Matt is Back

Energy: Crude oil has competed a 61.8% retracement but prices need to maintain this $90/barrel level or things could fall apart…in my opinion. I have been advising clients to scale into longs at these levels but I would only own 1/3 – ½ of the position you want to own until the market proves you right. We are catching a falling knife at this point. Not only was Crude hit by 2% but so were the distillates with RBOB trading to last week’s support just above $2.80 in July and heating oil posting a fresh 2012 low also just above $2.80. I track mostly Crude but understand all three products generally move in the same direction and the formula is generally for every $1 move in Crude futures expect 3-5 cents in the distillates. The next few days will be critical to see if the recent lows hold and the energy bulls are able to hold on. Natural gas has consolidated in recent sessions and it appears we are due for a correction which as a speculator would be my play. However until prices break the 8 day MA this interim top is yet to be determined. Just from a risk standpoint one could probe shorts with tight stops. Say 5-10 cents above recent highs.
Stock Indices: Stocks have found mild support but I view this as temporary and would remain in the bear camp until prices have consecutive close above their 9 day MA’s which have capped rallies of late. In the S&P that level is 1315 and 12500 in the Dow. We may in fact get a bounce from oversold levels but all that would suggest is to exit shorts and not to establish longs.
Metals: In the last week gold rallied $70 to only retrace almost that entre amount. The idea of buy and hold is dead. However this may sound familiar be a buyer with both hands around $1535 in June. Also be willing to cut and run on a close below $1515 because if that level is breached we are likely headed lower. I still see value at this level thinking a trade back over $600 is our destiny in June. With silver under $28 I am not a buyer until prices find a value zone. With prices dancing back and forth in a $1.50 range traders without impeccable timing can get chopped up. Wait for signs of an interim bottom. Copper broke $3.40 on its way to $3.30 in my opinion as momentum traders love this move…fade the rallies. I attended an etf conference today and one speaker on metal etfs made it worthwhile. Check out a spread chart of platinum to gold, typically platinum is at a premium to gold and it is currently at a discount. A possible pairs trade or I cannot believe I am saying it but I may be buying platinum for some of my larger more aggressive clients.
Softs: Cocoa has given up over 6% in the last three sessions reaching my downside objective today. The inverse relationship to the dollar will exist but the easy money has been made on shorts. Once sugar broke 20 I see no support unit 15 cents. That does not mean we will see 15 cents but I would not be long until an interim bottom is formed. Those that took my recent buy recommendation should have taken a loss on their futures and somewhat offset that with their options hedge. Cotton prices continue to meltdown as a trade under 70 cents is not out of the question. Prices have lost 8% this week alone. Coffee should be getting cheaper at Starbucks with a near 5% loss today dragging prices to 21 month lows. Expect more downside.
Treasuries: For a few sessions now Treasuries have failed to reach higher ground but prices have yet to break their 9 day MAs. When that happens I will say we have established an interim top. Those levels are 147’14 in 30-yr bonds and 133’18 in 10-yr notes.
Livestock: Both live and feeder cattle appear to have put in an interim top last week as prices have started to back off. June live cattle closed back under the 9 day MA for the first time in two weeks today. I expect prices to lose an additional 2-3% before finding support. A 50% Fibonacci retracement in September feeder cattle would put prices back at 157.50 that would be my target. With price back under both the 9 and 20 day MA in lean hogs I would work out of longs and look to reposition in longs from lower levels.
Grains: Grains traders have needed to be active of late in this manic market but ideally traders took advantage of the recent pop in both wheat and corn. The trade now is on the sidelines looking to buy again from lower levels. Last week corn rallied nearly 70 cents only to do an about face a retrace 50 plus cents this week. Wheat’s move up was more drastic but prices have not retraced as much on a % basis. A 50% retracement puts wheat at least 20 cents cheaper and we should get that vey soon…in my opinion. Soybeans have now breached the trend line that had held all of 2012 and prices hit my first target; a 38.2% Fibonacci retracement at $13.60…see previous posts. I’m looking for more thinking we trade to $13.20 and potentially on a long shot $12.75…stay tuned.
Currencies: The dollar index is above 82.00 for the first time in 2012 exceeding my expectations. The easy money has been made on longs but I do not expect the 82.00 level to hold as support much longer. The Cable hit my downside objective retracing 61.8% trading back down to levels not seen since March…tighten stops. All other crosses look weak but they’ve seen quite a run so trail stops and on another big down day tomorrow or Friday I would close all positions and move to the sidelines.
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.

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