Without further stimulus if the markets are forced to stand on their own two legs we should see a further retracement. My opinion on most commodities with a few exceptions is we have risk of more downside.
Crude oil bounced off the 100 day MA today regaining two-thirds of yesterday’s losses, closing 1.7% higher. I admit I expected some follow through today but the momentum is clearly shifting to the bears. I may be the minority but I am still looking for a sub $100 trade. My expectation is on a trade in May below $100 we could quickly move to $97.50 ... my target. Both heating oil and RBOB are at the lower end of their recent trading range as I expect a further sell off. Remember a $1 move in crude should equate to a 3-4 cent move in the distillates. That would mean if the stars aligned and crude traded $5 lower than we should see the distillates experience a 15-20 cent depreciation ... trade accordingly. Natural gas has been in a 15 cent range for the better part of one week and in my opinion being prices are so close we are going to see a sub $2 trade before a bottom is set. Investors say but natural gas is soooo cheap ... yes it is but it may get cheaper.
With the last two days of action stocks have broken a trend line that has held since mid-December and settled below the 20 day MA. Aggressive traders can gain bearish exposure. My first downside targets in the S&P and Dow are as follows: 1350 and 12,700.
In the last month gold has lost roughly $160/ounce and in my opinion we are only about half way through this down cycle. As I said in previous posts when prices break $1,640 expect $1,575 so that would be my next target in June futures. As long as prices remain below $1,650 stay short. Silver rallied 2% today but that is not even one-third of yesterday's losses so with prices under the 100 day MA I remain bearish. That level in May futures is $32.20. I am anticipating an additional 4-6% onslaught in silver on a break of $31 in May ... trade accordingly.
I see no trade opportunities in the soft sector. Again I am waiting on a trade closer to $2 in coffee to recommend bearish trades to clients. Treasuries have been one of the most frustrating complexes to trade. You were likely stopped out of any short trades in 10-year notes and 30-year bonds with prices back above their 20 day MAs. Stand clear as this market is just too choppy to take long or short trades in my opinion. The sentiment remains bearish cattle and view a bounce as nothing more than that a bounce as I feel there is more downside to come. Lean hogs have rallied just over 4% off their lows, closing above the 40 day MA for the first time in over a month so this run may have more gas in the tank. A 50% Fibonacci would lift June back over 95.00 and then I would look for bears to get back in the driver’s seat. Wheat has given back half of its recent move and if long and still in a profit walk away and be thankful. As for corn and soybeans I think this is just a pause before a further acceleration. In my opinion longs can get an additional 15-20 cents out of their corn and 30-40 cents out of their soybeans before legging out of all remaining longs.
European currencies appear to be the laggards and technically that should continue as the euro, pound and swissie are all sale candidates. Elsewhere in forex I see no opportunities.
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.