Commodity Update: Loft Levels Unsustainable?

closed lower for the third week in a row but it was not a straight line with daily $3-4 ranges. $92 has capped upside the last 3 sessions and in my eyes prices are headed for a trade under $87 in the coming weeks. Heating oil should see lower trade but there will be rallies along the way like yesterdays 12 cent jump. A settlement back under the 50 day MA currently at $3.09 should get bears back in control. RBOB ended the week about where it stated but that is not the whole story with a 23 cent or nearly $10,000 trading range on the week. Even though we’re trading just off the contract highs I think prices break down. First we must penetrate the 50 day MA which supported this week at $2.81 in November. Natural gas will close 5% off its recent highs just above the 8 day MA. I would be positioning for a trade lower and think a 25 cent correction is in the cards.

Stock Indices: Stocks closed higher on the week trading back near their contract highs. I do not expect these lofty levels to be maintained but I would caution picking atop until pries breach their 9 and 20 day MAs. In the S&P those pivot points are at 1441/1443. In the Dow we will need to see settlements under 13420/13425 to assume more downside. A move just under those levels would take prices under their up sloping trend line that has supported for the last 5 months…a real swing if this played out.

Metals: After posting a new high trading within $3 off $1800 yesterday gold prices fell of today losing 0.75% now $17 off that critical level. I’ve been warning of a correction for weeks and stand my ground. A 38.2% Fibonacci retracement put prices just under $1700 while a 50% retracement puts prices in December under $1675. Silver for weeks now has failed to take out $35/ounce closing almost 50 cents below that level to end the week. I’m operating under the influence that a $2-3 drop is around the bend. The 50 day MA is at $31.40 and even with a trade to that level there would be no chart damage done so why not?

Softs: Cocoa has completed a 50% Fibonacci retracement off nearly 12% in the last month. The easy money has been made on shorts though we could see an additional 2-3% in my opinion. Sugar is stalling at the 38.2% Fib level but I see further upside. For fresh entries place stops under the latest lows. My favored play is long 13’ futures while simultaneously selling out of the money calls 1:1. Cotton should grid lower…aggressive traders can establish shorts with stops above the 100 day MA. Coffee lost 4% today and is off 9% in the last 3 days…coincidentally after I advised bearish trade. My feeling is a new contract low will be seen in the coming weeks.

Treasuries: 30-yr bonds have lost ground the last 3 sessions closing the week out under their 20 day MA. I expect further selling and have advised bearish trade looking to capitalize on a trade back near 145’00 in December. 10-yr notes have also started to roll over and ended the week at their 20 day MA. I think the path of least resistance is lower in this instrument as well. This could set up great for a NOB spread as bonds should outpace notes on their way down. This week alone the spread picked up 2 points or $2,000 per. Lone dated 14’ Eurodollars are also a sale at these levels for a trade in my opinion.

Livestock: After 2 weeks of selling live cattle managed to finish slightly higher this week. Aggressive traders could have a light long position targeting the 20 day MA at 127.60 in December. Feeder cattle were sideways and I see no reason to be trading either direction currently. After the 3.7% advance this week I think lean hog prices could retrace and trade back near their short term MAs. Aggressive traders could probe shorts in December with stops above 77 cents.
Grains: Very tight trading range in corn this week with prices stuck between their 9 and 20 day MAs. I suggest fading rallies with tight stops thinking the harvest lows have yet to be made. Soybeans have started to pick up in recent sessions…the next hurdle is the 9 day MA at $15.65 in November. A trade above that level should get soybeans moving towards $16.25 though I don’t see much more on this leg. Wheat traded lower 4 out of the last 5 sessions closing out the week just above$8.50/bushel. I anticipate sideways to down action in the weeks to come.

Currencies: The dollar failed to take out the down sloping trend line closing out the week back under its 20 day MA. Further selling in the coming weeks will likely drag prices to fresh lows. Reverse your trades in all European currencies with a slight bullish bias with stops under the 20 day MAs. Shorts probably were stopped out of their Kiwi and Loonie trades with the pair above their 20 day MAs. The Aussie has failed to bounce and still looks like lower ground is around the bend as I would not rule out a trade under par. The Yen is lower the last 6 sessions as traders can trail stops. My target remains 1.2575 in December.

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