Energy: April Crude oil has finished higher the last 3 sessions and 4 out of the last 5 trading days. With prices settling above its 8 day MA the last 2 days I think we are poised to move higher short term. I've advised clients to start scaling back into bullish trade; long futures and selling out of the money calls 1:1. My initial objective is a trade north of $94/barrel. Higher trade was rejected in RBOB, with prices closing 11.5 cents off their highs. I have no outright bearish trades on with clients but we are short (1) RBOB vs. long (1) heating oil with some clients. $3.10 will need to be penetrated to see more selling emerge in my opinion…that level is the current 50 day MA in April futures. Heating oil prices remained contained, as the 8 day MA has capped upside the last 4 days. A trade above $2.9825 should lead to further buying. Natural gas was the chart of the day. Prices have closed higher the last 3 sessions, but I see little upside from here. I anticipate a 20-30 cent correction is eminent.
Stock Indices: A fresh high was established in the S&P today, with futures approaching 1560, having put on nearly 80 points in the last 2 weeks. The train has long left the station, but my question is are we going to run off the tracks? I am not comfortable with clients long, but refrain from any further futures bearish trades. Those traders willing to buck the trend should be in options until the market exhibits signs of an interim top. The Dow continues to post record highs, gaining the last 7 consecutive sessions. My concern is that managers chasing yield could take unnecessary risk as the benchmarks they use have had such phenomenal performance. I continue to think a correction is long overdue, but perhaps better advice is to move to the sidelines opposed to gain bearish exposure… unless viewed as a hedge.
Metals: We are going on 3 weeks of consolidation in the gold market, as prices have largely been contained. The longer the market takes to make a decision on direction, the larger the breakout should be. The multi-million dollar question is, what direction? I have advised speculators to gain bullish exposure, thinking we see prices make their way back to $1650 in the coming weeks. That would amount to an appreciation of 4.4%. Factor in the leverage -- which, of course, is a double-edged sword -- I think bullish trade makes sense. A close below $1550 bullish trades should be closed at a loss, in my opinion. An inside day in silver, with futures ending just under $29/ounce. As long as May futures maintain $28.50/ounce on a closing basis, I remain constructive, and would live in bullish trade. When prices move north, I think the first stop will be $30.40; the current 50 day MA and also where the down sloping trend line comes in.
Softs: Cocoa has gained for the last 3 sessions and ended today above the 20 day MA; a development that had not happened in 5 weeks. I like bullish trade, trying to capitalize on a move back to 2300 in May. Sugar has traded higher the last 6 days, but not a whole lot of ground has been covered. I would like to see more now that prices have broken above the down sloping trend line. Traders with a large bullish trade may want to lighten up as to not follow markets down on a setback. At this point, I still cannot rule out a trade back near 20 cents in May, so manage the trade. Cotton has closed lower 2 out of the last 3 sessions, but the 9 day MA held today. If May closes under 86 cents the next few days, I would start to think Friday was an interim top… stay tuned. I was dead wrong on OJ, as I expected to see prices retrace before trading higher. In the last 2 days, prices have surged almost 10%, and I have been absent with clients. It is safe to say I missed this opportunity. In the last 4 days, coffee was able to grind higher, as prices are back above their 20 day MA. I am cautiously optimistic, and have light bullish exposure with some clients, targeting $1.48 in May.
Treasuries: In the last 6 trading days, 30-year bonds have erased 2 months of gain. This is a perfect example of the taking the escalator higher and the elevator lower. The easy money has been made on bearish trade, in my opinion, so trail stops on open trade. I will say that if the stock markets continue to trade higher, then lower trade should happen in this complex... I just would not open fresh positions at this juncture. 10-year notes have given back nearly 2 points in just over the last week, as prices are making their way back to the February lows. On higher stock trade, expect those levels to be challenged. Like bonds, I feel the easy money has been made on bearish trade.
Livestock: All attempts at $1.27 in April live cattle in recent sessions have been rejected, as we finally may be finding our value zone. A close back above the 9 and 20 day MAs which come in around $1.29 should confirm an interim low. May feeder cattle are finding mild support just above $1.43… stay tuned. Aggressive traders could probe bullish trade with tight stops, in my opinion. Lean hogs lost ground for the first time in 4 sessions, but the fact that the 9 day MA supported gave me some solace. Bullish trade needs to see a trade above the 20 day MA for confirmation. I still am targeting a trade in April back near 84 cents.
Grains: In 3 short sessions, corn has gained 20 cents to complete a 50% Fibonacci retracement. I see support at $7.03 in May with the next upside resistance at $7.19… trade accordingly. Soybean futures closed slightly higher, but we were unable to make new highs closing just under last Friday's highs. I see support in May at $14.65 with resistance at $14.90. Any bullish news on the supply side or rumors of weather issues would likely lead to a $15/bushel trade. Though there is a solid fundamental reason to be bullish soybeans, in my eyes, when weighing the risk to reward dynamic of current prices, I still prefer wheat. Wheat was in the green for the third consecutive day, and as we get further away from last week's lows, it may become a reality that last week was our interim lows. I need to see a settlement above the 9 day MA for a preliminary sign of exactly that -- in May at $7.03.
Currencies: Inside day in the dollar, as we are starting to see more red on the daily candlestick chart with a negative close 3 out of the last 6 sessions. The problem has been the positive days have been bigger moves. I am operating under the influence we should see a correction very soon... my first objective is 81.50 in March. The European currencies should bounce on a dollar correction, but I really do not see an entry point I like at current levels... remain patient. While all commodity currencies should enjoy a rebound if commodities trade north from here, the only viable play I see is the loonie. I recently have advised bullish trade in this cross, thinking we trade back near .9900 in March. After breaking support last week, the yen continues to leak south… stand aside, though a par trade is not out of the question.
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.