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Commodity Market Update - 12.02.13

Commodity Market Update - 12.02.13

Energy: Crude oil was a slight gainer today picking up just shy of .50%. We will need to see prices to remain under $98 for me to remain bearish. It will take a settlement back under $96 in March futures for bears to re-emerge. Inside day in RBOB as the 8 day MA remains the line in the sand. A trade under $3.0225 should lead to a wash out dragging prices 10-15 cents lower in my opinion. The other distillate also had an inside day with heating oil remaining under $3.25/gallon for the third session in a row. On lower trade I see a trade back near $3.12…trade accordingly. The 8 day MA is acting as a ceiling as opposed to floor in natural gas with another close under that pivot point. I would not rule out a challenge of the January lows; which would amount in a 4.6% loss. Clients hold onto April call options but are under water and looking for a bounce in the coming weeks to cut losses. Could it turn into a winner…yes but it will take a 10% move in the coming weeks which is possible but not likely in my opinion.

Stock Indices: Today’s chart of the day needs to be read…not because it will give you a trading idea but put things into perspective in terms of where we have come for in the last decade and what has happened to equity markets the last 2 times prices were around these levels. The line in the sand remains the 9 day MA in the S&P and the Dow. In March futures those pivot points come in at 1506 and 13905 respectively. I think we could see a 500 plus point and 60 plus point depreciation around the bend.

Related article: Technical Review of the Energy Markets - 12th February 2013

Metals: Gold held its 61.8% Fib level again today closing marginally higher. Aggressive traders could start scaling into December contracts if willing to stay the course looking for a longer term appreciation but for more active traders I would be looking towards the June contract think we could get a lower long entry. I may change my mind if prices start to trade north from here...stay tuned. Silver gained 0.65% today closing well off its lows but still closed under the trend line penetrated yesterday. I still think we see a trade under $30.50 in March futures...be patient. The closer we get to the January lows the more aggressive of a buyer I’d be. Another 1% gain in platinum tomorrow I will likely take a stab at shorting April futures again with clients. I think a sale over $1730 looking for a trade under $1700 is worth the risk of a new high.

Softs: Lower trade was rejected in cocoa with buyers stepping in at around the same level they supported 2 weeks ago. I like scaling into bullish trade out until May and July. A bearish engulfing candle in sugar drops prices nearly 2% with its lowest close in 2 ½ years. On a settlement under 18 cents I would stop buying fresh entries and look to offset longs at a loss on the ensuing bounce. Cotton gave up 1.34% to close under its 9 day MA. A breach of the 20 day MA at 81 cents in March and we should be on the way to our objective at 76/77 cents. The standout in the softs complex today and even for the last month has been OJ higher by 19% ytd. I see limited upside until we get a correction as I’ve advised clients to buy a trade back near $1.15. Coffee is trying to find a bottom with lower trade rejected today as a base is building at $1.40 in March. Aggressive traders can start building small bullish positions and look to add once the market proves you correct.

Treasuries: 30-yr bonds closed lower for the first time in 5 sessions closing back under its 9 day MA.  10-yr notes stopped in their tracks at the 20 day MA rolled over on the day and closed back under their 9 day MA for the first time in 5 sessions. Short term we may feel a little pressure in my opinion but more update is forecast…at least by me. The inverse relationship to equities is alive and well so with stocks moving higher it has been a challenge to gain any upside traction.

Related article: From Theft To Piracy To Flaring To...Hope?

Livestock: Intra-day live cattle trade to 7 month lows but that trade was rejected with a close 1.3% off their lows. If we see volumes return and trade back over $1.30 in April I will start probing bullish trade with clients. Intra-day feeder cattle traded down their daily limit before paring losses closing down 1.07%. Feeder should stabilize around current levels as well...stay tuned for trade ideas. Lower trade under $1.25 was rejected in lean hogs so I have bullish trade on my radar. The fundamentals for pigs are bullish from the supply side but the biggest variable in the weeks/month to come will be demand.

Grains: Corn settled under $7/bushel for the first time in 4 weeks. The pace of selling has been pretty consistent but I expect that to abate in the very near future. With March futures within 15-20 cents of January lows I think we will find a value zone soon. March soybeans have completed a 61.8% retracement, off almost 80 cents in the last week. While the easy money has been made on bearish plays in old crop I would still not rule out a probe under $14/bushel. I’ve yet to advise clients to buy corn or soybeans though I think they should be in the process of exiting any bearish trade. Wheat traded to 7 month lows today off by 1.28%. I have started to buy dated contracts for some longer term swing trading clients thinking we have far more upside than risk at current levels.

Currencies: A bearish engulfing candle in the greenback today trading off 0.28%. As long as the 20 and 50 day MAs hold I remain friendly. The Euro gained on the session but was contained by the 20 day MA. I have clients that are positioned short futures selling out of the money puts for a partial hedge in case of a bounce. I am still targeting a trade closer to $1.32 in March. Refrain for picking a bottom in the Yen as tempting as it may be.

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.  

By Matthew Bradbard

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