Commodity Update: Gold Rolls Over

closed marginally lower yesterday, still unable to retake its 8 day MA. I still like scaling into bullish plays as I view these levels as too low and unsustainable. My target in January futures remains $90/barrel in the coming weeks. RBOB was also a slight loser closing at its 8 day MA but able to hold the $2.60 level. I expect sloppy action with prices wandering in a 10-15 cent trading range. Heating oil experienced the most downside yesterday losing 1.16%. Support at $2.95 was challenged and held; under that level, the next stop should be $2.90 in January. Natural gas leapt 4.38% higher closing at 2 week highs and as of this post is within a dime of my $4 objective. Continue to scale into longs as I remain bullish as long as January remains above $3.75.

Stock Indices: The Dow closed down 0.50% yesterday, unable to reclaim 12800. This is necessary to confirm an interim low was established. I am operating under the assumption we get a bounce moving forward. A lower close in the S&P as well though we did not make a fresh low. It will take a settlement above 1390 to confirm we see a move north from here in December futures. On the upside, my target is 1425 in the coming weeks.

Metals: Gold gave up just over 1/3% as prices have started to roll over, at least in my opinion. I anticipate we see a trade challenge to $1700 in the coming sessions. I will be looking to buy for clients from lower levels…stay tuned. Indecision in silver after the latest run up, as a tug of war exists. From here we should see either a probe of the 50 day MA roughly 75 cents above current levels or a trade back to the trend line $1.25 lower. My bias is with a correction so I’ve advised aggressive traders to be pricing out bullish plays on a setback.

Softs: Cocoa has gained for the last 3 sessions as aggressive traders can wade back into longs with stops under the recent lows. Do not get greedy. A trade north of 2500 in March futures? Partial profits should be taken. Continue to scale into bullish plays in sugar as I am forecasting 20 cents/lb. in the coming weeks. My preferred play remains bull call spreads. As long as cotton remains above 70 cents, the sentiment is mildly friendly but this is far from my favorite trade with few near-term bullish catalysts. Not a pleasant day for coffee longs with the 4.39% depreciation yesterday. In full disclosure, some of my clients were buying Monday and yesterday. Prices are near 2 ½ year lows. When prices traded under their June 12’ lows stops were likely run that added insult to injury. My clients own bullish ratio spreads and while we did not hit the ground running I still like the trade.

Treasuries: 30-yr bonds closed slightly higher trading to fresh 3 ½ month highs. I’ve advised traders to fade this rally thinking we are very close to a turning point. My suggestion is nibble and then add to the trade once the market proves you correct. I am not just selling 30-yr bonds for clients but rather I’ve advised NOB spreads which entails buying 10-yr notes 1:1 against a sale in bonds. The appreciation in 30-yr bonds should partially be offset by a gain in 10 yr notes which I also think are very close to heading lower. On a day like yesterday this strategy lost $437.50 in bonds and made $156.25 in notes, net loss of $281.25 per strategy.

Livestock: Bullish engulfing candle in February live cattle, as prices closed higher by 0.35% challenging their 20 day MA on their highs. I choose not to take the trade but I do feel prices in this contract will trade back near $1.31. January feeder cattle closed near their highs but were unable to take out their 9 day MA. A trade above that pivot point at $1.4610 should lead to an advance to $1.4750. On the 0.67% advance in lean hogs yesterday, prices traded to fresh 2012 highs. Bearish plays are on my radar but I’ve yet to act.

Grains: Lower trade was rejected in corn, closing higher for the first time in four sessions. Sentiment remains bearish but do not rule out a trade to $7.35/7.40 in December. Nearly a doji star in soybeans daily chart with prices higher by 1 penny yesterday. Looking at the technicals back to the beginning of the year, $13.90 could prove to be a turning point. I’m waiting for more evidence, but after the 22% drop in 3 months I may start looking for long entries. Stay tuned. Wheat has given up a month of gains in the last 3 days ad more downside looks apparent. Yesterday’s lows challenged the October lows so pay very close attention to see if these levels hold.

Currencies: The dollar remains overbought as I feel a trend reversal is in the making. This is critical--not just critical for currency traders but a number of commodities should exhibit an inverse relationship. If the dollar gave back 50% of the latest leg, that would likely bode well for energies, metals, etc. The euro, Swiss and pound are starting to look like buys and longs are on my radar…I am just waiting for confirmation. As long as the 20 day MA support remains, long the yen. But as soon as it gives way, close out bullish trades. That level is at 1.2540 in December.

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