Commodity Update: Crude Correcting

gave up 1.36% and appears to be responding as I predicted, and correcting. The 50 day MA held on Friday; in February at $88 but expect that to be breached next week, in my opinion. I am willing to explore bullish trade for clients closer to $86/barrel. $2.75/gallon has acted as resistance in RBOB for the last month and just like clockwork appears to be the line in the sand once gain. On a trade south we could see prices back at $2.60. Heating oil was halted at the 100 day MA Thursday and gave up 1.05% Friday. I am looking for a 6-10 cent setback into this coming week. After 3 losing weeks, natural gas was able to close in the green this week picking up 4.22%. Futures closed over their 8 day MA the last 2 sessions and in my opinion are poised to trade higher. I have some clients long April via options targeting $3.70.

Stock Indices: The S&P finished lower on the session Friday but well off its lows. Prices overnight were as low as 1391 on news that there will be no immediate resolution on the fiscal cliff. The close was just above the 9 day MA though prices were well below the 50 day MA late Thursday night. My stance is the same it has been for weeks, with no quick fix prices should respond by a move lower. Some clients are in bearish trade with an objective of 1370/1380. The Dow closed lower by 0.90% after being down 2.2% overnight. Friday’s chart of the day identifies Fibonacci levels that I would use for downside objectives.

Metals: Selling was rejected in February futures under $1645 as gold was able to bounce Friday, closing 0.72% higher and back above the trend line identified in recent posts. It is too early to say if this is just a bounce or the beginning of the next leg. I’ve said for several days, a buy under $1650/ounce is where I would suggest scaling into a position and building as the market proves you correct. If we trade north from here $1675 and maybe $1700 come into play but I’m not convinced yet. My suggestion is only nibble for now. Silver held Thursday's low but only was able to gain 1.19% Friday. Like gold, I’m advising clients to wade in lightly with the idea of milking a bounce if given the opportunity and adding if this proves to be a true bottom. Copper has traded to my objective. See previous posts. Stay in bearish trade as long as prices are under their 50 and 100 day MAs; about 3 cents above Friday’s settlement.

Softs: 5 days in a row cocoa has been in the red dragging prices to 4 ½ lows. Under 2300 the next level of support is eyed at 2250 and with an appreciating dollar we should see that level in my opinion. Sugar finished the week higher by 1.26% with March just above 19 cents. Some clients are in March and May call spreads anticipating higher ground. Looking longer term at weekly charts, this is one of the sexiest commodities for longer term trades...that’s right SEXY. I’ve expected cotton to break down, but the 9 day MA stubbornly is acting as support. March will need to penetrate 75.50 to get bearish confirmation but have bearish trades on your radar. The OJ correction forecast is underway with futures 10 cents or $1500 off their highs from mid-week. We should see another dime deprecation in my opinion. Finally some good news to those willing to pick a bottom in coffee with me. We ended the week with a big candle …a gain of 2.55% Friday, but the bigger development was a settlement over the 9 day MA. I have of late sold puts in May and still hold some out of the money calls in March for clients. Could a trade over $1.55 happen in the coming weeks?

Treasuries: 30-yr bonds have started to appreciate, closing above their 9 day MA for the first time in 2 weeks and this leg should lift prices close to 149’00 in March, especially if stocks sell off. 10-yr notes appear to have established a base just under 132’00 and could trade up. We probed the 9 day MA but closed just under that pivot point. On the way up I see March getting lifted back above 133’00. Long dated Euro-dollars should provide another selling opportunity as a rising tide lifts all boats. I am very interested in looking at 2015 and 2016 contracts if we trade up to the early December highs. You should be too.

Livestock: The 9 day MA was tested on Friday in February live cattle and I am seeing preliminary signs of an interim top. Assuming a close under $1.33 we should trade back near $1.31 in my opinion. How about a short futures and selling out of the money puts 1:1? March feeder cattle have broken their 9 day MA and have been in the red 3 out of the last 4 days. I say on a retracement here, $1.5175 comes into play. Albeit a marginal gain in lean hogs prices closed at 3 week highs and now appears poised to challenge their November highs I will be absent with clients but that's what the survey says.

Grains: Corn lost ground for the third consecutive week but will a solid handle hold…$7 bushel? I have advised clients to stay long and even to buy more so this has been a painful last few weeks but fortunately most clients are making money in other trades. I really think Ag as a whole is a buy but I hope I’m not talking my current position. Consecutive closes this coming week above $7.15 would give me the confidence to say we dodged a bullet. Soybeans ended the week on a positive note gaining 1.74% Friday. $14/bushel could prove to be support in March but I’ve yet to layer back in with clients. Stay tuned. Wheat is a buy but only with small sizes until it retakes $8/bushel in my opinion. Looking at the global fundamental picture, this could develop into a bullish market in the coming weeks. Do some homework as wheat has been a laggard for some time and it could become a leader in my opinion.

Currencies: The dollar out of nowhere appreciated 0.51% on Friday. Don’t say I did not predict a bounce (see previous posts). A close above the 20 day MA this coming week would confirm more upside. Another likely candidate for a bounce in my opinion is the yen and I am advising inexpensive call options. The euro, pound and Swiss started depreciating Friday as traders can gain bearish exposure if they're willing to add once we settle under their respective 20 day MAs. The commodity currencies which aggressive traders should already be short, broke their 20 day MA so you should add length and protect profits. My favored play is the Aussie though all should see lower ground in my opinion.

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