Energy: Crude closed higher by 0.84% trading above $94/barrel for the first time since mid-October. I hate to buck a trend but I still think we could see a retracement before much more upside. Traders should either have stops above current levels in case I’m wrong or hedged off short futures by selling puts would be another option. RBOB again probed $2.80 closing just shy of that level. Heating oil failed to hold onto its gains closing nearly 6 cents off its highs back under its 100 day MA. If $3.08 in February is not seen we trade south from here back near $2.90 in my opinion. If Crude trades higher the rising tide will lift all boats and yes I’m the minority but I still maintain we get a leg lower very soon. Natural gas held support and bounced 2.57% today on an inside day. I’d like to see the volumes pick up and prices back over the 8 day MA into the weekend. Clients have been buying in recent weeks expecting a trade back near $3.60ish…and to date we’ve been wrong…stay tuned.
Stock Indices: The Dow is higher by 0.61% as of this post lifting prices to 2 ½ month highs. We are close enough that we make an attempt at the fall highs less than $100 from today’s levels. I don’t like…I don’t trust it and therefore I’m not a buyer. The gap below the market still needs to be filled and I think it is done in quick order. The S&P gained 0.77% to take prices to fresh highs. I may suggest clients to roll up their hedge but I need to consider the risk as we’ve already taken on too much water on this ship. Very frustrating as I had profits on this trade 2 weeks ago. Rookie mistake…letting a winner become a loser…shame on me. Look for some ideas to follow.
Metals: February futures in gold gained 1.36% closing back above the 200 day MA and the 50% Fibonacci level. I do not see stiff resistance until $1700/ounce. Both daily and weekly charts are looking more supportive the further futures trade from $1640/1645. I like the idea of back ratios spreads or those long futures should have some option protection in my eyes. Above $1700 the next stop should be $1750. Silver appreciated by 2.21% to close above its 200 day MA, for the first time since last week. Let’s see if this is a head fake or the real thing. Longer term I am bullish but I do not expect outside market influence to be as supportive as it was today so tread lightly until silver alone proves itself. Above $31 the next stop should be the 100 day MA just above $32.50. Like gold for longer term option traders I like being out several months in back ratio spreads. My only suggestion is do not be greedy…be willing to take profits on a volatile move as evened if prices go up it will not be in a straight line.
Softs: Cocoa futures picked up better than 2% today closing above its 9 day MA. As I’ve said for years expect an inverse move to the greenback. I am a buyer in cocoa at the levels thinking we catch a bid lifting prices 7-10% higher in the coming months. Sugar higher by 1.28% today gaining nearly ½ cent in the last 2 sessions. Under 19 cents sugar is a buy though if we get near 20 being prices failed there so many times I would likely lighten up for a quick hit. Cotton remains a sale and as long as we are below 76 cents build a position as I do not think it will take an exorbitant amount of time to see 70…trade accordingly. Traders could be long OJ with tight stops. For option trades buy inexpensive out of the money calls expecting a bounce after the near 25% drop in the last month. A 50% Fibonacci retracement puts March back at $1.25. Coffee bounced off its 9 day MA closing higher by 1.18%. It appears we could get back above $1.50 unless the USDA surprises. If we do get a healthy gain tomorrow I may look for an exit window on client’s bullish plays…stay tuned.
Treasuries: With the gain in equities today Treasuries sold off back to the most recent support. I remain in the camp that we will get an opportunity to sell again from higher levels. Maybe not 148’00 in March 30-yr bonds but we should trade north of 147’00 in my opinion. 10-yr notes failed at their 9 day MA closing lower today with weakness in the entire debt complex. Not that this wasn’t justified just look at the flow of money but being I do not hold a lot of regard for equities right now I think we can bounce moving forward. I open the opportunity to sell 10-yr notes and 30-yr bonds at higher levels. Just nibble but I think 2015 and 2016 Euro-dollars shorts should be in your commodity portfolio.
Livestock: Live cattle are down 2 % in the last week as lower ground looks likely. February has traded to their 50% Fib level but there could be another 1-1.5% in my opinion before buying emerges. March feeder cattle’s 2% lost puts prices at the 38.2% Fib level as more selling should follow. This leg should drag prices under $1.51 on this contract. I’m looking for another 2% drop in lean hogs with an objective of 83 cents in February. Today’s close was 84.70.
Grains: USDA report out 1/11 Corn has gained 20 cents off its lows but this could just be the beginning… lets see what tomorrow brings. A trade above the 20 day MA just above today’s highs has the potential to hasten the move in March futures near $7.20/bushel in my opinion. We’ve experienced limit moves the last several reports so brace yourselves. The 9 day MA remains the line in the sand as it contained soybeans again today. I will be on the sidelines and have no long or short exposure into tomorrow’s report with clients. Same story in wheat as prices were unable to take out their 9 day MA. The difference being is I will own a little wheat into tomorrow’s report with clients. I have advised light exposure in December future and also have bullish options exposure in May CBOT wheat.
Currencies: A bearish engulfing candle in the dollar with prices closing under their 20 day MA. With the velocity of selling I am not ruling out a challenge of the mid-December lows. The Euro and Swissie are above their 20 day MAs which is bullish and as of this post the Pound is trading at that key pivot point. With commodities appreciating the Kiwi, Loonie and Aussie will trade higher but I am not a buyer. I am more interested in selling once we get confirmation. The Yen is posting fresh lows and proof that even if a market is cheap does not mean it is a buy. Looking at a weekly chart if $1.1250 gives way next stop could be $1.07. Some clients have tried to pick a bottom…view this as a lottery ticket. We all know those odds so you will likely not hit the jackpot…inexpensive calls and keep size small!
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