Energy: An inside day in Crude oil as futures will finish marginally lower just under $93/barrel in February. I’m operating under the influence that there is limited upside in the immediate future and have advised clients to gain light bearish exposure. I am targeting a move back to $88/barrel. Some clients are short April futures and have sold out of the money puts against their futures 1:1. $2.80 continues to act as resistance in RBOB as I suspect lower trade is around the bend. While past performance is not indicative of future results prices feel off from around these same levels in October dropping 25 cents inside of 4 weeks. I do not expect this much of a drop but feel confident we could see 15 plus cents. Heating oil gave up 0.70% to close at it 8 day MA. If price are not able to retake their 100 day MA in the next few sessions than the correction should be underway. February would then make its way back near $2.90 in my opinion. Natural gas shed better than 1% but very little follow through after yesterday’s route. I like scaling into bullish option trades in April at these levels. A trade 25-35 cents north is my call in the coming weeks.
Stock Indices: The Dow closed virtually unchanged after higher trade was rejected. I am not ruling a pop higher but I do not think these levels are sustainable. The immediate direction will be determined by tomorrow’s jobs number. As soon as we see signs of weakness speculators should be prepared to see the gap filled which equates to a loss of near 250 points from today’s settlement. Higher trade was also rejected in the S&P that traded less than $1 from its September highs in March futures. From that level prices feel off 9% inside of 2 1/2 months…could that happen again? My feeling is that we at least challenge the most recent lows so my clients are staying the course on their March bearish trades. Being they sold puts against their futures they time decay may also start to kick in which is a plus on a trade that has gone wrong to date.
Metals: Gold will finish roughly 1% lower but losses were pared as prices will close about the middle of today’s range. I see support in February futures at $1668 followed by $1650. I would be willing to buy dips and suggest you own 1/3 of the ultimate trade you want to own if trying to build a position. After the near $2 gain the last 2 weeks silver pared losses losing 1% today. As long as $30 holds on a closing basis I suggest remaining long. This market is not for the faint of heart so if not willing to bear 3% plus daily moves look elsewhere. I doubt silver futures get to $28/ounce but several clients asked me that today. I welcome the opportunity and would be an aggressive buyer for clients if given the chance.
Softs: 2240/2245 appears to be the line in the sand in March cocoa futures. The fact the cocoa held its own in the face of a hefty dollar appreciation today leads me to believe it’s a buy. I think we can see prices back near 2400 in the coming weeks…trade accordingly. Sugar lost 3% today giving back the last 2weeks of gains. Prices have failed repeatedly around these levels but I thought just maybe this time could be different…famous last words. Fortunately I rolled most clients March options out to July but now a waiting game again. I am friendly longer term but in the immediate future we may check back to the mid December lows. Continue to buy dips. Cotton looks like it wants to work lower and if stocks break I think it could accentuate the move. A 50% retracement puts March under 74 cents. 10 days of consecutive selling on OJ as prices are within 4 cents of a compete retracement inside of 60 days. A 30% leap and then reversal…wild market but I would be close to reversing again if trading. Coffee’s trading range was better than a nickel as prices reversed in early dealings to close lower by 2.90%. Just when it appeared March was going to close above $1.50 sellers took charge. A leg higher into next week will be used as an exit window for my clients.
Treasuries: 30-yr bonds lost 0.69% to close at fresh 4 month lows as prices look poised to challenge their September lows. Those still in bearish trade should trail stops just above 146’00 in my opinion. Looking at a weekly chart we should see some good support just under today’s lows. However id 143’00 gives way the next significant support is seen at 138’00. A bearish engulfing candle in 10-yr notes today with prices within ’16 tics of their September lows and on their way in my opinion to that level. Long dated Euro-dollars are at 2 month lows and should see lower ground ahead. This is a trade I’ve been speaking about for years and it might finally be under way.
Livestock: On its third attempt to break the 20 day MA buyers lifted live cattle 1.11% higher as prices now should challenge levels from 2 weeks ago. I have no client exposure. Remain in bullish trade until the 20 day MA gives way. Inside day in feeder cattle but prices appear headed higher here as well. Use the 9 and 20 day MAs as your pivot points anticipating a trade above $1.56 in March. Lean hogs too bounced off their 20 day MA able to show a slight gain. As long as prices are under 88 cents in February I like light bearish exposure.
Grains: Corn futures continue to hold just under $7/bushel. I think the market is taking a breath and poised to move higher in the coming weeks. Not an explosion but unless we get a bearish USDA report 1/11 I expect a grind higher. To allow some time I like the May and July contracts for fresh entries. $13.65-13.75 supported in March soybeans in November and that could be the case again in January. I’ve yet to make a move but the fact that prices have not broken down more with all the cancellations from Asia is somewhat supportive. What is a shame is canceled buys at this price may be bought at higher prices in the coming weeks…stay tuned. Wheat has been one of the hardest hit agriculture commodities but this price merits bullish trades for swing traders in my estimation. I am advising to buy futures several months out for some clients and then selling calls against their core holding.
Currencies: The dollar gained 0.71% to close above the 50 day MA for the first time in 3 weeks. Further appreciation should be seen but a trade much above 81 in March is unlikely in my eyes. As I voiced yesterday on a dollar pop expect the European crosses to back off…my favored play is the Euro. See today’s chart of the day. Aggressive traders could get short the Loonie and Aussie once the 20 day MA is penetrated with stops above this week’s highs. The Yen continues to get hit as $1.1250 is the next significant support. I never thought you would see that level before a snap back but I am eating crow. Prices have lost ground the last 8 weeks and 12 out of the last 14. What I’ve learned is nothing moves in a straight line but this has been a phenomenal trade for trend followers.
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