Commodity Update: Fireworks Off Fed Rhetoric?

November Crude oil closed slightly lower yesterday. On its high it touched the 61.8% Fibonacci level and on its lows it touched its 8 day MA. I continue to position clients with a bearish bias expecting a trade closer to $90 in the coming weeks. RBOB failed to hold on to its gain reversing midsession to close lower by 0.50%. Is an interim top in the making? If so a 38.2% retracement puts November 25 cents lower in the coming weeks. A close under $2.85 on this contract would confirm a correction under way in my opinion. Heating oil inched higher closing above $3.20/gallon for the first time since late April. I don’t see prices able to maintain these levels especially in the face of failing RBOB and Crude to come. Natural gas added 2.8% yesterday to put prices at 5 week highs. A grind higher is expected but I’m on the sidelines with clients. Support is eyed at the 50 day MA followed by the 18 day MA.

Stock Indices: The appreciation in stocks was mild but prices did reach fresh 2012 highs. The sentiment remains bullish but I anticipated more fireworks off Fed rhetoric. My suggestion remains lighten up on longs as a correction is coming. I would prefer giving up additional upside rather than be stuck holding the bag when the next 5-8% correction starts, which in my opinion will be very shortly.

Metals: Gold failed to hold on to its gains closing lower yesterday. I hate to echo previous posts, but a trade above $1745 or below $1725 sets the tone moving forward. My bias leads to a correction dragging December back near $1680. $1.60 trading range in December silver futures yesterday equates to a $8,000 trading range! On a bearish engulfing candle I say we see a correction from current levels. December futures have support just above $31.50 but do not rule out a trade back near $30/ounce. After a near 30% appreciation a correction is needed to see further appreciation in my opinion. Wow I checked back in on platinum which I rarely trade or follow. The move has been spectacular, gaining 18% in the last month after bouncing off $1400; a long standing support level. My suggestion is trail stops and milk this trade.

Softs: Cocoa held its own but still looks like a sale to me. My target in December futures remains a trade under 2500 in the coming weeks. Day 4 of the bounce in sugar as 20 cents is within my sites on the October contract. I like bullish exposure in 2013 contracts expecting prices to trade back near their 50 day MA; that would represent a gain of roughly 8%. Cotton closed just under its 50 day MA as prices are breaking out of the descending triangle mentioned in previous posts. This was our commodity chart of the day. I suggest bearish trade, thinking prices are under 70 cents in the coming weeks. Coffee is starting to stall after the 20 cent jump in recent sessions. I would start wading back into bearish option trades as long as December stays under $1.82.

Treasuries: 30-yr bonds lost 0.80% to drag prices closer to my 146’00 target in December. Bonds have lost ground the last 7 sessions and lower lows appear likely. 10-yr notes broke the 20 day MA today and once 132’00 gives way 131’00 should play out shortly thereafter. The NOB spread continues to be the play has picked up $3,000 per spread in the last 7 sessions. Long term traders should gain exposure in 2013/2014 Eurodollar bearish plays at these elevated levels.

Livestock: Let live cattle fluff higher. Do not get in front of this trade. I want to have one bearish trade but clearly the market disagrees for know. Feeder cattle bounced off its 9 day MA to close higher and trade at 2 month highs. Feeders may move higher but without my clients. Lean hogs can be bought as October should make its way toward 76 into next week in my opinion. I prefer long futures with options protection, either selling calls or buying puts.

Grains: In the USDA report, corn stocks were higher in the US and the world which should be a negative development. December corn lost 1% breaching the 50 day MA for the first time since this contract was 35% lower. Though the easy money has been made I still like fading rallies. There are a number of futures, futures spreads and options strategies that can be used to capitalize in further depreciation. Soybean numbers appear to be supportive longer term and the market agreed, bouncing off support and gaining 2.6%. November beans may challenge their recent highs approximately 2.5% from current levels. I suggest taking off shorts at a loss if not already out. Wheat should continue to look for guidance from outside markets. I’m OK being bearish under $9 in December. In the coming days, if corn breaks down wheat should be under its 5o day MA which should get momentum traders shorter in my opinion.

Currencies: The bleed lower in the dollar continues with September futures approaching 79.50. The trend is your friend, so just trail stops to protect profits. The euro competed a 61.8% Fibonacci retracement...I would be looking for an exit door on longs. The Aussie and Kiwi might have some left in the tank but close out longs in the Loonie. I did not like yesterday’s action and though the weekly looks great, a correction in metals and energies could hurt this cross.

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.