Comments Off on 2/28/13 – Commodity Update

2/28/13 – Commodity Update

Energy: Crude oil gave up 1% to close under its 100 day MA and the lowest close for April futures in 2013. I don’t see much more downside though we could track lower on a risk off basis if securities get hit hard in my opinion. Prices are lower by $6/barrel in the last 3 weeks. I would be surprised to see any more than maybe $2-l further decline. RBOB had over a 7 cent trading range on the session ending just under $3.10 in April. A 50% retracement puts this contract at $3.06 while a 61.8% retracement puts prices under $3. Heating oil is under its 38.2% Fib level having fell 25 cents in the last 3 weeks. While I have no outright plays in heating oil or RBOB I like playing the relationship …see chart of the day. The 50 day MA has held in recent sessions in natural gas serving as support again today. The bullish trade may be getting log in the tooth but I expect 1 more pop of 10-20 cents before we turn south. Use that as an exit window on remaining longs if given the opportunity.

Stock Indices: The Dow closed higher by 1.45% at fresh highs. It’s all about the sequester and without a plan tomorrow I cannot rationalize being long equities but that is just me and I appear to be the minority based on recent activity. On a correction lower I would be targeting 13575 in March futures. S&Pgained 1.56% closing in on last week’s highs closing above its 9 day MA; a key pivot point. After hours trading prices spiked but were unable to hold on…can you say key reversal. I am discouraged as I felt last week was the reversal but maybe I was early to claim a victory. 1450 should be the first stop on a lower trade.

Metals: Gold is down $35 in the last 2 session given back gains after last weeks swoon. The $50 range that has developed in recent days is a buy window in my opinion as I think we are in the process of making a 2013 low. I don’t see more than 3-5% of risk and as for upside I think in the coming months prices are 7-10% higher. Silver futures have lost $1/ounce in the last 2 sessions dragging prices back to their recent lows.  I have advised clients to dig in their heels and buy at these levels.

Softs: Cocoa appears to be establishing a base just above 2100 in May futures. I am a buyer for clients with an objective of 2300. Sugar advanced by 1.71% today to lift prices to 3 week highs intra-day. Prices are challenging the down sloping trend line that has capped rallies the last 6 months so the next few days are critical. Cotton closed 1.08% higher adding to yesterday’s gains. Prices are at 9 month highs just under 86 cents. Painfully my stance of late with clients has been in bearish trades which they remain in for now. OJ held the 20 day MA but I maintain my bearish stance. Coffee is at a crossroads sideways the last few sessions. A close above the 20 day MA or below the 9 day MA should determine the direction of the ensuing leg.

Treasuries:  A potential flag and pennant formation in 30-yr bonds should lead to higher ground and a better selling opportunity. Upside resistance is seen in March at 146’20 followed by 147’20. A trade above 133’00 can be sold in March 10-yr notes. I do not see the December highs penetrated…from current levels that is about $1200 of risk per futures contract. Start working back into bearish trade in long dated (2015 and 2016) Euro-dollars.

Livestock:   The 20 day MA has capped upside the last 2 sessions in live cattle. Risk to reward I see it at 1:1 so I say no trade in either direction currently.Feeder cattle appear to be building a base but I do to see a catalyst to get prices moving so look elsewhere. Lean hogs can be bought in my opinion. Prices near 80 cents are a value play in my book. I have advised clients to start scaling into bullish trade in April…get long futures and sell out of the money calls 1:1.

Grains: Corn was higher for the fourth day in a row closing back above $7/bushel in May at its 38.2% Fibonacci level. We should see this contract track back near $7.20 in the coming days. Good enough for a trade but I prefer wheat thinking there is more potential upside. Soybeans closed well off their highs but prices still post a 0.89% gain. Support in May is seen at $14.25 while resistance comes in at $14.90. I have no clients in unless on their own accord. Wheat has gained the last 3 sessions but really covered very little ground. Once we are able to close above the 9 day MA at $7.25 we should attract buying interest. I suggest bullish trade and see prices closer to $8/bushel in the weeks ahead.

Currencies:  The dollar is back at recent highs closing up 0.41%. An impressive move as prices have appreciated 3.6% in the last 4 weeks. The question is what inning are we in? Probing bullish trade in the Pound is on my radar…stay tuned. As soon as metals and energies find their footing I am extremely interested in exposure in the Loonie and Aussie. I’ve yet to probe any plays but I am paying very close attention being we’ve been under pressure for several weeks. The Loonie is off by 4.5% in the last 6 weeks and the Aussie is lower by 2.9% in that same time frame. The better value on a value basis is likely Captain Loonie. Expect bullish trade ideas in the coming sessions.

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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