Commodity Update: Crude Settles Under Previous Resistance

Higher trade failed in Crude oil as an early bid was rejected yesterday, and prices settled under previous resistance. Prices need to break under their 8 day MA in the coming sessions to confirm a trade lower. That pivot point in February futures is at $92.50. RBOB bounced off it 8 day MA but again failed to close above $2.80. A trade under $2.70 is my feeling for the coming weeks. Heating oil closed higher by 0.87% just under its 100 day MA trading to 5 week highs intra-day. I see solid resistance 3-5 cents above yesterday’s settlement and if we see weakness in the rest of the complex we should see prices back off there as well. Natural gas closed lower by 1.47% but traders with more than a few weeks timeframe should be buying at these levels. I do not see prices under $3 and think we could see prices 50 cents higher in the coming months.

Stock Indices: The S&P pared losses to close only marginally lower yesterday, but I think we are in the early stages of rolling over. As my chart of the day suggested, I am expecting prices to make their way back under 1400 in March futures. My favored play remains short futures and simultaneously selling out of the money puts 1:1. The Dow also closed lower and has been in the red 3 out of the last 4 days. A close under their 9 and 20 day MAs in both indices would be confirmation we are headed south. Expect the gap from last week to be filled. A 50% Fibonacci retracement amounts to roughly a 400 point loss in the Dow and 50 points in the S&P, so trade accordingly.

Metals: Gold bounced off the 6.8% Fibonacci level for the last 3 days as solid support is in the making. Yesterday, February futures closed higher by almost 1%. The next hurdle that needs to be taken out for bulls to be in the driver's seat is the 200 day MA at $1667. A higher high and higher low in silver is a bullish formation with March closing higher by 1.27% on the day. A trade back over $31 should squeeze futures and get prices closer to $32/ounce in my opinion. I like the idea of scaling into bullish trade in both metals thinking in the coming weeks we may get a shot at their respective 100 day MAs. In February gold at $1715 and at $32.50 in March silver.

Softs: Cocoa lost better than 2%, to close just off its recent lows. The volatile action in the last few sessions signals a change in tide as I would be buying as long as 2200 holds in March. Sugar gave up 1% yesterday, closing lower by 1 penny in the last 4 sessions. Short term we could see more pressure but I think a trade under 19 cents is temporary. Inside day in cotton as rallies should be sold; Cotton should follow the S&P lower in the coming weeks. OJ is trading at 7 week lows but it appears to be on sale in my eyes as aggressive traders can try to catch this falling knife. If the November lows hold, this could be the beginning of a low risk trade. Too early to say for sure, but stay tuned. Coffee was lower by 1.50% yesterday but remains up on the week. I am in the camp that we are building a solid base to see upside in the coming weeks. I believe May positions have plenty of time, but March needs upward movement immediately. For whatever reason, if we can see greater than a 5% gain I would be willing to let go of March contracts for clients.

Treasuries: I anticipate a 1.5-2% appreciation in 30-yr bonds just around the bend. This would lift March futures close to 147’16-148’00. I do not think prices retrace to the early December highs but the closer futures get to that level the more eager I’d be to establish bearish trade. Those short should be out or have tightened stops. 10-yr notes should track bonds higher. A 50% retracement puts March just under 133’00, so trade accordingly.

Livestock: Live cattle closed under its 20 day MA yesterday, for the first time since mid December. $1.33 which had served as a floor in February should now become the ceiling. A trade down to the up sloping trend line is an additional 1% deprecation. As I alluded yesterday, it was not likely for live cattle to move lower and feeder cattle conversely move higher and then low and behold the next day feeders lose 0.70%. A breach of yesterday’s lows which also coincide with the short term MAs should signal lower trade. Higher trade was rejected as lean hogs closed virtually unchanged. My suggestion is nibbling on bearish trade and adding on a close under 85 cents. Those short futures could sell puts against their position for risk management.

Grains: Corn has closed higher the last 2 sessions and though we did not settle above the 9 day MA we did probe that pivot point. A close above that level should get bulls more interested. I think if anything we could get a bullish surprise Friday as most are looking for bearish numbers to end the week. A seasoned grain trader I spoke to yesterday told me the last 6 years we have had limit moves 5 times on this report so expect fireworks. I continue to like light bullish exposure thinking we could see 10% appreciation per bushel. Soybeans failed to follow through on Monday’s gains but aggressive traders could probe longs with tight stops. Not my favorite play in Ag in full disclosure as I prefer the fundamentals in corn and wheat. On a close above its 9 day MA I may explore bullish trade but I’ve yet to move for clients. Early gains were lost in wheat but I think this is one of the best values in the entire commodity sector. Prices are down over 20% in the last 4 months and I do not think that is justified. I’m advising clients to nibble at bullish trade ahead of the USDA and add after the report if we are correct.

Currencies: The dollar closed just above its 50 day MA though the slight gains yesterday should be given back in the coming sessions in my opinion. I’m operating under the influence an interim high has been made. The European currencies should exhibit an inverse relationship to the buck but let’s wait for confirmation on the dollar’s direction. Bearish trade is on my radar in the Loonie and Aussie but I’ve yet to move. They are starting to look tired but if the dollar gets hurt we could be a seller from higher levels so back off for now. The yen looks like it could bounce and if shorts decide to book profits it could be violent. I would only suggest buying inexpensive calls but it is not out of the question to see March trade back near $1.1800 in the coming weeks, current price $1.1475.

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