Giddy Up

Investors, traders alike wasted no time putting money to work as most stocks and commodities started the new year on a bang. We do not expect this pace to continue but perhaps the public is waking up to the fact that cash and debt will likely underperform select stocks and commodities in the foreseeable future. Crude starts the year with a bang advancing better than 4% today to lift prices to two month highs and on the verge of an upside breakout. If February takes out $104 expect prices to find their way to $110…trade accordingly. Traders who have been selling above $100 should take a loss on a trade above $104 in my opinion. RBOB and heating oil also appear poised to trade higher. We’ve advised hedgers to institute more upside protection. Natural gas was flat today but remain the dog in the energy complex and one of the weakest links in the entire commodity sector with prices sliding nearly 45% in the last 6 months. Without a settlement above $3 in the coming sessions the momentum will remain bearish. Some clients have used setbacks to buy 2-3 month long contracts but this has been a losing proposition to date.
Equities leap to a six month high today on decent volumes. Forget about trading the indices but those with large security portfolios should use a further appreciation to take money off the table…in my opinion. The metals likely reached an interim bottom last week as gold has bounced nearly $90 and silver jumped$3.50/ounce. We would work back into longs buying dips thinking $1525 and $26.25 respectively would serve as solid support. Our first targets would be $1675 in February gold and $33 in March silver. The dollar closed back under the 20 day MA for the first time since mid-November. We see further downside which should equate to gains in other crosses. My picks would be the Euro and Pound but with circumstances less than rosy in Europe run tight stops. All softs were bid higher with sugar and cotton being the standout gaining 5% and 4% respectively. Not to be outdone OJ with a potential freeze in Florida gained 2.65%. Aggressive traders can buy sugar with an upside target of 27 cents in March.
Treasuries remain range bound though on a breach of the 20 day MA’s we would have bearish plays on our radar. In 30-yr bonds that level is 143’8 and in 10-yr notes 130’13. In three short weeks grains have moved from oversold to overbought lifting prices of corn, soybeans and wheat to two month highs. With today’s gains both corn and soybeans hit their 38.2% Fibonacci retracement levels while wheat has a few pennies to go. The easy money has been made on longs so I suggest tightening stops and starting to look for an exit door. Bad weather in SA has been factored in so we will need to see further developments to see much higher ground in my opinion. Live cattle lost ground for the fifth straight session closing below the 9 day MA again today. We see further depreciation and have a target of 119.50 in February…trade accordingly. Traders can be long February lean hogs with a stop below 83.75. A close above the 20 day MA at 85.75 should signal a new high.
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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