Commodity Update: Crude Holds At Resistance

February Crude oil closed just over $93/barrel yesterday, around resistance that has held the last 4 sessions. I do not see much gas left in tank. Confirmation of prices moving lower would be confirmed by a trade under the 8 day MA which is currently at $92.33. Understand, my guys that remain short futures have sold put options 1:1 against their position. RBOB gained 0.47% to close back over its 8 day MA. I still think $2.80 should cap the upside but this assumption is predicated on Crude backing off, so stay tuned. My current stance is futures trade under $2.70 this week or next. Heating oil also was a sight gainer yesterday, closing over its 8 day MA but under its resistance at $3.06. Watch Crude for guidance but I think we break down very soon. My objective is 10 cents from yesterday’s close. Natural gas probed the 8 day MA but lost ground in late dealings to close slightly lower. I like scaling into bullish trade several months out anticipating 30 plus cents from current levels.

Stock Indices: 1460 continues to cap additional upside in the March S&P futures as that has been the line in the sand the last 4 sessions. As the longer prices fail to cross that line on this leg the likelihood of it happening decreases. I remain in the camp that prices will fill the gap formed last week and start moving back towards 1385/1390. A lower high and lower low in the Dow as prices registered a 0.29% loss yesterday. 13375 appears to be the mark in the Dow that has halted further buying and I expect that to continue. A trade lower to fill the gap from last week would amount to a 1.8% decline.

Metals: Gold has traded lower the last 3 sessions but $1645, the 61.8% Fibonacci level, has acted as support, at least in the last 2 sessions. February gold remains a buy under $1650 in my opinion. It will take a close back over the 200 day MA for me to be comfortable adding to a small position started at these levels for clients. Silver kept its head above water, just barely able to hold the up sloping trend line mentioned in previous posts. Under $30, silver can be bought lightly in my opinion. I’ve advised starting a small futures position in March or purchasing bullish option strategies in May.

Softs: Cocoa gained better than 2% to close above its 9 day MA for the first time in 3 weeks. I like buying, as long as 2200 holds. I think you could see an additional 4-6% rally from current levels. Sugar closed under 19 cents for the second day running and short term could trade lower, but I would use this dip as a buying opportunity. Those in call spreads may be advised to buy back their top leg. Stay tuned. Cotton futures closed higher by 0.88% just above its 9 day MA. A trade back near 77 cents should be sold in my opinion. OJ lost 2% after one positive session to end the week last week. As long as the lows from early November hold in March futures I like probing longs at these levels. Have stops just under those lows. Coffee gained 2% yesterday and is nearly a dime off last week’s lows. This is the first settlement above $1.50 in a month. We may have a chance of fighting back from the dead for traders who have been in bullish trade for several weeks. Stay tuned.

Treasuries: After the rejection of lower trade late last week it appears we can get a bounce from here in 30-yr bonds. Those short should tighten up stops as I expect to see March futures above 147’00 this week or next. 10-yr notes too are expected to pare losses as I see trade near 132’16 in March futures. I would be open to selling futures after we get this bounce if it plays out as forecast. After a rally in 2015 and 2016 Euro-dollars, I will be looking to re-establish bearish trades. Here is an idea: What about selling at the money calls and buying at the money puts for even money. Any takers?

Livestock: Buying was rejected in live cattle last week above $1.34 and prices have closed under their 9 day MA the last 2 sessions. I think bearish traders could probe anticipating a break down in the coming weeks. A trade back to trend line that has held since November puts February futures at $1.3150. Feeder cattle have gone the other way, trading back to the recent resistance near 6 month highs. The test will be if we can see higher ground the next few days or do we see a reversal. We should see cattle markets move in the same direction so the question is, what direction? Lower low and lower high in lean hogs but the 20 day MA was able to support in February. As long as we do not see a settlement above 87 cents I prefer bearish trade targeting 83 cents.

Grains: March corn futures gained 0.77% but the next hurdle is the 9 day MA just above yesterday’s highs. Once futures can take out that level we should have some back and fill. I have been advising clients to lightly scale into bullish trade and have a small trade in ahead of this Friday's USDA, looking to add when corn turns around. A potential triple bottom in soybeans as the recent lows may prove to be an interim low. Stay tuned. Soybeans gained 1.55% yesterday, but like corn, need to settle above the 9 day MA for initial confirmation that we can gain upside momentum. On a close above $14/bushel I’d be targeting $14.30 as the next stop. Wheat was a slight gainer advancing 0.54% just above $7.50/bushel. I’ve advised some clients to buy at these devalued levels thinking we are 50 cents higher in the coming weeks.

Currencies: The dollar gave up 0.30% to close under its 50 day MA. We may have put an interim top in Friday though it is too early to say. From a risk management standpoint, traders could have bearish trades on with stops above last week’s high. The 50 day MA has supported the euro, pound and Swissie. Those short should stop out if prices get above their respective 20 day MAs. The commodity currencies appear set to trade higher but I will not take the signal for now. The yen may finally get the bounce I had anticipated weeks ago. The only viable play, I think, would be inexpensive calls as a lottery ticket.

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