Energy: Crude oil was higher by 0.72%, closing at 4 ½ month highs. Clients remain short, but we are close to reaching our threshold of pain in futures. Thankfully, clients are hedged with options, and they have a small position. From current levels, I still think we are due for a $4-6 pullback. RBOB picked up 1.13%, as we are approaching the highs seen in mid-September. I am bucking the trend and will not put positions on, but I would not rule out a correction lower. I am very interested in buying on a 15 cent-plus break with clients. Heating oil was higher, but only by 0.45%, as prices have yet to get through late November highs and are 15 cents below levels seen in September. Heating oil should continue to lag RBOB, in my eyes. On a trade lower, conversely, RBOB would likely get hit more. Natural gas has completed a 50% Fibonacci retracement and briefly traded above the 100 day MA for the first time since early December. Lighten up on longs, but we could see an additional 15-20 cents from today's settlement. A trade near $3.75 should be viewed as an exit door to let loose remaining longs, in my opinion.
Stock Indices: Uncle! If you would have told me 3 weeks ago that stock indices would start the year up 7%, I would not have believed you. The Dow is within 4% of 5 years highs, but very little gas is left in the tank, in my eyes. Thankfully, I am not short here with clients. However, I am short the ES with some clients. We opted to lift our hedges today, booking a profit on that leg. The way I positioned clients now if we drop in the next 6 weeks and just fill the gap from 3 weeks ago, we can turn a slight profit on the trade. The S&P is within 10 points of 1500, which may be probed, but to hold these elevated levels is not realistic, in my opinion.
Metals: Gold will close higher on the session, but for 3 sessions now, prices have been capped at the 50 day MA. I suspect we get a trade lower in the coming weeks, as I am targeting $1660 in February futures. Silver gained 0.77% after trading up over 1% intra-day, closing just over $32/ounce. This marks the 6th consecutive positive day. I do not see a trade over the 100 day -- approximately 30 cents above today's highs -- and in fact, think we trade back near $30.50 in the coming weeks. I am willing to re-explore longs on a break for clients. My only recommended play in metals is shorts in April platinum, expecting a break back to $1660.
Softs: Cocoa gave up 3.15% to drag prices back to support that has held for the last 3 weeks. I started buying last week and obviously like buying even lower today, thinking we get a trade closer to 2500 in the months to come. For 6 days, sugar has shed value, with today's 1.36% loss taking prices within 8 tics of 18 cents. Sugar is at 2 ½ year lows, and should be bought with small size. I would add once the market has found an interim bottom. My favored play is bail call spreads. Even traders with higher entries could be buying back their top leg as of now. Cotton gained 1.76%, and is very close to filling the gap mentioned in previous posts from May of last year. In full disclosure, I missed this entire trade… however, I think we get a great bearish trade once this moves runs its course. Stay tuned. OJ has gained 3 out of the last 4 days, challenging the 20 day MA today. I like bullish trade, with an objective of $1.25/1.30 in March futures. The biggest loser in the soft complex today was coffee, down nearly 5%. Those waiting for a dip to get re-positioned in longs should use this pullback to gain bullish exposure, in my eyes. I still feel longer term, coffee is a great candidate for bullish trade.
Treasuries: 30-year bonds have closed higher the last 2 sessions, and appear to be on the verge of breaking above their 20 day MA. On a trade near 148'00 in March futures, bearish trade is back on my radar and nothing until that happens. Albeit a small gain, 10-year notes closed above the 20 day MA at the down sloping trend line that has capped upside for the last 2 months. I expect this to change, and see an acceleration higher that will set up a selling opportunity from higher ground.
Livestock: Live cattle have only been in the green 2 out of the last 12 days, as prices are off just better than 5% in the last 2 weeks. I like working into longs at current levels. My two suggestions are selling out of the money April puts, OR getting long futures and selling out of the money calls 1:1. My objective is a trade back to $1.34 in the coming weeks. Friday could mark a key reversal for feeder cattle, with futures 1.7% off those lows. Operating under that influence, a 50% Fibonacci retracement puts March back above $1.51. April lean hogs appear to have established a base and should trade higher. For the last 2 sessions, prices have managed a close over their 9 day MA and though I will not take the trade, I see a trade back above 90 cents in April in the coming weeks.
Grains: Exit longs in corn. Prices have rallied 50 cents, but have failed to get to higher ground the last 5 sessions. After a 20 cent correction, I'd be willing to re-establish bullish trade. Soybeans were the standout in Ag today, appreciating 1.57%, lifting futures to 1 month highs. There is another 50 cents until I see any major resistance, though if we trade lower in the complex, all products could get hit. Clients have no exposure on my recommendation. I have a bigger interest in bullish trade in soybean meal… see today's chart. Wheat failed just shy of $8/bushel and could feel pressure short term. I advised clients to lighten up or leave longs altogether, especially if they were able to take advantage of the most recent 60 cents appreciation. After a trade lower like in corn, I would be willing to re-explore bullish trade.
Currencies: The U.S. dollar closed at its 20 day MA, slightly lower on the session. I still think we have an opportunity to get above the 50 day MA in the very near future -- that level is 80.25 in March. On that, expect the other crosses to get hit. Trail stops on the pound, as prices bounced from around these same levels in mid-November. Past performance is not indicative of future results. The euro has yet to break lower, but that remains my prediction, as I see stiff resistance at $1.34. A 38.2% Fibonacci retracement puts Mach back near $1.31… trade accordingly. The commodity currencies could be lightly sold with tight stops, in my opinion. A bullish engulfing candle in the yen, with a gain of 1.47% today. This could be the first inning of a violent snap back. This would be confirmed on a settlement back over $1.14… if that played out, $1.16 in a hurry is my take.
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.