radar.

Livestock: Live cattle have lost ground 3 out of the last 4 sessions closing at their 20 day MA yesterday. I see lower trade ahead and have targeted $1.3060 in February. A lower low and lower high in feeder cattle yesterday with a challenge of the 20 day MA. A 61.8% Fibonacci retracement puts the March contract back under $1.51. February lean hogs were able to hold their 20 day MA closing marginally higher. If the 9 day MA at 86.70 continues to act as resistance expect the leg lower to resume. I like the idea of selling futures while simultaneously selling out of the money puts 1:1 with an objective of 82 cents.

Grains: Large fund selling had grains in the red yesterday with corn off by 1.07%, soybeans lower by 1.22% and wheat hit by the largest margin down 2.92%. March corn continues to hold just under $6.90/bushel. Though I am not a huge bull I do like the idea of light bullish exposure. Those that are long March from higher levels were advised to buy May yesterday at current levels. On a bounce we may trade out of the entire position. Stay tuned. A bearish engulfing candle in soybeans dragging prices to fresh 5 week lows. I have yet to make a move here with clients thinking we could see another 20-30 cents of risk from current levels. With the near 3% drop in wheat yesterday, prices traded through last week’s support putting levels at 6 month lows. You know what they say, 'buy low and sell high.' I like starting a long trade at these deflated levels. My favored play is long futures and selling out of the money calls 1:1. I have priced out a strategy with a large client putting my core position in December and selling the nearer month call options. The idea is to get paid while we wait for wheat to turn around in the coming weeks…at least that is the theory.

Currencies: A bullish engulfing candle in the dollar with a mid day reversal putting the greenback over its 20 day MA. This is a key pivot point and needs to be monitored in the coming sessions; in March at 79.85. The European currencies are exhibiting toppy signs and can be scaled into from the short side. Stops should be placed above the recent highs in the Euro, Swissie and Pound. The Aussie and Loonie gapped higher but I would expect there to be stiff resistance from levels seen 2 weeks ago. If we fail at those levels in either cross I will explore bearish trade with clients. The yen has been a one way trade as every attempt at a rally has failed. There will be a snap back that fills the gap in March futures at 1.180, but from what level? Inexpensive call options are still an alternative but keep size small.

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