Energy: Crude oil lost 1.84% today and is down almost $3/barrel in the last three days. As we approach the November lows, it will be interesting to see how the market reacts. My stance is as long as the dollar is appreciating, oil has a shot to print under $85 in January. I am eager to be a buyer for clients, but do not find it necessary to catch a falling knife. After breaching the trend line yesterday, RBOB followed it up with a 1.55% loss. A challenge of the November lows, which I expect is a further 2.7% loss. Heating oil closed under the $2.95 support level mentioned in previous posts. A 50% Fibonacci retracement drags January to $2.89. The pivot point in natural gas comes in at the 100 day MA, just under today's settlement. I would be okay establishing bullish trade on a 5-10 cent setback, willing to let go at a loss on fresh lows.
Stock Indices: Inside day in the S&P with prices closing at their 50 day MA. I see limited upside, but I would make sure short futures were hedged by options in case we get a bullish surprise in tomorrow's jobs number. It would be a short-lived rally, in my eyes, as I am still targeting 1370. The Dow was able to close higher by 0.30%, but failed to make new highs and the 50 day MA capped upside here. Forced into the market, I remain a seller of futures and have chosen to hedge for clients by selling out of the money puts.
Metals: Gold picked up 0.47%, closing just under its 100 day MA. There may be disconnect, though, as even in the face of outside market cooperation, gold was able to hold its own. I'm fairly certain I want to be long into next week's FOMC, but clients are advised to remain in bearish trades for now. In a perfect world, we may get an opportunity to reverse from lower levels in the coming sessions. $1670 in February remains my objective. Silver gained 0.48% to close just below its 50 day MA. Although prices have dropped nearly $2/ounce this leg, I think there could still be another $1.25-1.75 before it is said and done. My favored play remains back ratio spreads.
Softs: Cocoa should continue to trade lower, but those in bearish trade should have stops just above the 100 day MA -- in March at 2435. Sugar futures gave up 1.07%, closing at their 9 day MA. This whipsaw action is trying my patience... on the next run up to resistance, clients will likely let go of their bullish March positions… stay tuned. Cotton very much appears to be correlated to the S&P, so trade accordingly. Ultimately, I think we trade lower, and I would be willing to gain bullish exposure closer to 70 cents with clients. Coffee gained 1.24%, closing just under its 9 day MA. I am looking for a push back near $1.56/1.57 in March, which should turn me a profit for clients' remaining leg. Fresh entries could scale in at these levels, in my opinion.
Treasuries: The grind higher lives on in Treasuries, with 30-year bonds climbing for the third day in a row. As long as the 9 and 20 day MAs support, I'm mildly friendly. They both currently reside just above 150'00 in March. 10-year notes were also in the green, but are starting to show signs of exhaustion. The next leg will be determined by tomorrow's NFP. In both instruments, bearish trade is back on my radar when prices penetrated their 9 and 20 day MAs.
Livestock: Live cattle traded back to its 61.8% Fib line but failed. As I said in previous posts, I do not think a trade north of $1.31 in February is sustainable. I expect prices to work lower in the coming weeks, but I have no exposure with clients. Feeder cattle picked up 1.26%, carrying prices to two week highs. The 61.8% Fibonacci retracement level in January comes in just under $1.49. Lean hogs were lower by 1.4%, dragging prices to three week lows, and now within 1.5% of my objective of 83 cents in February. I would be taking 75% of the position off on that mark given the opportunity.
Grains: Corn gave up 0.82%, but held the 20 day MA. Clients' p,ositions are in options so they can take some downside pressure, but if prices break down, I will be forced to manage the trade and trade around their initial position. In just over three weeks, soybeans have gained 8% closing over their 50 day MA for the first time in two and a half months. This leg should carry prices to $15.25/bushel. Tug of war in terms of wheat, as prices are looking for guidance from one Ag moving higher and the other moving lower. $8.50 appears to be support, so bullish probes just above that level with tight stops would be my suggestion.
Currencies: The dollar closed above it 50 day MA, gaining 0.61% today. This could be just the beginning, so pay very close attention. Next stop in futures should be the 20 day MA, in my opinion. Rates were left unchanged today, with the ECB at 0.75% and the BoE at 0.50%. However, the euro did get the move forecast, and those short as of yesterday should have been able to pick up a profit or should be riding the trade lower as I write. Most traders were advised to take profits, though there should be more in the trade. My philosophy was taking a profit and lightening the load into tomorrow's jobs number. The pound and swissie also broke today, and a move lower would be confirmed on a penetration of their 20 day MAs. A futures spread on my radar is long yen, short euro 1:1, but remember to view this as two different trades… we could be right on both or wrong on both.
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.