Today’s’ bounce in most commodities and equities in my opinion should be viewed as nothing more than that, as my expectation is for a further decline. April Crude rebounded off the 38.2% Fibonacci retracement level gaining 1.4% as of this post. I’m still expecting more pressure and as long as prices remain under the 9 day MA at $107.25 I would remain in bearish trades. I am still advising traders that there is more risk to the downside in Crude and the distillates…trade accordingly. My favored play to protect from further upside in RBOB and heating oil is long futures while simultaneously selling out of the money calls 1:1. If prices do come down enough we may opt to roll the strikes down on their calls. Another 2.2% drop in natural gas as the $2 level is only 30 cents away. A bottom will be made likely on short covering at some point but at what level I do not know…stand clear.
After their largest daily decline in 2012 stocks picked up today recouping about half of yesterday’s losses. As long as prices remain below the 9 and 20 day MA on a closing basis I would expect lower ground. If those levels are not reclaimed this week I would say the S&P could see 1290 and the Dow 12300 in the coming weeks. Gold picked up just shy of 1% today but was unable to reclaim the 50 day MA; in June at $1694. Only if we see a settlement back above $1700 would I change my mind and if we do not see that $1639 remains my near term target. May silver pared losses after steep declines in the last week advancing almost 2% today. Risk to reward from these levels it is not great but I see resistance just above $34 and a target on the downside first at $32 and then under $31…trade accordingly.
Trail stops on any sugar shorts as we show see further declines. Coffee has depreciated 6% in the last two days and should continue lower as prices are approaching 16 ½ month lows. I do not see solid support until prices decline an additional 4-6%. Until Treasuries establish a trend look elsewhere. Live cattle and feeder cattle continue to lose ground...trail stops and let the market take you out on any bounce. Corn and wheat were the biggest losers in Ag today but soybeans are starting to get hit as well as prices were unable to reach higher ground. My suggestion is waiting for a further set back and look for a long entry in the coming weeks…stay tuned. The US dollar is running into resistance at the 50 day MA...this pivot point will be critical in the next few sessions in my opinion. A number of other crosses are supported by their 50 day MA’s…my expectation is for the dollar to appreciate and the other crosses to fail and break down. That being said, my play would be to have bearish exposure in the commodity currencies and look to add to the trade if the 50 day MA gives way. In the March contract those levels are as follows: Aussie 1.0490, Loonie .9940 and the Kiwi .8115.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results