Commodity Update: Cotton Bounce Underway

better than 4.25% yesterday dragging prices of November futures under $88/barrel near 2 month lows. Another $1 and change and a 61.8% retracement is complete to my third target. I will be looking for an exit window before the weekend if the selling continues. RBOB is roughly 17 cents off its recent highs probing its 50 day MA but closing just above that critical pivot point. On a settlement under $2.79 in November, expect $2.65 to be the next stop. Heating oil lost nearly 2% closing lower for the fourth consecutive session and below its 50 day MA for the first time since mid July. This leg should drag prices under $3 which has not happened since early August. With almost a 4% drop in natural gas yesterday the correction hinted at in recent posts could be under way. Assuming an interim high yesterday as 50% Fibonacci retracement of this last leg puts November back near $3.15.

Stock Indices: Back to back inside days in the Dow with a close between the 9 and 20 day MAs. The S&P gained 0.25% to close near its 1 week highs just above its MAs. As long as prices remain under 1460 I think correction is upon us. A gambling man would say we’re seeing some indecision and a choice on direction should be made very soon. My bias is bearish and a breach of the up sloping trend line in both indices would be confirmation of a 5% plus decline in the coming weeks.

Metals: December gold continues to stall around the $1780 level. Some people say the market is taking a breath before the next leg higher but I am thinking the opposite. For a healthy bull market to be sustainable we must see some back and fill. My prediction remains the same: a trade under $1700/ounce in the coming weeks. $35 continues to cap December futures in silver as prices have yet to breach that level on a closing basis after 3 weeks of attempts. My first target when prices start to roll over is $33.75 followed by $32.40. Trade accordingly.

Softs: Cocoa lost 2.4% to close at its lowest level in 5 weeks. This was the first close under the trend line that has held since June. If selling continues I see the next support at 2375. If the dollar gains some steam do not rule out 2300. Sugar closed above its 100 day MA the second day in a row. A trade above recent highs should get sugar moving towards 22.25 and ultimately 23.00. Cotton has gained the last 3 days as a bounce appears to be underway. A move above the 100 day MA would confirm that. Coffee failed to hold onto early gains closing 1.42% lower. Aggressive traders can gain bearish exposure via options. I'm looking to capitalize on a trade back near $1.65 in December. I like back ratio spreads.

Treasuries: More sideways action in 30-yr bonds yesterday as 150’00 remains the line in the sand. Let’s give it another session or two to see if we can get a short opportunity from higher ground. A trade over 134’00 in 10-yr notes can be viewed as a selling opportunity with stops above the July highs in my opinion. The NOB spread is on my radar and I am waiting for it to widen a touch more on an advance in 30 yr bonds which should get it closer to at least -17.00.

Livestock: Live cattle stalled at its 9 day MA closing 0.28% lower. I expect more upside and have the 20 day MA as my target just under $1.28 in December. Feeder cattle were in the green again yesterday closing at its 9 day MA. I see limited action on either direction and prefer the view from the sidelines. Lean hogs completed a 61.8% Fibonacci retracement at their highs but failed to hold onto their gains closing lower by 1.27%. The 20 day MA at 75 cents should support but trails stops just under that level if long.

Grains: Corn is searching for immediate direction and I echo yesterday's comments: play the breakout above the 20 day MA or below the 9 day MA in December. I like fading rallies thinking our harvest lows are below $7/bushel and it has yet to be made. A 50% Fibonacci retracement was completed in November soybeans and by the close a doji star formed on the daily. My feeling is we get a bounce from here so I would close out all remaining shorts. Wade back into longs via options until we get confirmation …a settlement back above $15.75 would suffice. There appears to be stiff resistance in wheat just under $9 in December as prices should grind lower. If soybeans do bounce, $8.30 may not happen in wheat though. In fact with the recent sideways action I think active traders are better off in corn and/or soybeans.

Currencies: The dollar’s appreciation yesterday put it back above the 20 day MA and bumping up against the trend line. If we can get a slight advance into the next few days I think we see a trade north of 81 cents next week. Traders should be flat in the euro and Swissie. The pound lost 0.42% as the 20 day MA should now act as resistance with prices under that pivot point. Continue to trail stops as 1.5900 could be challenged in December. All 3 commodity currencies gave up ground yesterday and if we can get metals moving south like energies expect that to continue. Trail stops on bearish plays as more downside is expected in the Aussie, Kiwi and Loonie. With the 0.53% drop in the yen prices are now below their 50 day MA. If short trail sops just above that level with a target of 1.2600.

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