Commodities: An Interim Top For Oil?

by: Matthew Bradbard

Commodity Update for Monday, Feb. 4.

Energy: As of this post crude oil is lower by 1.55% penetrating its 8 day MA and coming very close to the 18 day MA. An interim top may be in the making ... if that is the case on a correction I would be targeting a trade under $95 in the March contract. Heating oil failed to hold onto early gains and is just under water. After a 15 cent advance in the last two weeks are we due for a setback? A trade back to the 18 day MA in March puts prices just under $3.07. After 12 consecutive positive sessions RBOB will close lower by approximately 4 cents. Prices are still 3 cents above its 8 day MA. If the complex depreciates short term expect a trade of 10-15 cents lower in the coming weeks. For the last 5 sessions natural gas has consolidated just under its 8 day MA probing that pivot point the last 3 sessions. I've advised clients to start scaling back into longs. I like the idea out to June or further while selling calls against futures 1:1.

Stock Indices: European stocks were hit over 2% but domestically a loss of just shy of 1%. An interim top could be in the making as the Dow and S&P are probing their 9 day MAs. A settlement under that pivot point should lead to trade under the 20 day MA in the coming sessions. I like bearish exposure thinking we see a 45-60 point decline in the S&P and 450-600 drop in the Dow. Those who have remained in short futures in the ES may get their redemption but look for the lessons learned in today's chart of the day.

Metals: Inside day in April gold with a $5 gain in futures. While we could get a bounce I would refrain for any size until prices get back over their 50 day MA; currently at $1688. At this point I still cannot rule out a $30-40 trade lower in the coming weeks. The 50 day MA continues to serve as a magnet as prices have failed to wander far from that pivot point the last 4 sessions in March silver. Play the breakout ... a trade above $32.30 or below $31 should set the tone for the next leg. I think we could get an opportunity to have a long entry closer t$30.50/ounce so keep your powder dry. Platinum gained on the day but backed off highs as intraday was trading at 4 month highs. I like the idea of probing bearish trade near $1700 with an objective of $1660 in the coming weeks.

Softs: Cocoa gave up 0.59% to close at its 9 day MA. I like scaling into bullish trade in May and July contracts looking for a pop in the coming weeks. Sugar lost 0.85% but maintained a close above its short term MAs. After a near 1 cent appreciation in the preceding weeks do not rule out back and fill. Longer term position traders should have sugar on their radar in my opinion. Cotton was in the red by 1.5% closing under its 9 day MA for the first time since January 10th. I've suggested a bearish trade and expect to see futures trade 3-5 cents lower in the coming weeks…trade accordingly. OJ traded within 1.5% of its 50% Fibonacci retracement level before backing off. We could see a trade lower short term so tighten up stops if long. I would not rule out fresh entries on a 4-6% correction. Coffee closed lower by 2.43% to put prices at 3 week lows. If the mid December lows hold on this lower leg I like re-establishing bullish trades once again…whether it is buying vertical call spreads or selling puts.

Treasuries: Lower trade was rejected in 30-year bonds though prices were unable to take out their 20 day MA today. I expect that to happen this week and for the inverse relationship to be present with securities. That being said on further weakness in equities March 30-year bonds should trade back near 146'00 in my opinion. 10-year notes closed above their 20 day MA for the first time in 1 1/2 weeks. I expect more buying behind today's action and see prices near 132'20 into next week. Like bonds I am operating under the premise that flow of funds out of stock and commodities may find it way into the debt complex.

Livestock: April live cattle has been unable to get above the 20 day MA for the last week and short term a break lower is my call. I expect the partial closure of the gap to be filled in the coming sessions. This would take April futures to at least $131.45. I would be willing to re-explode longs on a trade lower with clients. Feeder cattle probed their 9 day MA closing just above that pivot point. I see a lower trade…aggressive traders could be short with stops above the 20 day MA. April lean hogs lost 0.51% to close at 1 week lows just under the 9 day MA. I think prices drift back near their recent lows and then I would reassess the situation. Clients have no exposure currently long or short.

Grains: March corn futures have been unable to take the 38.2% Fib line the last 3 sessions. While the 9 day MA held today I expect prices to dive under that support and trade 15-20 cents lower from current levels. Soybeans closed only 1% higher today but that put futures at fresh 6 week highs. I see March futures above $15/bushel but perhaps we get a correction lower first if we see spillover weakness from the rest of the complex. Wheat is off nearly 30 cents in the last 3 sessions and it appears we have more selling in store. I do not see stiff support in March for another 15-20 cents…trade accordingly.

Currencies: The greenback picked up 0.57% after Friday's doji. I'm operating under the influence an interim low was made last week. The 20 day MA comes in at 79.80 followed by the 50 day MA at 79.95…expect those levels to be challenged. The biggest lose today was the euro shedding more than 1%. In 2 sessions prices are almost 2 cents off their highs and while shorts have been battered we may have some redemption this week. First target the 20 day MA at 1.3370. Exit pound shorts. The Swiss has been one of the lone standouts of late but that should end in the very near future in my opinion. Crap shoot in the commodity currencies so stand aside for now. The Yen is finding mild support but do not try to time this bottom as there are far better opportunities elsewhere.

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. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.