Energy: Crude oil closed lower for the fifth consecutive session, as prices are fast approaching their November lows. While clients are not in the market, I do expect a grind lower and forced to take a stance, I'd rather be short than long. For my clients, I am looking for a long entry from lower levels. RBOB closed lower again today, but it is finding mild support just under $2.60 in January, unable to penetrate that level the last three sessions. If broken, we should see an additional nickel drop rather quickly. Similar performance in heating oil, off the last five days, giving up 15-plus cents and completing a 50% Fibonacci retracement today. Next support seen at $2.82 in January. Natural gas broke, support dragging prices to two month lows, down 2.56% today. Do not rule out a challenge of the September lows. As we approach those levels, I'd be interested in gaining bullish exposure with clients several months out… stay tuned.
Stock Indices: The Dow gained 0.33%, as prices appear they are going to challenge their early November highs. With the 6% gain in recent weeks, a 61.8% Fibonacci retracement has played out. I see limited upside without the FOMC igniting a leg higher... which at this juncture, I doubt. Today's chart of the day is the S&P. Like the Dow, we've seen prices appreciate in recent weeks, but I see limited gas left in the tank. Prices in December futures are having a difficult time getting above the down sloping trend line and if long, I'd be lightening up or hedging positions off.
Metals: Gold has been in the green the last three sessions, today advancing 0.52% and closing back over its 100 day MA. This is a friendly development but without further evidence, I am still bearish to neutral and thinking we need to see more pressure before the next ascent begins. A close back over the 50 day MA in February at $1733 would likely change my mind. Silver is building a base as well above its 50 day MA, gaining 0.74% today. Some clients hold back ratio spreads and are under water. While viewing the daily chart, I could be convinced why clients should be long. The weekly chart is ugly, combined with the fact that I feel the dollar can catch a bid. I'm staying the course for now.
Softs: Cocoa continues to falter, lower four of the last five sessions, with prices closing under 2400 for the first time in three weeks. Another 1.5-2.5% loss is anticipated in March futures. Sugar lost 2.34%, taking prices very close to one month lows. If we do find support around these levels, clients in March call spreads will be advised to buy back their top leg. We are down about 50% on the entire trade as is. I still think we have time to turn a profit… stay tuned. Cotton is exhibiting signs of an interim top, as a close under 73 would confirm a trade back near 70 cents, where I will be an active buyer for clients. OJ futures continue to meander just above their 9 day MA, but I think bearish exposure is the appropriate play, trying to capitalize on a move back near $1.15. Coffee lost 4.45% as prices approach their previous lows. My clients are long calls and were hit hard today. Lows will need to hold or I will be playing defense, trying to recoup losses on open coffee trades. These options do have time value, but a move like today hurt premium.
Treasuries: 30-year bonds were unable to close above their 9 and 20 day MAs, as those pivot points should now become resistance. I am currently pricing out bearish trade, but a little uneasy to jump in ahead of the FOMC meeting, as I am carrying open losses in other trades with clients… stay tuned. If a move lower is confirmed from current levels, my target in March would be 147'00. Today a failed rally in 10-year notes, with a close at the 9 day MA. Risk to reward this is a better play, gaining bearish exposure with stops above the latest highs. The only reason I've yet to act is I may want to be in NOB spreads, and that would be a long in 10-year notes against a short in 30-year bonds… look for a more definitive play tomorrow.
Livestock: Live cattle have started to break down, losing the last two days. A close under $1.30 in February should lead to a trade back to $1.2850…trade accordingly. Feeder cattle have done the opposite, gaining the last few sessions, lifting prices near $1.50 in January to one month highs. This makes little sense with the degree of a divergence, so stand aside. Trail stops down on lean hogs and start lightening up, as we are seeing slight buying interest at these oversold levels. Bearish trades should have been able to enjoy profits on the 5.5% break in the last two weeks.
Grains: Specialty report published under Premium Research today to be ready for tomorrow's USDA report. Corn is down 5% in the last two weeks, but most of the damage is done in my eyes, as the market has factored in a bearish report and weak export numbers in the last few weeks. If anything, we could get a bullish surprise, in my opinion. Some clients hold March back ratio spreads and at a loss at the moment. A trade back to the upper end of the range should get them profitable… stay tuned. Soybeans were able to hold their own, rallying back in late dealings to hold the 9 day MA. As long as the down sloping trend line supports, near $14.25 in January, I am friendly. $8.50/bushel gave way in March wheat to register its lowest close in five months. Wheat remains a follower to the other Ags but being we are at the lowest level in months, light bullish probes would be my suggestion. Far from my favorite play, as I would prefer soybeans and corn to wheat at the moment.
Currencies: The dollar needs to get above the 20 day MA or below the 50 day MA, as the direction of the next leg should be determined by that decision. My thinking is we work higher, but let's wait for confirmation. The euro should continue to work lower, but I would have stops just above $1.3000 to protect open profits. Bearish trades are on my radar in the commodity currencies: the kiwi, loonie and aussie, but first let's get confirmation that interim tops are in… stay tuned. I think the yen is poised for a bounce -- my recommendation is to exit bearish trade. 1.2400 is my objective in the coming weeks.
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.