Energy: February crude oil rejected a $90 trade and closed just under that level. This is right around the same level prices have failed the last two months, so I would expect some give back soon. Also, the 38.2% Fibonacci level should contain any serious upside at $91.25, in my opinion. I will be willing to explore bullish trade early next year if prices are back near $86/barrel. RBOB has gained four out of the last five sessions, as prices are challenging the top of the recent range. If February gets above $2.77, we could challenge $2.81, but that is not where my clients' money is. I think this complex is due for a correction before we start the normal seasonal move higher. Past performance is not indicative of future results. Heating oil picked up 0.57%, lifting prices to the 100 day MA for the first time in two weeks. After a 15 cent appreciation in the last 10 days, do not rule out some back and fill. Natural gas gained 2.83% to put prices above its 8 day MA and its highest close in one week. Some clients have been buying options in April… a 50% Fibonacci retracement lifts prices to $3.70.
Stock Indices: The S&P will finish 0.52%, but could a triple top be in the making? Way too premature, and as I've voiced in recent posts, confirmation is needed with a penetration of the 9 day, and then the 20 day MA. At this point, I'm either early or wrong, but those clients that agree that we get a correction are short ES futures and have sold out of the money puts 1:1 as a hedge. We collectively think we can see futures at 1370/1380 in the coming weeks. The Dow bounced off the 9 day MA, finishing higher by 0.36%, falling just shy of getting back to the latest highs. The 13300 level could be the line in the sand… let's see the next few days' action. I am in the camp a correction is long overdue… downside targets in March futures are 12975, 12850, 12750.
Metals: February futures low in gold today was $1636, but losses were pared as prices ended about $10 off that level. A 61.8% retracement has occurred and so far, the trend line that has held since May held. I advised clients to exit all remaining bearish trade and to start working long. My favored play is bullish options exposure in June contracts. Scale into the trade, as we are catching a falling knife. As prices start to bounce, I would be willing to add to the trade. I think we could get a $50 bounce in the next few weeks… trade accordingly. Silver has lost ground the last six days, which was great for my clients' bearish trade, which we exited today. A 61.8% Fibonacci retracement is complete, and I think there is good reason to be scaling back into bullish trade under $30/ounce. My suggested play is scaling into March futures or bullish options exposure in May. Contact me for exact details and strategy.
Softs: With the 1.27% loss today, cocoa prices are approaching five month lows, closing just over 2300. Trails stops down, but the easy money on bearish trade has been made, in my opinion. Sugar was in the green, closing over its 20 day MA, paring losses and ending 2.3% off its lows. I've suggested buying dips in March and May for several weeks and still feel that way. The 9 day MA was challenged in cotton, as prices have closed lower the last two sessions. I sniff a correction, but have yet to make a move… a 50% Fibonacci retracement puts March near 73 cents. Could OJ finally be peaking… off by 2.76% today. I'm pricing out bearish trades, targeting a 10% drop. The 9 day MA contained any upside once again in coffee, which lost 1.35%, closing back at its lows. I just cannot get a break here. I wish I could go long eggnog instead of coffee. Clients remain in the trade, thinking we get a bounce in the coming weeks. I did get a very supportive article from a fellow trader that reported a large player was stockpiling physical coffee. They are much smarter than me, so just maybe we have a fighting chance if we can hold out.
Treasuries: It looks like Treasuries want to rally from here, with today's higher highs and higher lows in 30-year bonds. Assuming we've established an interim low, I'd say we bounce back near 148'16 in March futures. I'd be willing to re-explore bearish trade for clients if that plays out. 10-year notes also look like they could bounce, but prices will need to hold 131'25 in March, or I would pull that recommendation. A bounce would likely lift prices back near 133'00.
Livestock: Live cattle lost 0.63%, as $1.3450 has become the new resistance in February futures. I'd be willing to scale in lightly with stops just above that level. Those in futures could also sell out of the money puts 1:1 as a hedge if not wanting to risk getting stopped out. A 50% retracement puts this contract back near $1.31. March feeder cattle are fighting to keep their head above the 9 day MA, but I think this is a losing battle and see prices breaking down in coming sessions. The 20 day MA in this contract is my current objective at $1.5210. Inside day in lean hogs, as prices have hesitated. It could go either way, and I would wait for confirmation -- a break of the 9 and 20 day MAs -- before calling a top.
Grains: Corn has closed lower the last four sessions and 10 out of the last 11 trading days. I think we are very close to turning, so you could scale into long futures risking 10 cents, in my opinion, at least to play a tradable bounce. Those in bullish option trades were advised to buy back their top leg that previously financed the bottom leg. Book the profitable leg of the trade and hold the losing leg, anticipating a bounce. March soybeans lost 1.83%, and have erased two weeks of gains just in the last three days. I've yet to issue buy recs, as I think we have more downside work short-term. Wheat broke $8/bushel, trading under that pivot point for the first time in four and a half months. Prior bullish trades should have been closed at a loss on that break. If we fall to the next logical support -- the 61.8% Fibonacci level -- that puts March 30 cents/bushel lower.
Currencies: Will bulls dig in their heels and hold the 79.00 level in the dollar? We will see but buyers have supported that level the last two sessions. There will come a time very soon where I issue sales in the euro, pound and cable, but today we are just grasping at straws. The fact that the three could not hold onto gains the last two sessions is a preliminary sign, though. Traders could be lightly short the aussie, loonie and kiwi and be willing to add when they break their 20 day MAs… which all are very close?
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.