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Daily Commodity Update - 18.12.12

Energy: Crude oil will finish up 1% on the day closing at its 50 day MA. Prices are up almost $3/barrel in the last week and could continue to grind higher. As long as the 20 day MA holds I am bearish. That being said I would not rule out a correction and today I advised hedgers to book a small profit and move to the sidelines. Speculators should tighten up stops. RBOB closed higher by 1.47% at its 100 day MA at a 2 week high. Like oil I am mildly bullish as long as prices are above the 8 and 18 day MA but what scares me is on a risk off trade prices could be back at $2.60 in January so longs need to trail stops. Heating oil finished up 1.23% closing at its 18 day MA. To me this market has the best upside potential in this complex but heat has not proven itself yet. The increased demand will come for this market not RBOB in the coming weeks in my opinion. Natural gas closed higher for the second day running, a feat that had not been accomplished in 3 weeks. I like scaling into bullish trade in April via options expecting more upside. A settlement above the 8 day MA would be the first sign we are moving the correct direction. See yesterday’s post to get more precise details on strategy.

Stock Indices: As of this post the S&P is higher by 0.88% lifting prices to 8 week highs. All of last week’s losses have been recovered as we are now within 1.5% off the highs made in September. Regular readers know my stance I am expecting a trade south between now and the end of the year. Some of my clients remain in their bearish trade…they are down just over $1000 per strategy. In full disclosure this is a tiny position for clients and with the loss it amounts to approximately a 4% draw on their accounts. I have been catching grief because some followers thought I was all in or outright short futures and that is NOT the case. The Dow gained 0.63% to close at 8 week highs as well with prices 1.6% from their fall highs. We are bucking the trend but will stay the course thinking we get a violent correction this week or next. Those not short but long should be looking to take profits on any index longs or outright stock holdings in my opinion before years end.

Metals: Bearish engulfing candle in gold closing down 1.55% and hitting my $1670 target. In the last week prices are off just better than 3%. There should be more selling to follow as my next objective is $1650; the up sloping trend line from summer and the last congestion area from late August. Silver has lost ground the last 4 days breaking its 100 day MA today off by nearly 2%. This drags prices to 5 week lows though there should be more selling to follow. My next target in March futures is $30.75 and I cannot rule out filing the gap under $30/ounce from 8/22. Once this leg plays out I think it will be a great longer term swing trade entry so keep dry powder as this week or next I will likely be reversing with clients.

Softs: Cocoa lost 1.15% today and forced into the market I would rather be short than long. Clients have no exposure currently. Sugar filled the gap from Friday and closed 1.7% off its lows above the 20 day MA. Fresh entries should be purchasing bull call spreads in May. Cotton maintains at elevated levels but I’m looking for signs of weakness and have started to price out bearish strategies. OJ is approaching 7 month highs but I do not think current prices are sustainable. Do not buck the trend and wait for confirmation but like cotton I see bearish trades in the next 2 weeks. What a letdown in coffee as prices went from 2 cents higher to 2 cents lower in today’s action. The recent lows held but we need to see appreciation in the immediate future to salvage premium on our March calls. The trend line at $1.49 in March needs to be penetrated this week or next to have any hope.

Treasuries:  30-yr bonds continued to crack down 0.72% today as prices traded under 1460’00 in March for the first time since late October. Bearish sentiment persists but as I said yesterday maybe the easy money on bearish trade has been made. Next support is eyed at 145’00. 10-yr notes also gave up ground taking prices to 7 week lows. Resistance is seen at 132’16 in March while support is at 131’10…trade accordingly. A trade that is not on any ones radar is bearish exposure in long date Euro-dollars...I’m talking 2015 and 2016 contracts. Inquire to find out more details.

Livestock:   Fresh highs were rejected in live cattle, then a reversal and a close on the lows. A shot across the bow that prices may be due for a correction. It is preliminary but assuming we crack from here a 50% Fibonacci retracement puts February at under $1.31. A bearish engulfing candle in feeder cattle puts prices down 1.26% today erasing the last 3 days of gains. Fist sign on interim top would be a settlement under the 9 day MA; currently at $1.5160 in January. Lean hogs went the other way bouncing off the 9 day MA and challenging the 20 day MA on the upside. As long as 84.80 holds in February I am mildly friendly.

Grains: A potential triple bottom in corn as prices are challenging the bottom of the trading range we’ve seen on the last 4 months. As long as prices hold at these levels I am advising clients to hold their March bullish trades. On a break we may need to trade around the position.  I think in the coming weeks we see prices near the upper end of this range which means 50 cents/bushel higher. Soybeans gave up 2% closing under their 20 day MA. As I said yesterday when that happened be out of bullish trade. After a $1.25 run in the last month here comes the retracement. Solid support is not seen for an additional 30 cents. Wheat was the lone positive in the AG complex today as $8/bushel continues to support. A solid base may be forming but let’s digest a few more sessions before making a move.

Currencies:  The greenback continues to grind lower off 0.30% today. From here it appears the September lows could be challenged. As long as the dollar is out of favor the Euro and Swiss will remain the go to crosses. Both broke out to fresh 7 month highs today. To me the likely candidates to benefit from the RISK OFF trade are the Kiwi and Aussie. Today’s chart of the day made a compelling argument why the Aussie could see par early 2103...in my opinion. The boat is leaning one way in the Yen and for everyone to be right and the Yen to continue lower is unlikely. That being said maybe some inexpensive upside option exposure merits your attention.

By. Matthew Bradbard

Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals.  You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice.  Past performance is not necessarily indicative of future results.

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