Energy: Crude oil finished the week lower, albeit $3 off its low. In the last two weeks, prices have dropped by approximately 8%, and my stance is that we will see lower trade still. Mildly supportive action today as prices remained above the 100 day MA, but the 50 day MA should cap further upside -- at $94 in November. I expect this week's low to be challenged, and on a break, a trade under $87/barrel. Six out of the last seven sessions, RBOB has traded higher, gaining just better than 20 cents in that time frame. Prices have found resistance at the same level they stalled at two weeks ago. Prices are within 6 cents of their contract highs, but if crude can trade lower, I would expect prices to falter here as well. Heating oil was up less than a nickel a gallon this week, but prices did end above their 18 day MA. $3.20 will need to cap further upside, or the latest highs will be challenged. I maintain my bearish stance, even in the face of recent strength. Natural gas gained nearly 8% this week to lift pries near two month highs. I see resistance at $3.40, followed by $3.70. I currently have NO client exposure and have a bigger interest if prices trade under $3 in the coming weeks.
Stock Indices: Securities finished lower this week for only the third week in the last 13. I'm operating under the influence that an interim high was put in last week. Prices remain under their 9 day MA and have traded under their 20 day MA, but ended the week just above that key pivot point. I'm still waiting for the trend line to be breached in the S&P at 1425, and 13200 in the Dow. My clients have been advised to lighten up in their stock portfolio and establish hedges. On a speculative trade, I think you can wade in bearish trade playing a 3-4% decline.
Metals: Gold will finish virtually unchanged this week, about $25 off all time highs established in February. See chart of the day for more analysis. My opinion is that we see a leg lower and a much needed correction in this bull market. A 38.2% Fibonacci retracement puts prices of December futures under $1700/ounce. Silver will finish the week higher by 5 cents, remaining 45-50 cents off the $35 mark. Like gold, I'm calling for a correction here as well. A $2-2.50 retracement feels reasonable to me.
Softs: Cocoa closed 3% off its highs, but moved enough to likely stop shorts out at a profit. If we can get a bounce into next week, I'd look to re-establish bearish plays for clients. Ultimately, I still think we can see a trade less than 2400 in December. Accumulate longs in sugar risking to the recent lows. If we can gain some traction and start moving north, I'd be adding to the trade. Target in March 13' contract is 21.75 weeks out. Cotton is lower by almost 10% in the last two weeks, and a trade under 70 cents puts my target at 66 cents all that much closer. You should not be establishing fresh shorts, as the move is already underway. Be willing to let go of trade if prices get back above their 100 day MA. Coffee could go either way, and as long as the 100 day MA in December serves as a magnet, I would walk away. My bias is lower, but I don't like the risk/reward dynamic.
Treasuries: After completing a 50% Fib retracement, 30-year bonds are showing some signs of fatigue around the 150'00 level in December. I've yet to commit capital, but bearish trade is on my radar. Let's give it a few days. Same tune in 10-year notes, running into resistance that capped rallies in late August this week. The NOB spread as opposed to outrights are on my watch list as well.
Livestock: Live cattle are lower by 5% in the last three weeks. This was good enough for a bearish trade for those avid followers that resulted in a futures move of roughly $2500… now whether futures were played, options or how much was realized depended on your exact strategy. I expect to reverse next week and will likely be pricing out bullish trades…stay tuned. Feeder cattle gave up 2% today, trading within ticks of my $1.44 target. Weakness should persist, as this leg could drag November under $1.42. Lean hogs have started to move lower, closing under their 9 day MA. Forced into the market, I'd be in bearish trade, but I'd prefer just to be a buyer from lower level, in December closer to 71 cents.
Grains: December corn gained the daily limit, advancing 5.58% on the Grain Stocks report. My thought is futures get another 30-40 cent reaction early next week. Look to re-establish bearish trade from higher levels. Those short now -- I would close the position or go neutral, as short term there should be more upside. I don't think the low today will be the harvest low, as there should be one more leg down. As a speculative play, I'd be willing to buy November soybeans to play a 60-80 cent bounce, risking to yesterday's lows. Wheat gained 5.49%, lifting prices back above the $9 pivot point. I think you have to be friendly above that level, so a probe long with stops just under $9 is the play currently, in my opinion. In December, soybean oil prices made fresh lows, but closed well above those levels. This is why I suggest a close only stop, and I think risk to reward, it is still a viable trade to have light long exposure in this contract (see yesterday's post).
Currencies: A strong close to the week, with the dollar index higher by 0.54%, closing at its 20 day MA. This makes it two weeks in a row, and I think a short term appreciation is in the works. The next hurdles are the down sloping trend line at 80.00 and a 38.2% retracement just above 81.00. The Swiss franc broke its 20 day MA and the pound and euro should early next week. I say lower ground for these European crosses. Back off the kiwi, as prices remain at lofty levels, but the aussie and loonie can continue to be sold. My favored play is a short in futures while simultaneously selling out for the money puts 1:1. I did not think it would happen, but perhaps a triple top in the yen just above $1.2900. I expected to get the opportunity to sell closer to 1.3000. I will have some bearish trade ideas next week -- stay tuned.
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.