Commodity Update: Crude Closes Positive

Only a 0.27% gain yesterday, but a small victory with Crude oil closing positive for the first time in 7 sessions. Those looking to build a position could start nibbling on longs in my opinion. I advised some clients to scale into long futures in April and to sell out of the money calls 1:1. This is advised only if looking to build a position as we are catching a falling knife. At this point I cannot rule out a trade under the recent lows. Heating oil was higher by 1.06% as we are finding support at the 50 day MA. If $2.90 holds in January the next few sessions I’d be willing to start exploring longs with clients. Stay tuned. RBOB futures are holding firm at $2.60 but until we trade over the 8 day MA just above current levels, stand aside. Natural gas was a loser yesterday, trading 1.39% lower as we are now within 20 cents of the lows made in the fall. Longs are on my radar but I’ve yet to act with fresh entries. Some of my hesitancy is how ugly the longer term charts are. A 50% correction on the move we have seen in 2012 puts front month prices back under $3 so let’s be patient.

Stock Indices: The S&P gained 0.79% yesterday, penetrating the down sloping trend line mentioned in previous posts. Is this a false breakout or will I need to cut losses on client’s open bearish trades? Stay tuned. Prices did fail at almost these exact same levels 5 weeks ago though we all know past performance is not indicative of futures results. Movement from here should be determined by the FOMC later today. The Dow closed higher by 0.69%, lifting prices to 7 week highs. Are we overbought? YES, and my stance is we trade south. This to me will be a case of buy-the-rumor, sell-the- fact. My timing on bearish trade to date has been horrendous, but those willing to take a little heat in my opinion will be handsomely rewarded in the weeks to come.

Metals: Gold futures were a small loser yesterday but prices did hold the 100 day MA; in February at $1707. From my standpoint, $1720 is resistance while support is eyed at $1700. I still think $1670 is an achievable objective but I may change my mind at 2:16 today…stay tuned. Silver closed in the red just better than 1% at its 50 day MA, giving back the previous 2 day gains. On a leg lower my target under the most recent low is $32.25 and if shorts are lucky, we could see a trade to the 100 day MA; currently at $32/ounce. Some of my clients remain in their bearish back ratio spreads into today’s meeting. We will see this afternoon if that was the proper call.

Softs: 5 out of the last 6 sessions cocoa prices have traded down though it appears we are starting to find a value zone as prices are nearing oversold levels. Trail stops if still in bearish trade. The same levels that supported in sugar in early November held yesterday with sugar paring losses, closing higher by 0.64% after the latest route. Some clients remain in their March bull call spreads that are down approximately 50%. I may leg out or buy futures for those clients once it looks like we can bounce. Stay tuned. Cotton gained 2.04% lifting prices to 7 week highs, just under 75 cents. I am still waiting for lower trade and would not be willing to be a buyer until we get a reduction in pricing. OJ broke out to the upside on yesterday’s USDA report as all bearish trades should have taken a loss on the 3.63% appreciation. Coffee has a lot of work to do and yesterday was a small consolation, but the 1.70% gain was delightful as I figured after Monday’s action we were headed for new contract lows. Traders that have their top leg should be targeting a 5% move north to salvage this trade. I still think we could see that level in the coming weeks. My suggestion is put gtc orders out if we see a close over the 20 day MA, currently at $1.5170 in March.

Treasuries: 30-yr bonds lost nearly 0.50% and now the 9 and 20 day MAs which had previously served as support should be resistance. Aggressive traders could have light bearish exposure though I’d prefer to wait for the Fed and if the RISK OFF trade plays out, March is back near 151’00 in my opinion, so be careful. 10-yr notes also closed lower finishing under its MAs as well. A lower risk trade if stops are placed just above the recent highs. Traders could probe bearish plays though as I said on bonds I’ll wait till after the meeting. Remember, stops can be violated on the market gaping higher or lower, so leave some wiggle room.

Livestock: Live cattle got back 2 weeks of losses yesterday, higher by 1.29%. Prices have quickly traded back to previous resistance that has capped rallies the last 4 months. I do not see prices continuing their ascent though I did not see this to factor that in. Clients have no exposure currently. Even more impressive was the gain in feeder cattle, higher by 1.54% in January lifting prices to 5 month highs. Prices are overbought and I do not see this continuing. Exit all remaining bearish trades in lean hogs. It appears we could rebound from current levels. I am not interested in being long. Just exit shorts is my call.

Grains: A neutral report on corn, and the market reacted accordingly with a slight mess. We should find buying around current levels all things considered. I will be shopping fresh bullish entries and also managing my client’s current bullish option trades in March. In the coming week I think prices can at least get back to their November highs. Soybeans too held their own on a neutral report as prices wander between their 9 and 50 day MAs. I’d be willing to buy a dip as long as the 20 day MA supports; in January at $14.40 and I’m friendly. A bearish report on wheat as prices closed lower by 3.21%, near 5 month lows. If $8/bushel gives way, do not rule out $7.50. Do not buy, and those that tested the waters into the report should have taken losses.

Currencies: With the last 2 days of losses, the US dollar is back under its 50 day MA. This is a bearish development but let’s see if we get confirmation with lower trade off the FOMC meeting today. If the dollar continues south which is not my call, aggressive traders could buy the euro and Swissie with stops under their respective 20 day MAs. Bearish trade in the commodity crosses is on my radar but I will not pick a top as I am waiting for signs of an interim top. Stay tuned. Yesterday’s chart of the day is the yen. I believe a base is forming for a move higher.. Read report for specifics.

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