Commodity Update: Crude Oil Headed Lower

March Crude oil futures finished lower by nearly 1% just off the lows at the 8 day MA. I think our patience will pay off as I expect that level to be breached and lower trade to follow in the coming sessions. I’ve suggest bearish exposure to clients thinking we get a break in the coming weeks. A 50% Fibonacci retracement on this contract puts prices very close to $90/barrel. RBOB traded lower by 1.65% finding mild support at the 100 day MA; in March at $2.7210. I see lower trade and, though Fib levels may support it, no solid support is seen for another dime in my opinion. Heating oil gave up 1.59% to close at its 50 day MA. When that level gives way just under yesterday’s lows we should trade back near $2.90 in March. Natural gas remains in the green adding 2.22% yesterday, putting prices up the last 4 sessions and 11% from last week’s lows. I see further upside thinking futures could advance another 15-25 cents in the immediate future…trade accordingly.

Stock Indices: The 9 day MA held in the Dow as lower trade was rejected yesterday to put prices up at fresh highs. I do not see prices sustainable at these levels as the Dow is up 5.25% ytd. I remain in the camp the gap is filled from the fiscal cliff putting March futures back near 13000. The S&P also reversed, closing above the 9 day MA but below the recent highs. 1470 in March futures may prove to be the line in the sand above the markets. I have an objective of 1420 and possibly 1400 in the coming weeks.

Metals: With gold closing above the 20 day MA, what was resistance has now become support with February futures bouncing off that pivot point yesterday. Prices are currently above the 50% Fib level and could be poised for a move to the next Fib level. View yesterday’s chart of the day for further analyses. I think prices trade higher from here and have advised clients to gain bullish exposure. An interesting trade that one of my clients and I discussed yesterday was to buy gold and sell platinum 1:1. It could get hairy only because of the difference in contract size - 50 ounces vs. 100 ounces - not to mention you could be wrong on both trades. The idea is platinum has been on a tear up 12 % ytd and perhaps a reversion to the mean and gold could hold its own. It's worth taking a look, in my opinion. As for silver, prices were higher by 1.35% yesterday closing at the highest level in 4 weeks, around $31.50/ounce. I’ve advised recent purchases to lighten up and book profits thinking we get a dip before another leg. My suggestions are that traders holding large positions may not want to walk away altogether but lighten up or protect profits. $32.50 remains my target but in a perfect world we get another opportunity to buy near $30.50 in March.

Softs: Cocoa is building a solid foundation and I would continue to wade into longs as long as 2200 holds in March. We’ve probed the 20 day MA the last few days and a close above that level should get more longs interested. Sugar lost 1.48% taking prices to 1 week lows. This market is frustrating - I’ve been playing the long side with clients but it reminds me of the frustration I had with coffee before prices started to take off in recent weeks. I believe sugar will have its time in the limelight so just keep size small until it cooperates. Cotton is being stubborn and following the stock market. I think both markets are due for a correction but back off until we get a distinct signal from the market. I open the opportunity to sell from higher levels but back off with open positions. As long as the lows hold bullish, OJ should be a trade you look at only because I see limited risk. I use that phrase with caution because one will need to take a loss if a fresh low is established; approximately $600 per futures. Higher trade was rejected in coffee with a slightly lower close. Buy a dip in May and July as it appears we could get a 3-5% correction.

Treasuries: 30-yr bonds were high, closing between its 20 day MA and 9 day MA. Higher trade is expected but if stocks race to a new high which is not my opinion, an inverse relationship could pressure bonds short term. 147’00-148’00 in March futures is still my objective. 10-yr notes gained for the third day running, closing above the 20 day MA for the first time in 2013. Higher trade is my call as I’m targeting 133’00. As 2015 and 2016 euro-dollars work higher, gain bearish exposure, whether it be by selling futures or I like the idea of selling calls and buying puts 1:1.

Livestock: April live cattle made a new low, trading slightly down. I’ve yet to make a move but bullish trade is on my radar as I think prices are within 2% of a turning point. Potentially I will be buying futures and selling calls 1:1 …stay tuned. March feeder cattle gave up 0.69% to erase the other day’s gains, closing at the low of the day. Far from a bullish development, but prices should be close to finding a value zone in my opinion…stay tuned. April lean hogs should rally from here as aggressive traders could be playing a bounce in April, back near 90 cents. I would be willing to cut losses on a settlement under 87. I prefer to be a seller after the rally so I’ve advised clients to sit on their hands for now.

Grains: Corn has gained for the last 7 consecutive sessions picking up 50 cents/bushel in that time. I expect there to be more gas in the tank and if we get 15-20 cents higher I will advise clients to exit recently purchased corn at a profit and corn from several weeks ago at a loss and then buy the ensuing dip…stay tuned. Soybeans may have reached an interim top, failing at the same resistance that capped upside in late 2012. On a trade lower expect a challenge of the 9 day MA, roughly 20 cents from current levels. I prefer owning soybean meal in July as opposed to soybeans. I have advised clients to buy this market that happens to be inverted, expecting higher trade in the coming weeks. A 50% Fibonacci retracement from the highs in the fall to the recent lows puts this contract 6% higher. Wheat picked up better than 2% yesterday as prices are now approaching $8/bushel. I like bullish exposure thinking we are just in the 1st or 2nd inning here.

Currencies: The dollar index is finding support at 79.50 which has held the last 3 sessions. A close back above the 20 day MA which was probed yesterday would set the tone for higher trade in my opinion. The Swiss has already started to move lower and while I think the cable could hold its own I am willing to gain bearish exposure in the euro. I advised clients to sell futures and sell out of the money puts 1:1 yesterday. My first objective is 1.3200 though I think 1.3050 is attainable if we fall apart. There is nothing new to report in the commodity currencies at the moment. The yen gained 0.65% on a bullish engulfing candle as traders could take a stab at inexpensive, out-of-the-money calls to play a violent reversal. I am not ready to call a bottom but if we get a bounce do not rule out a vicious 1 day 2-3% pop…trade accordingly.

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