Commodity Update: Crude Oil At Resistance

jumped 1.80% yesterday to complete a 50% Fibonacci retracement, lifting prices to a resistance level that has capped further upside for the last 2 months. It would be a significant development to see futures above $90 and I do not think we have the legs at this juncture. I have advised clients to exit longs, unfortunately prior to yesterday, thinking we see prices back off into year’s end. RBOB was higher by 1.94% closing near its previous resistance as well, up by 15 cents/gallon in the last week. If January can get above $2.75 the next stop should be $2.82 but I do into see it. I am more interested in getting clients long after we see a trade lower. Heating oil picked up 1.30% closing at its 50 day MA. We could track higher short term but I do no think we get above the 100 day MA; currently at $3.0665 in January. Natural gas failed at its 8 day MA and fell off 2.87% closing within 5 cents of its latest lows. I like the idea of scaling into bullish trade and my preferred play is with a combination of options in April contracts.

Stock Indices: Higher trade was rejected in the S&P as we reversed in late dealings to close down 0.56% and 12 point off its intra-day highs. It is far from a defined top but if we get selling the next few days and we see settlements under the 9 and 20 day MA that would be a start in the right direction. My stance is that you stay in bearish trade as I think we can see a 3% plus correction into year’s end from current levels. The Dow gave up 0.43% though prices still remain above their 9 day MA. Once 13170 is breached 13025 would be my next objective. Taking a step back and looking at the most recent appreciation a 50% correction on that leg would put March futures back at 12850. Trade accordingly.

Metals: Following up after Tuesday’s 1.62% loss in gold I would have expected more selling yesterday as prices closed lower by only 0.18%. The key pivot point to me is the 200 day MA which was probed the last 2 days but was able to hold on a closing basis. My stance as explained in yesterday’s chart of the day is we have a little more work to do on the downside. Silver lost 1.75% yesterday and is lower by 7.5% trading down the last 5 consecutive sessions. The 200 day MA is also the line in the sand here. I am a buyer with both hands under $30/ounce for clients given the opportunity. As for bearish trade I am looking to unwind trades ideally the next 2 days around $30.50-30.75 for clients. This includes back ratio spreads in March options. A few days ago I forecast an interim top in copper and expected prices to back off since copper is down 10 cents and more selling is expected.

Softs: Cocoa continues to grind lower, off 1.63% yesterday as the 9 day MA didn't contain any upside in early dealings. This drags prices to 5 week lows and it looks like we have a chance of breaking the November lows which could lead to ugliness as solid support is well below those levels. Sugar gave up just less than 1% but was able to hold onto the 20 day MA. Clients that have been in for weeks own call spreads in March but fresh entries are advised to purchase call spreads in May. Analyses on the daily and weekly charts and looking at the fundamentals have me believing that it may take a few weeks but we should see a pop into Q1. Inside day in cotton as prices are starting to exhibit signs of a top. I have been looking for signs to get into bearish trade so this is encouraging. I’ve yet to act, but bearish trade is on my radar. OJ gained 1.40% yesterday and has appreciated 35% in the last 2 months. One of my clients made a very astute observation when we were speaking yesterday, though not directly on OJ, but if any commodity moves by 30% plus there is a likelihood of some type or reversion. Unless the circumstances are dire, I just do not see that in OJ. I’ve yet to move, but bearish trade is on my radar. Coffee picked up 0.63% but still remains under its 9 day MA. I think we are due for a snap back but I’ve been saying that for the last 2 weeks and during a 10-cent depreciation. This remains my worst trade on my books with clients, though there is still hope. Some clients prefer selling puts than buying calls. I endorsed that move yesterday for clients that understand the risk. We were able to sell May puts yesterday which will be covered if we rally in the coming weeks.

Treasuries: Inside day in 30-yr bonds which could have reached an interim low Tuesday. Especially if equities sell off as forecast, we should see bonds climb back close to their levels from 2 weeks ago. 10-yr notes were higher for only the second time in the last 7 sessions. Both instruments should fight back to their 9 and 20 day MAs in the coming session. Those that are in bearish plays should lighten up and tighten stops in my opinion.

Livestock: I hinted at live cattle backing off from overbought levels but that was premature with cattle gaining better than 1% lifting prices to fresh 10 month highs. I should’ve learned my lesson but picking a top rarely works. I'm back off bearish trade until $1.33 is penetrated in February. Feeder cattle bounced off their 9 day MA closing higher but not able to take out previous highs. A close under the 9 day MA, currently at $1.5270, is needed for confirmation. Lean hogs are back above their 20 day MA at 3 week highs with yesterday’s 1.52% appreciation. The 20 day MA should support and my opinion is we challenge the mid November highs which would represent a 2% appreciation.

Grains: Canceled buys Tuesday in grains got us in the red and more follow through selling yesterday coupled with bearish numbers by Informa contributed to additional selling in the Ags. Corn broke 4 month support levels mentioned in previous posts amounting to 8% drop in the last month. We may gun for the July gap which would be an additional 20 cents. I will be forced to mange my clients March call positions in the next few days…stay tuned as I think we are very close to snapping back.
Soybeans lost nearly 2% and selling does not look complete. A possible trade idea talking to grain traders would be short (1) soybeans contract against (2) long corn contracts. I am tracking the trade and will have an update soon. Wheat tried to rally yesterday but failed at the 9 day MA, closing down 0.68%. As long as $8/bushel holds I like nibbling on longs at these levels but keep it close to the chest.

Currencies: The dollar ended lower but pared losses closing 1/3 cent off lows. This level held in previous months but will it hold this time? The euro failed to hold onto rallies and may be putting in an interim top. Stay tuned. A move back to the 20 day MA puts March futures at $1.3065. The commodity currencies have started to back off. I think you could be scaling into bearish plays in any of the 3 but my favored play is in the Aussie. I’m calling for a par trade into early 2013. The sentiment is absolutely bearish but when no one is looking, why not on a spec trade, try to find some undervalued call options...that’s my sleeper trade with very small size.

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