Today In Commodities: Risk Unwind Underway

by: Matthew Bradbard

Perhaps the recovery is not on track as anticipated, perhaps Greece could still have spillover effects, and perhaps low IR for several years is not the answer as the one way appreciation in 2012 reversed today. Crude oil trades lower for the third consecutive session, trading under the 18 day MA for the first time in one month. Prices as they stand have retraced 38.2% but I’m expecting more. A 50% Fibonacci retracement is just above $103 in April and 61.8% would drag prices to $101.60. As we said yesterday if we are correct on our forecast on Crude expect the distillates to lose 10-15 cents. accordingly. Expect natural gas prices to continue to leak lower as bears remain in the driver’s seat. It will take consecutive settlements above $2.50 for me to think otherwise.

A 1.7-2.25% decline in the US indices today could be the beginning of a much larger leg lower. Expect a reverse in momentum as 2012 has been a virtually a one way trade. YTD the indices were higher by roughly 8% but with today’s decline we get the first settlement in the Dow and S&P under their 20 day MA’s in 2012. Use that pivot point as your resistance now…in March futures at 12895 and 1356 respectively. Gold has competed a 50% Fibonacci retracement now over $100/ounce off last week’s highs. Expect further downside as a correction should drag June gold closer to $1635 in my opinion. May silver should continue lower as well making its way under $31/ounce; a level not seen since mid January. If pressure continues this week, silver closing lower would make the third negative week in the last four. This was after six consecutive winning weeks. So, looking at the big picture, silver has made positive strides and this is just profit taking but it could get violent…consider yourself warned. Sugar and coffee should continue to be sold on any advances as my projections are for further 4-6% depreciation. Expect Treasuries to be bid up on a further retracement in the equity market and commodities. As opposed to buying at these levels I would prefer to be a seller from higher levels…stay tuned.

The entire livestock sector is a sale as cattle and hogs should continue to weaken in the coming sessions. Trail stops above the 20 day MAs in all trades and let the market take you out of trades, as this has the potential to be a healthy correction. Corn and wheat were lower, but soybeans were able to catch a bid today. I am advising the sidelines for clients in the AG sector and wish to establish longs on a further sell off. The dollar index is above the 50 day MA as all international currencies with the exception of the Yen got hit today. Look for this weakness to continue and to echo yesterday the commodity currencies appear to be set up the best for bearish trades.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results