Further Weakness

Stocks and commodities are expected to see more downside with Treasuries and the dollar seeing the inverse…in my opinion. Inside day in Crude oil with prices closing lower by 1.3%. Considering outside markets I expected more downside. The test will be if we can break $98 in January on a closing basis in the coming sessions. We are still targeting a trade closer to $90 and would continue to use rallies as selling opportunities. Natural gas was lower by 2% today trading near $3.25 yet to find a bottom. Even though clients have light long exposure it is a slow death. If we do not see stabilize soon we will use rallies as exit doors. January will need to convincingly re-take $3.50 before expiration for me to believe an interim bottom is in. Equities are lower by 1.5-2% starting the week on a bearish note. A settlement below the 20 day MA which is just under today’s lows should confirm a move lower. I cannot imagine anything too bullish out of the Fed this week. Additionally with the flow of money likely headed into Treasuries on the numerous auctions we think the path of least resistance should be lower…trade accordingly.
Hello correction in the metals with gold down $50/ounce and silver just under $1/ounce. These moves represent roughly a 2.8-3% depreciation. Gold is at a two month low and with the chart damage done today do not rule out an additional $50-75 reduction. Silver traded under $31/ounce but managed to pare losses. On a breach of $30.75 we see $29 coming in play…trade accordingly. The dollar index bounced off the 20 day MA accelerating to a two week high today pressuring other crosses. We expect further downside on all crosses thinking the commodity currencies will get hit the hardest. Aggressive traders can gain bearish exposure in the Aussie and Loonie. Maybe a bottom in cocoa with a 5% gain today and major reversal. All it took was a bearish article in the WSJ today and a interim bottom may have formed after the 30% reduction. Buy dips and put stops below today’s low. Being bullish has been painful but as we’ve said we think prices overshot to the downside.
Coffee hit a fresh 2011 low today with prices down nearly 3%. Further pressure could erode prices under $2/lb…bearish trade is the play in our opinion. Traders can start scaling back into 2013 Euro-dollars with stops above the recent highs. I would suggest light exposure until we get through the FOMC meeting this week. Ags held on today as the recent lows appear to be good support…at least for now. If we fail to make fresh lows this week we may re-visit the idea of scaling into longs with clients…stay tuned. Exit remaining bearish trade in live cattle as we are nearing a buy zone. Let’s see the action tomorrow before committing but February live cattle is likely a buy very soon. Trail stops down on lean hogs as we are nearing our bearish targets.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

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