Commodity Update: Crude Oil Finishes Higher

finished higher for the 6th week in a row with March futures ending the week above the 61.8% Fibonacci level. Some of my clients have remained in their bearish trades as they are either in bear put spreads or short futures ad have sold puts 1:1. We’ve all taken some heat but I truly believe we crack very soon. If I did not, I would be advising them to cut their losses which, to date, I have not. Do I think $100/barrel is feasible? Yes, but not, in my opinion, before we see $91/92. RBOB added 1% today lifting prices to the highest close in 3 months. I was hoping to get clients long from lower levels but if we get above the September highs I will be forced to buy at higher level than I had previously thought. Expect RBOB to follow Crude. Heating oil also did an about face mid-week, closing near the upper end of the weekly range. Prices are above the 20 day MA but futures do not look as supportive as RBOB. I cannot rule out one more leg lower before we see the appreciation I expect in the coming months. Natural gas is above the 50 day MA for the first time in 7 weeks, gaining 6 out of the last 7 sessions. I remain bullish, thinking we get a little more on this leg. Prices are higher by 15% and I think we get another 3-5%. I have advised clients with larger positions to lighten up on the way up.

Stock Indices: The S&P is trading near 5 year highs, up nearly 100 points in the last 3 weeks. We are stubbornly staying with it, thinking the day of reckoning is just around the bend. Clients are down about as much as I would want on a position so we may be forced to leave the trade or lighten up on any additional upside. A closure of the gap - which is still my opinion - represents a drop of 3.7% from today’s settlement. The Dow gained 0.25% today but closed 1% higher on the week. The 9 day MA held early in the week and the key will be penetrating that level in the coming weeks to confirm an interim top which should be very close, in my opinion.

Metals: The 50 day MA capped upside in gold yesterday and today and it would not surprise me to see prices back off. I advised traders to exit longs or at a minimum lighten up. A correction in February should be met with support at $1670 followed by $1655. Silver was higher all 5 sessions this week but like gold is running into resistance at the 50 day MA; in March, just above $32/ounce. Lighten up or exit longs and be willing to reload on longs on the ensuing correction. I would be an aggressive buyer with clients closer to $30.50/ounce. The gold vs. platinum trade was picture perfect today narrowing $13. I think platinum could get drilled in the coming weeks so I will be advising clients to fade rallies. April platinum future should trade back near $1600 in my opinion.

Softs: Since bottoming 2 weeks ago, cocoa futures have advanced 6 out of the last 8 sessions ending the week above the 9 and 20 day MA. I feel we are in the 2nd inning and prices could gain nicely from here. I’ve advised clients to work into bullish trades in May and July positions. Sugar gave up ground all 5 days this week, closing at 2 ½ year lows. Traders can wade into bullish trade at these levels as I do think there is value but prices being cheap alone will not get prices moving north so do not over commit. Cotton gained 4% this week, lifting prices to 6 month highs. I am eager to be a seller but I will need to see signs of an interim top…at this point, do not rule out filling the gap from last May putting futures over 80 cents. Today’s chart of the day was OJ and this tasty beverage should be on your radar. After a 25% drop from mid-December I think a base is in place and we could bounce from here. I prefer options a few months out to capitalize on a potential 15% appreciation. In the last 3 weeks, coffee is up nearly 10% and on the highs, within pennies of completing a 38.2% Fibonacci retracement. We traded to 2 month highs and I think we can get more. This is why I moved clients from March out until May to stay with the trade.

Treasuries: With today’s gains 30-yr bonds are back above their 9 day MA. I say we trade north and open the idea of selling from higher levels. North of 148’00 in March futures is my objective. 10-yr notes traded up on the session as well, trading above the 20 day MA finishing just under that pivot point.

Livestock: Cold storage and cattle on feed reports next week. April live cattle gave up 3.4% putting prices near 7 month lows. A 61.8% retracement was completed but I’ve yet to act on behalf of clients. I want to be in bullish trade so cattle are on my radar - expect trade ideas next week. March feeder cattle lost 3% on the week as prices approach oversold levels - $1.46 may prove to be an interim low on this contract…stay tuned. Lean hogs have settled over their 9 day MA the last 2 sessions as prices may have turned a corner. Aggressive traders could gain light bullish exposure but remember we have reports next week. Cut losses on a close under 87 cents in April futures.

Grains: Corn is up approximately 50 cents/bushel in the last 2 weeks. As long as prices remain above their 50 day MA I am friendly but I have lightened up for a number of clients as I could not rule out some back and fill before we reach higher ground. I see a trade to $8/bushel in the coming months but do we check $7 first? Soybeans are 60 cents off their lows but based on the movement in other AG products we should have advanced $1-1.25. I don’t think legumes are ready to advance…let’s wait for more evidence. The inverted market in soy meal and the growing demand for protein has this market on my buy list. The preferred vehicle is bull call spreads in July. Wheat finished near the highs of the day, gaining better than 50 cents since the USDA report. I like bullish trade thinking this has the potential to be a sleeper market in the coming weeks. My objective is an additional 30-40 cents before prices are met with much resistance.

Currencies: The dollar is above the 20 day MA but under its 50 day MA. My feeling is we catch a bid and move north - this would be confirmed with March futures above 80.30 next week. The Cable and Swissie have already started to break down, down 2.7% on both in 2 to 3 weeks. My take is the Euro is to follow and I have advised bearish exposure. Shorts could also probe the commodity currencies with the Loonie and Aussie my favored plays. Could the break in the Loonie today be a forward indicator for the coming fall in metal and energy prices in the coming weeks? The Yen is cheap and we could snap back but inexpensive options only - they should be viewed as a lottery ticket that will likely expire, worthless.

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