Commodity Update: Sugar Continues To Whipsaw

lost 1.84% Thursday and was down almost $3/barrel in the last 3 days. As we approach the November lows it will be interesting to see how the market reacts. My stance is as long as the dollar is appreciating, oil has a shot to print under $85 in January. I am eager to be a buyer for clients but do not find it necessary to catch a falling knife. After breaching the trend line Wednesday RBOB followed it up with a 1.55% loss. A challenge of the November lows which I expect is a further 2.7% loss. Heating oil closed under the $2.95 support level mentioned in previous posts. A 50% Fibonacci retracement drags January to $2.89. The pivot point in natural gas comes in at the 100 day MA just under Thursday’s settlement. I would be OK establishing bullish trade on a 5-10 cent setback willing to let go at a loss on fresh lows.

Stock Indices: Inside day in the S&P Thursday, with prices closing at their 50 day MA. I see limited upside but I would make sure short futures were hedged by options in case we get a bullish surprise in today’s jobs number. It would be a short lived rally in my eyes as I am still targeting 1370. The Dow was able to close higher by 0.30% but failed to make new highs and the 50 day MA capped upside here. Forced into the market I remain a seller of futures and have chosen to hedge for clients by selling out of the money puts.

Metals: Gold picked up 0.47% closing just under its 100 day MA. There may be disconnect though as even in the face of outside market cooperation gold was able to holds its own. I’m fairly certain I want to be long into next week’s FOMC but clients are advised to remain in bearish trades for now. In a perfect world we may get an opportunity to reverse from lower levels in the coming sessions. $1670 in February remains my objective. Silver gained 0.48% to close just below its 50 day MA. Though this leg prices have dropped nearly $2/ounce I think there could still be another $1.25-1.75 before it is said and done. My favored play remains back ratio spreads.

Softs: Cocoa should continue to trade lower but those in bearish trade should have stops just above the 100 day MA; in March at 2435. Sugar futures gave up 1.07% closing at their 9 day MA. This whipsaw action is trying my patience...on the next run up to resistance clients will likely let go of their bullish March positions. Stay tuned. Cotton appears to be strongly correlated to the S&P so trade accordingly. Ultimately I think we trade lower and would be willing to gain bullish exposure closer to 70 cents with clients. Coffee gained 1.24% closing just under its 9 day MA. I am looking for a push back near $1.56/1.57 in March which should turn me a profit for clients remaining leg. Fresh entries could scale in at these levels in my opinion.

Treasuries: The grind higher lives on in Treasuries with 30-yr bonds climbing for the third day in a row. As long as the 9 and 20 day MAs support I’m mildly friendly. They both currently reside just above 150’00 in March. 10-yr notes were also in the green but are starting to show signs of exhaustion. The next leg will be determined by tomorrow’s NFP. In both instruments bearish trade is back on my radar when prices penetrated their 9 and 20 day MAs.

Livestock: Live cattle traded back to its 61.8% Fib line but failed. As I said in previous posts I do not think a trade north of $1.31 in February is sustainable. I expect prices to work lower in the coming weeks but have no exposure with clients. Feeder cattle picked up 1.26% carrying prices to 2 week highs. The 61.8% Fibonacci retracement level in January comes in just under $1.49. Lean hogs were lower by 1.4% dragging prices to 3 week lows and now within 1.5% of my objective of 83 cents in February. I would be taking 75% of the position off on that mark given the opportunity.

Grains: Corn gave up 0.82% but held the 20 day MA. Clients' positions are in options so they can take some downside pressure but if prices break down I will be forced to manage the trade and trade around their initial position. In just over 3 weeks soybeans have gained 8% closing over their 50 day MA for the first time in 2 ½ months. This leg should carry prices to $15.25/bushel. Tugs of war in terms of wheat as prices are looking for guidance from 1 Ag moving higher and the other moving lower. $8.50 appears to be support so bullish probes just above that level with tight stops would be my suggestion.

Currencies: The dollar closed above it 50 day MA gaining 0.61% Thursday. This could be just the beginning so pay very close attention. Next stop in futures should be the 20 day MA in my opinion. Rates were left unchanged Thursday with the ECB at 0.75% and the BoE at 0.50%. However the euro did get the move forecast and those short as of Wednesday should have been able to pick up a profit or should be riding the trade lower as I write. Most traders were advised to take profits though there should be more in the trade. My philosophy was taking a profit and lighten the load into today’s jobs number. The pound and Swissie also broke Thursday and a move lower would be confirmed on a penetration of their 20 day MAs. A futures spread on my radar is long yen short euro 1:1 but remember to view this as 2 different trades… we could be right on both or wrong on both.

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