Commodities: Energy Heads Lower

by: Matthew Bradbard

Energy: Crude oil closed well off its lows, but did end under its 18 day MA and that is enough for me to think probing of lower levels is likely. Unhedged long positions were closed at a small loss to the client. As for hedged positions (long futures against short calls), stay the course. It will take January back over $87.50 for longs to be back on my radar. RBOB has traded lower the last four days, closing just under the 9 day MA today. $2.70 will need to be retaken, or it is my opinion we trade closer to $2.60 into next week on January futures. My bias is slightly bearish at this juncture. Heating oil futures have lost nearly a dime in the last few sessions but with prices flirting with their 18 day MA, we may have more downside. Do not rule out a test of the early November lows. Natural gas prices have lost nearly 25 cents, completing a 38.2% Fibonacci retracement on its lows. While no chart damage has been done, my take is we test the 100 day MA approximately 15 cents below today's settlement… trade accordingly.

Stock Indices: Talk about a reversal as stocks appeared to be melting down in early dealings with the S&P, off 15 points before closing higher by 10 points just off its highs. I'd like to see further evidence but if prices can get above 1410 in December futures, we should see 1425. The Dow sang the same tune, closing over 20 points off its lows with a trading range of just better than that. What is interesting is that the 9 and 20 day MAs were rejected and if we can push through the recent resistance, we should see an additional 2-3% appreciation. I have no exposure with clients currently.

Metals: Gold broke below its 50 day MA and closed lower by just better than $25/ounce. Lower ground is expected, as the 100 day MA should come into play the next few sessions -- currently at $1696 in February. I am targeting the Fibonacci levels on the chart as my objectives on the way down. There was talk of "fat fingers" or a bad trade, but the reality is more selling than buying. My personal opinion is stops were run and if outside markets cooperate, we should see more selling. March silver pared its losses after probing the 50 day MA, closing lower by only 0.89% after being down nearly 3% intra-day. I see lower ground here as well, thinking we've established an interim top. My exit window would be between the 38.2-50% Fibonacci levels that would put futures lower by roughly by 5.5-8.5%. I've advised clients to lightly gain bearish exposure by utilizing back ratio spreads in both gold and silver.

Softs: Cocoa futures have lost ground the last three sessions, and I feel the path of least resistance is lower. Do not rule out a trade back near the 100 day MA at 2365 in March. Sugar action continues to be sluggish, as prices have been unable to retake the 9 day MA in recent dealings. This will need to happen for me to recoup value on clients' open bullish trades. I still am targeting a trade near 21 cents/lb., but this trade is exhausting… remain patient for now. Cotton too has been like watching paint dry. Prices above 71 cents in March is mild support, but I do not hold a lot of faith so trail stops on any remaining longs. January OJ reached my objective, the 200 day MA, a lot sooner than I anticipated, gaining almost 22% inside of three weeks. Profits should be taken, as we should correct from here. A 50% Fibonacci retracement puts January near $1.16. I hope I'm not just talking my position, but technically very impressive action in coffee futures today… as lower trade was rejected, a bullish engulfing candle and prices convincingly above the previous resistance. The key will be to see follow through in the coming days. My target in March remains $1.63. This should be enough to show a tidy profit on open bullish trades with clients.

Treasuries: 30-year bonds are back above their 9 day MA, gaining ground the last three days. From here, we should grind higher and as long as prices are above their 9 and 20 day MAs, I am friendly. Same story in 10-year notes, as prices have climbed higher in recent dealings. The 9 and 20 day MAs continue to be critical pivot points here as well. Do not rule out a test of the recent highs in both instruments.

Livestock: I'm calling an interim top in live cattle, as prices have traded lower the last three sessions. My target on a retracement of the most recent leg is a trade back near $1.30 in February… trade accordingly. January feeder cattle are moving in the same direction, but risk to reward, I do not view this as an attractive opportunity. Let the trade work lower and then potentially a long entry from lower levels… stay tuned. The 9 day MA held in lean hogs as prices are back above that support after a probe yesterday. I think we are very close to rolling over and I'm searching for confirmation, which has yet to happen. If February rolls over from here 83 cents is feasible, but we are picking a top at this juncture.

Grains: March corn hit my fist goal trading north of $7.65… see previous posts. The problem is we have moved to overbought levels, and I need to see more appreciation for my profit objectives to be obtained on open longs with clients. Remain in the trade but on a sign of a correction, we must manage the position. My next target is $7.80/bushel. Soybeans have gained nearly 70 cents/bushel in the last two weeks, but they are meeting resistance at their 20 day MA. I view this as a pause and anticipate more upside to come… my stance is this leg should lift January futures north of $15/bushel. Wheat is up five out of the last seven sessions, putting on a quick 4%. As long as prices remain above their 20 day MA, I think it merits bullish trade. That level is $8.77 in March.

Currencies: In the last week, the dollar has backed off and some wind has been taken from the bulls' sail with a trade under the 20 day MA, but the 50 day MA has supported the last four sessions. Play the breakout above the 20 day MA and below the 50 day MA. The loonie did not advance as much as I anticipated and based on outside markets, I would close out open bullish trade. My clients closed out today at a slight profit.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.