Energy: Crude oil will trade higher by 3.4%, back near its two-week highs, and this is about as high as we can trade for me to be comfortable in shorts. Prices will need to see a pullback in the coming sessions, or I would be cutting losses on bearish trade for clients. Over the last two weeks, the range in November has been resistance at $93 and support at $88. RBOB gained 2.27% to close about 3 cents under $3/gallon in November. I am thinking a correction is long overdue, but don't fight it. We will need to see a settlement under the 8 day MA at $2.92, then the 50 day MA at $2.83 for me to advise a trade. Heating oil bounced off its 8 day MA, gaining 1.87% and closing at a three-week high. Prices are about 5 cents off their recent highs and 15 cents off their contract highs. Like RBOB, we need to see a settlement under their 8 day MA at $3.1650 and their 50 day MA at $3.11 to expect more selling. Natural gas gained 1.88%, ending just under $3.50. I cannot rule out fresh highs, but I would be leery of being long until we see a correction 25-40 cents lower.
Stock Indices: The S&P lost nearly 1% to close at its trend line mentioned in previous posts. Overnight prices are below that level, and I am starting to think a correction could be underway. A close under 1435 would give me the needed confirmation to establish bearish trade. Dow futures lost 0.66% -- perhaps a sign? This was the first settlement under its 9 and 20 day MA since late July. To breach its trend line, we still need to see another 75 points. A broken record, but large equity holders should be lightening the load and/or establishing downside hedges, in my opinion.
Metals: Gold has lost ground the last three days, falling just shy of $30 or 1.7%. Far from a meltdown, but I do think this is the beginning of a leg lower that could put prices under $1700/ounce, back near its 50 day MA. Silver also closed lower today, at a two-week low under $34/ounce. Prices are approaching the low of the recent trading range and the next test will be if we can penetrate that level and get back near my first target of $31.70/32.00. Once copper breaks $3.67 in December, we should see a quick 10 cent drop …trade accordingly.
Softs: Cocoa gained 1.51% and at its highs, challenged the trend line as I hinted at yesterday. My suggestion is take 3/4 of your shorts off and have stops just above that level on the remainder, as we should see a bounce from current levels. Sugar remained above its 100 day MA, gaining marginally today. My target remains 22.50 in the March 13' contract. There is very little action in cotton, but as long as the 100 day MA caps further upside, I like light bearish exposure targeting 66/67 cents in December. A one-month low print in coffee today after the 2.25% loss. Further downside is expected, as I would not rule out fresh contract lows in the coming weeks.
Treasuries: 30-year bonds ran into resistance at their 38.2% Fib level, closing at their 20 day MA. As long as December is under 149'00, I prefer bearish trade. 10-year notes finished in the red, bouncing off their 20 day MA and closing just above that pivot point. Like bonds, more selling is expected with the 9 day MA at 133'10 acting as resistance in December. Traders can have light bearish trades in long dated 14' eurodollars, as long as we do not see fresh contract highs. The idea would be to add length as the market proves you correct.
Livestock: Live cattle ran into resistance at its 20 day MA just above $1.27 in December. While we could see an additional 1-2%, in my eyes, upside is limited. I am waiting for a reason to gain bearish exposure, either from higher levels, or if I miss a short entry, to be a buyer for clients under $1.24. Flip a coin in feeder cattle, as I have no direction and therefore, no client exposure. Lean hogs continue to run into resistance at its 61.8% Fib level. Aggressive traders can probe bearish trade with stops above 78 cents, but I think I'd prefer to be a buyer after a correction.
Grains: I continue to like bearish trade in corn, but make sure you have stops above the recent highs because though I feel prices will roll over from a chartist standpoint, December futures are forming a flag and pennant formation on the daily, which is a bullish pattern. A trade above $7.55 should get you out at a loss, and if prices break down, your window to exit is on a trade under $7/bushel. Soybeans failed to hold onto gains, closing nearly 25 cents off its intra-day highs and under its 9 day MA. If $15.70 continues to act as resistance in November, we could see another leg lower dragging prices to $14.50. I have no client exposure, as I'm getting mixed signals. Wheat action continues to be sloppy and largely a followers' market. My bias is slightly bearish, but I prefer to trade the other Ags until wheat becomes its own market.
Currencies: Hello, greenback. The dollar bounced off its 20 day MA, closing 0.56% higher, near recent highs. A trade above the 34 day EMA -- about 15-20 ticks above current trade -- would justify my notion of a trade above 81.00 in the coming weeks. On that, all the European currencies are back in sell mode, though my advised short is the pound, which I've been bearish on for the last two weeks. Target one 1.5940, followed by 1.5840, and finally 1.5750 in December futures. I am neutral on the commodity currencies currently, but open shorts in the aussie should be trailing stops to protect their profits. Depending on stop placement, yen shorts could be out with the challenge of the 20 day MA in recent sessions. If still in, keep stops just above 1.2800 in December.
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.