Energy: Selling was rejected in crude oil, as support was found at the 8 day MA. Some of my clients that got into bearish trade late opted to close positions at a small profit. I still believe that we trade lower, but the fact that equities remain at lofty levels has me a bit baffled, only because there appears to be a strong correlation. I expect to see futures under $90 next week. RBOB gave up 1.19% to close at its 8 day MA. Prices failed to get above $2.80 all week, and it looks like we get a trade south from here. A 61.8% Fibonacci retracement puts February futures back near $2.67. Heating oil has closed lower the last 2 days, and traded under its 18 day MA for the first time in 2 weeks today. As I said yesterday, I see a trade near $2.90 in February in the coming weeks. Natural gas gained 2.78% today, and almost 25 cents off its lows on Wednesday. I continue to like scaling into bullish trade in April, thinking futures are 25-40 cents higher in the coming weeks.
Stock Indices: The Dow started the week with a bang, but ended on a whimper. With the last two days, prices are contained in an 80 point range. Could we be running on fumes and get the correction I've been calling? At a minimum, I think we can fill the gap for this week, which puts prices 270 lower than today's close. After Monday and Tuesday's 5% leap, the S&P has also calmed. We are at fresh contract highs, but do not expect these levels to hold. With the VIX at current rates and the debt ceiling looming ,I say position for a trade lower.
Metals: Gold has traded lower for the last 6 consecutive weeks but being we have completed a 61.8 retracement, the trend line that has held since June has held for the last 2 weeks and with the dollar reversed, I don't think we see 7. I am comfortable with clients gaining bullish exposure under $1650, at least to play a trade to $1700. Do not go all in, though, as we could see some pressure in the coming weeks. My suggestion is have 1/4 to 1/3 of your normal position. Silver is a very tough beast to tame. As one can see you need an iron stomach, as 4-5% daily ranges is commonplace. Under $30/ounce, silver is a buy. It appears a base is being built around that level looking at March futures. Like gold, a 61.8% support level and trend line held in like a champ. Scale into longs with an objective of a trade north of $32/ounce.
Softs: Cocoa failed at its 9 day MA the last 2 sessions, and I need to see a settlement above that level to gain any size in bullish trade for clients. A buy around 2200 is merited, but wait for a close above 2260 to add any length. Sugar only closed down 2.78% on the week, but what frustrates me is I thought we were on the verge of breaking out to the upside. Yes, supplies are abundant, but I still am in the camp that we get a run at 20.50/21 in the coming weeks. Cotton closed under its 20 day MA for the first time in 6 weeks, and H/L has traded off better than 3 cents this week. My objective was reached, if only for a minute, and I would stay the course, thinking we see lower trade. Perhaps on another probe under 74 cents in March, cut a short futures position in half. Reverse your shorts in OJ and get long. Willing to risk March futures to a settlement under $1.06. All it took was an article in the WSJ this week for lumber to put in an interim top. Prices are off nearly 6% and appear to be headed lower, in my opinion. Coffee has finished higher 4 out of the last 5 weeks, and closed above the 9 day MA on the weekly chart the last 2. I am far more constructive looking at a longer time scale and realizing how cheap coffee is. Clients that are in March contracts are running out of time… we need a trade above $1.55 immediately, or else this will be a loser.
Treasuries: 5 out of the last 7 weeks, 30-year bonds have given up ground and while it is too early to say a bubble has burst, a multi-decade long bullish trend is certainly over. If we get through 143'00, which is likely inevitable, the next formidable support is 138'00, but we should rally before that. 10-year notes also lost ground, dragging prices to 8 month lows. March should find support around 131'00 for a bounce that could potentially fill the gap from earlier this week. Expect the inverse relationship to stocks to live on. Look to fade a bounce in 2015 and 2016 euro-dollars the next few weeks. I like the idea of selling at the money calls and buying at the money puts… the mother of all trades, if your timing it right. This is risky if wrong, because you will lose on both legs.
Livestock: The same resistance from 2 weeks ago may again be problematic for the bulls playing the cattle. $1.3450 could contain this upside leg in February live cattle once again. On a break of the 20 day MA, I would be willing to gain bearish exposure. March feeder cattle gained nearly 1% for its highest close in 2 weeks. Is $1.57 the line in the sand? Stand aside until we have a clearer picture. I may be jumping the gun, but I like bearish exposure in lean hogs. My favored play is short futures and selling out of the money puts 1:1. Target 82 cents in February.
Grains: Corn lost 1.31% to close at fresh 6 month lows. We are within a nickel of completing a 50% retracement, and we filled the gap from early July. Under $6.75 in March, the next stiff support is $6.40, but I don't see it. I will hold losing bullish trades into the January 11th USDA report with clients. With the 1.39% loss today, soybeans challenged their mid-November lows. I have yet to make a move, but likely will if I see some support next week. I've been pricing out various futures and options strategies, so stay tuned. Wheat was down 4% this week, and has fallen off a cliff in the last 6 weeks. March futures under $7.50 are a buy, in my eyes. I've shared this strategy all week -- gain bullish exposure in long dated contracts and sell closer months out of the money calls and get paid while you wait for things to turn around.
Currencies: H/L the dollar has advanced almost 2 cents in the last 3 weeks, but the mid -day reversal may signal an interim top… stay tuned. The euro got with 10 tics of the 50 day MA before paring losses. If short, place stops just above the 20 day MA is my suggestion. The 50 day MA supported the swissie, but let's see if that is the case next week... protect profits with options or move stop down. The pound lost 1.5% the last 3 days and appears destined for lower ground. The commodity currencies could go either way, as I'm getting mixed signals. Another losing week in the yen, down 2.35%... making it 9 consecutive weeks. Trend follower's dream!
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.