Commodity Update: More Downside For Crude

gave up 0.70% yesterday to close under its 8 day MA. The next downside hurdle to overcome is the 18 day MA, currently at $87.40 in January. My stance is more downside to follow. RBOB traded lower by 1.90% to finish at its up sloping trend line mentioned in previous posts. When this gives way, which I feel is very soon, we should see prices leak lower by 3-4%. Trade accordingly. Heating oil lost 0.44%, closing near 2 week lows but holding up better than RBOB. I see the support from early November lows being challenged and will respond depending on the market reaction. I looked at buying natural gas in early dealing and missed a big trade by not acting. A bullish engulfing candle on good volumes with prices up 5% intraday closing just under that level. Buy dips. Today I will be pricing out long futures against the sale of out of the money calls 1:1. Stay tuned.

Stock Indices: It appeared stocks including Apple (AAPL) were going to get hit yesterday, but a mid-day reversal helped stocks close over their 9 day MA. I remain in bearish trade with clients thinking a trade higher will not lift S&P futures much over 1420. My target in March futures remains 1370 in the coming weeks. A bullish engulfing candle in the Dow yesterday with a near 200 point reversal. The 50 day MA should cap upside in the short run as I am still targeting lower trade.

Metals: Gold tried to retake the 100 day MA but buying was rejected as gold has closed lower 6 out of the last 8 sessions. The 100 day MA and up sloping trend line which had previously served as the floor should now serve as the ceiling. $1670 is within my sites on February futures and I do not rule out $1640 if the bears were to grab the steering wheel even short run. Silver did finish higher on the day but the fact that we closed under the 50 day MA makes me happy. This is because some of my clients are on the short end of the trade expecting further deterioration. If my analysis is correct, next stop is $32.30 followed by $31.80. Those taking the lead from me were advised to get positioned in back ratio spreads.

Softs: As a dollar appreciation starts to develop, it looks like other traders got the message meaning an inverse move in cocoa as prices have shed $100 the last 2 sessions. With prices now under the 50 day MA expect more selling to follow. Another $100 is not out of the question in my opinion. The 9 day MA supported sugar as prices got back nearly 50% of Tuesday’s losses, closing higher by 0.67%. Clients were advised to hold on to their bullish plays to see if we can get a probe of the 50 day MA and set up an exit window to book profits. Stay tuned. The 50 day MA supported the last 2 days in cotton but I view that to be temporary. Any remaining longs should be willing to reverse on a penetration of that pivot point targeting 71 in March. OJ has tread water now for the last week but I like the risk-to-reward dynamic of layering in bearish trade, targeting $1.15 in the weeks to come. I’d admit I was wrong if futures made fresh highs. Lower trade was rejected in coffee as we managed to close higher yesterday by 0.51%. I advised clients to buy back their bottom leg at a profit. This now allows us to take a loss on the other leg and still make money on the trade. My calculations are: if futures trade to their highs from last week, the overall trade should be profitable. If coffee works lower and does not appreciate, we added good money to bad and increased our exposure. Stay tuned for the final outcome.

Treasuries: The 9 and 20 day MAs continue to be a key pivot point in this complex. I’m friendly though I will not take the long trade as long as 30-yr bonds are above those pivot points. 10-yr notes printed a fresh contract high with yesterday’s gains. There should be little gas left in the tank if you think logically about how low rates already are, but this market has been irrational for quarters. We will likely grind higher but I like the view from the sidelines.

Livestock: Yesterday was the perfect example of how live cattle are correlated to the S&P. Overlay the 2 charts and see the reversal. If I am bearish securities--which I am--I say lower ground in cattle, which I do. A close above $1.3125 in February. I’d advise cutting losses. Feeder cattle gained 0.57% yesterday to close at its 9 day MA. We could see mild appreciation but I don’t trust it. Stand aside. Head fake in lean hog futures as prices were unable to retake the trend line penetrated in recent dealings. I am looking for lower trade ahead and have advised bearish plays in February to capitalize on an 83 cent trade.

Grains: Corn eked out a small gain yesterday, lifting prices back above their 9 day MA. As long as the 20 day MA supports, clients will remain in their March bullish options trades with an objective of $7.65 followed by $7.80. Soybeans picked up 1.63% and overnight have added 0.50% to lift prices above their 50 day MA for the first time since mid-September. More upside should follow and I would not rule out $15.25 in January on this leg. The $8.50 level continues to be the line in the sand in March wheat as we bounced from that level to gain for the first time in 5 sessions. If corn and beans rebound as expected, wheat should follow.

Currencies: The dollar started to dig in its heels yesterday, trading higher for the first time 6 days. I think we see a trade back near the 20 day MA which represents just better than a 1% appreciation in the coming weeks. Yesterday’s chart of the day is the euro and I think we are establishing a triple top as I’m forecasting deprecation to follow. All bets are off if the ECB surprises today. I advised some clients to gain bearish exposure yesterday via out-of-the-money puts, targeting a trade back to the 20 day MA. Traders could also probe bearish plays in the cable with an exit strategy above the latest highs. The BoE also meets today. Bearish trade in the Aussie and Loonie are high on my radar but I would like to see more confirmation. The yen gave up 0.60% but stayed contained with the recent base. I am in the camp that we see a volatile spike higher in the near future.

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