Commodity Update: Mixed Signals From Silver

Strong start to the week in Crude oil appreciating 2.72% challenging 2 week highs and coming very close to completing a 50% Fibonacci retracement. As I’ve said for weeks now, my objective is a trade to $90/92 in the January contract. Trail stops and protect profits on futures. RBOB gained 1.87% to complete a 61.8% Fibonacci retracement lifting prices to 1 month highs. The trend line just above $2.75 should be challenged and then we will see how the market reacts. As long as Crude advances we could see the early October highs challenged just over $2.80. On a % basis, heating oil was the largest gainer in this sector up 2.97% closing at its 50 day MA. I do not see resistance for another 5/6 cents and would remain friendly as long as January holds $3.05. Natural gas prices got close to $4 but based on its recent performance it is more likely to correct lower before we reach that level. Exit remaining longs and aggressive traders could reverse with stops above the latest highs. My target from here is $3.60 in January.

Stock Indices: With last Friday’s bullish engulfing candle I hinted at an interim bottom and forecast an appreciation moving forward and low and behold, the market delivered. The Dow mustered a 1.34% gain yesterday closing over its 9 day MA. My target in December futures is 12925 followed by 13200. The S&P 500 gained 1.67% yesterday, erasing last week's losses closing above its 9 day MA and within 10 points of its 20 day MA. Resistance levels in December futures are eyed at 1392, 1405 and finally 1418-1421.

Metals: Helped by outside market strength and a breakdown in the US dollar Gold managed a positive session higher by 1.15% closing near the upper end of the recent trading range. A close above the 50 day MA currently at $1744 would convince me a correction will not happen on this leg and prices would resume their move north. Trade accordingly. Silver ended higher by 2.53%, closing near its highs just under the 50 day MA. Mixed signals as prices are overbought but on a close above $33.25 I would shift from neutral to bullish. Stay tuned. Currently my clients have no long or short exposure in the metals.

Softs: Cocoa closed higher by nearly 1% on an inside day yesterday. Prices could go either way, but if the dollar moves lower, I may have bullish trade recs to follow. Stay tuned. Sugar closed higher by 4.13% at 3 week highs and just above the 38.2% Fibonacci level. In the last week, prices have advanced 6.7% but I think there is gas left in the tank as some clients have bullish exposure because they're expecting more. Cotton lost ground for the first time in the last 4 sessions yesterday, losing 0.80%. The 9 day MA just above 71 cents needs to hold for me to remain friendly in March. After the 12% gain, let’s see if we can get some more back and fill to gain bullish exposure in OJ from lower levels. March coffee was higher by 3.21% closing back over its 9 day MA. Could this be the start of the appreciation forecast in the last week? A 38.2% Fibonacci retracement puts this contract just under $1.65.

Treasuries: 30-yr bonds lost 0.51% yesterday to close under their 9 day MA for the first time in 2 weeks. I see this as a preliminary sign that we move south from here. I am searching for further confirmation. First stop if in fact a correction is under way should be the 20 day MA at 150’00 in December. 10-yr notes also lost ground closing under their 9 day MA. The 20 day MA in 10-yr notes is currently at 133’10. As long as equities move higher we should see the inverse relationship play out. I expect this to be a bumpy ride, therefore my favored play remains NOB spreads; short 30-yr bonds and long 10-yr notes 1:1.

Livestock: Live cattle did close in the green but failed to hold onto the bulk of their gains. It could go either way so those long should trail stops to levels just under the 9 and 20 day MAs is my suggestion. On the upside, if bulls can regain their momentumm February could see $131.50. Feeder cattle closed above their 9 day MA and though I’m not extremely bullish the risk to reward dynamic is favorable. Traders looking for exposure should continue to gain bullish exposure but be willing to cut losses on fresh lows. As for an upside objective, the 50% Fib level is just over $148.00. With the 1.13% gain in lean hogs yesteday, a fresh contract high was made. There will come a time for bearish exposure in my opinion but picking a top has not worked as of late. Stand aside until there is a compelling reason to gain bearish exposure in February.

Grains: March corn closed higher by 1.57% closing above its 50 day MA for the first time since mid-September. This was enough for me to gain light bullish exposure with some clients. I like the idea of bullish back ratio spreads. My upside targets are $7.65 followed by $7.80 in the coming weeks. January soybeans gained 0.83% on an inside day. Traders can scale into bullish trades with stops under the latest lows. I also like the idea of back ratio spreads here as well but traders should go out to March to employ that strategy. After 7 days of selling, wheat finally ended in the green yesterday picking up 0.47% in the March contract. I’m mildly bullish here as well, thinking we could get a 25-40 cent appreciation in the weeks to come. Trade accordingly.

Currencies: After buying was rejected at the end of last week, the dollar followed up yesterday by posting a loss of 0.48% closing under 81.00. The 20 day MA is your pivot point and a settlement under that level would confirm lower trade; currently at 80.63 in December. The euro, pound and Swiss should act inversely to the greenback. Confirmation of higher trade on a close over their 20 day MAs respectively. As commodities go, so do the Kiwi, Loonie and Aussie. I suggested gaining bullish exposure in the Loonie yesterday. December futures closed above the 20 day MA for the first time in 2 weeks. The trade was long futures while selling out of the money calls 1:1.

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