Energy: Higher trade failed in crude oil, as an early bid was rejected and prices settled under previous resistance. Prices need to break under their 8 day MA in the coming sessions to confirm a trade lower. That pivot point in February futures is at $92.50. RBOB bounced off its 8 day MA, but again failed to close above $2.80. A trade under $2.70 remains to be my feeling in the coming weeks. Heating oil closed higher by 0.87%, just under its 100 day MA, trading to 5 week highs intra-day. I see solid resistance 3-5 cents above today's settlement, and if we see weakness in the rest of the complex, we should see prices back off here as well, in my opinion. Natural gas closed lower by 1.47%, but traders with more than a few weeks' time frame should be buying at these levels. I do not see prices under $3, and think we could see prices 50 cents higher in the coming months.
Stock Indices: The S&P pared losses to close only marginally lower, but I think we are in the early stages of rolling over. As my chart of the day suggested, I am expecting prices to make their way back under 1400 in March futures. My favored play remains shorting futures and simultaneously selling out of the money puts 1:1. The Dow also closed lower and has been in the red 3 out of the last 4 days. A close under their 9 and 20 day MAs in both indices would be confirmation we are headed south. Expect the gap from last week to be filled. A 50% Fibonacci retracement amounts to roughly a 400 point loss in the Dow and 50 points in the S&P… trade accordingly.
Metals: Gold bounced off the 6.8% Fibonacci level for the last 3 days, as solid support is in the making. Today, February futures closed higher by almost 1%. The next hurdle that needs to be taken out for bulls to be in the driver's seat is the 200 day MA at $1667. A higher high and higher low in silver is a bullish formation, with March closing higher by 1.27% on the day. A trade back over $31 should squeeze futures and get prices closer to $32/ounce, in my opinion. I like the idea of scaling into bullish trade in both metals, thinking in the coming weeks we may get a shot at their respective 100 day MAs. In February, gold at $1715, and at $32.50 in March silver.
Softs: Cocoa lost better than 2 % to close just off its recent lows. The volatile action in the last few sessions signals a change in tide, as I would be buying as long as 2200 holds in March. Sugar gave up 1%, closing lower by 1 penny in the last 4 sessions. Short term we could see more pressure, but I think a trade under 19 cents is temporary. Inside day in cotton, as rallies should be sold… cotton should follow the S&P lower in the coming weeks. OJ is trading at 7 week lows, but it appears to be on sale in my eyes as aggressive traders can try to catch this falling knife. If the November lows hold, this could be the beginning of a low risk trade… too early to say, but stay tuned. Coffee was lower by 1.50% today, but remains up on the week. I am in the camp that we are building a solid base to see upside in the coming weeks. I believe May positions have plenty of time, but March needs upward movement immediately. For whatever reason if we can see greater than a 5% gain, I would be willing to let go of March contracts for clients.
Treasuries: I anticipate a 1.5-2% appreciation in 30-year bonds just around the bend. This would lift March futures close to 147'16-148'00. I do not think prices retrace to the early December highs, but the closer futures get to that level, the more eager I'd be to establish bearish trade. Those short should be out or have tightened stops. 10-year notes should track bonds higher. A 50% retracement puts March just under 133'00… trade accordingly.
Livestock: Live cattle closed under its 20 day MA for the first time since mid-December. $1.33, which had served as a floor in February, should now become the ceiling. A trade down to the up sloping trend line is an additional 1% deprecation. As I alluded to yesterday, it was not likely for live cattle to move lower and feeder cattle conversely move higher, and then low and behold the next day, feeders lose 0.70%. A breach of today's lows, which also coincide with the short term MAs, should signal lower trade. Higher trade was rejected, as lean hogs closed virtually unchanged. My suggestion is nibbling on bearish trade and adding on a close under 85 cents. Those short futures could sell puts against their position for risk management.
Grains: Corn has closed higher the last 2 sessions and though we did not settle above the 9 day MA, we did probe that pivot point. A close above that level should get bulls more interested. I think if anything, we could get a bullish surprise Friday, as most are looking for bearish numbers to end the week. A seasoned grain trader I spoke to today told me the last 6 years, we have had limit moves 5 times on this report, so expect fireworks. I continue to like light bullish exposure, thinking we could see 10% appreciation per bushel. Soybeans failed to follow through on yesterday's gains, but aggressive traders could probe longs with tight stops. Not my favorite play in Ag, in full disclosure, as I prefer the fundamentals in corn and wheat. On a close above its 9 day MA, I may explore bullish trade, but I've yet to move for clients. Early gains were lost in wheat, but I think this is one of the best values in the entire commodity sector. Prices are down over 20% in the last 4 months, and I do not think that is justified. I'm advising clients to nibble at bullish trade ahead of the USDA and add after the report if we are correct.
Currencies: The dollar closed just above its 50 day MA, though the slight gains today should be given back in the coming sessions, in my opinion. I'm operating under the influence an interim high has been made. The European currencies should exhibit an inverse relationship to the buck, but let's wait for confirmation on the dollar's direction. Bearish trade is on my radar in the loonie and aussie, but I've yet to move. They are starting to look tired but if the dollar gets hurt, we could be a seller from higher levels, so back off for now. The yen looks like it could bounce and if shorts decide to book profits, it could be violent. I would only suggest buying inexpensive calls, but it is not out of the question to see March trade back near $1.1800 in the coming weeks; current price $1.1475.
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.