I heard a quote on CNBC this morning by a floor trader that I thought applied to the current investor complacency: "When fear leaves the marketplace, start being scared.” Five days in a row lower in oil, the last time we had this streak was back in the beginning of December when over 8 sessions' prices fell by 9.4%. If this pattern were similar we would see a trade down to $75.09 in February sometime next week. Past performance is not indicative of future results. My opinion is too many people are getting bearish to see a major break, but it does look like we are not done going down just yet. Natural gas ended the week mixed and failed to break out of a 40 cent range; we favor buying dips still anticipating a trade to $5/5.25.
Equities broke lower on economic news but until the 20-day moving averages give way on a closing basis we are simply trying to pick a top, which is exciting but not too wise - in the NASDAQ at 1863, S&P at 1125 and the Dow at 10480.
Sugar was sideways, and as we’ve expressed we do not think the upside is over, but before we see 30 cents we expect a pullback. Coffee and cotton appear to rolling over, we would buy a setback as opposed to getting short.
Short term gold and silver have yet to make up their minds. I was impressed, with the stock market and oil weakness on top of a rallying dollar, that metals were not down more. This could be a tell of their bullish resiliency.
Clients were advised to exit the remainder of their KCBOT/CBOT wheat spreads at a profit today. We are liking corn more and more at these levels for clients. The trade mentioned on Wednesday - buying futures and buying puts - well, here is an update: We lightened up on clients' put protection, lifting 1/3 to 1/2 of their hedge.
Treasuries worked higher again today but we need to see a penetration of the 200 day moving average in 30-yr bonds to see much more; that level is 117′25 in March. We suggest selling rallies in the Pound as long as today’s high at 1.6349 acts as resistance. Check out the bearish engulfing candle today! Pay close attention the Euro-yen cross; this cross tells the story of risk aversion.
We opted to hold clients' calls in February live cattle over the long weekend, Tuesday we will see how wise of a move this was. We will be examining selling more lean hogs for clients next week as we think prices are too high... stay tuned.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.