Post-Election Commodities

Crude oil ran into the same resistance level that capped upside Tuesday and then the bears gained control and took oil lower by almost 5%. Selling dried up in the afternoon, Wednesday, but one would expect more follow through selling. The closer pries get to $80 in the December contact the more aggressive I would be buying for clients. Those that bought lightly Tuesday should be long February and hedged off with options, so be willing to weather more downside. A lower high and lower low in RBOB with a close lower by 4%. We’ve yet to make fresh lows but from here I’d expect another 3-5 cents of downside...that would complete a 50% Fibonacci retracement. A bearish engulfing candle in heating oil closing lower by nearly 3%. Support in December is seen at $2.94 followed by $2.85. Crude will need to stabilize before distillates find their footing in my opinion. Even with the 1% loss Wednesday the 50-day MA continues to support in natural gas. I suggest scaling into bullish plays with stops under the latest lows targeting a 20-25 cent appreciation in the coming weeks.

Stock Indices: My opinion an overreaction to the election results but needless to say Wall Street was bloody today with the S&P lower by 2.54% dragging prices to three-month lows and within three points of my 1380 objective. The Dow gave up 2.56% also trading to a three-month low. While I do not expect the same veracity more downside is expected before prices stabilize.

Metals: Gold held its own Wednesday all things considered but gold was far from flat though it may appear that way just looking at the settlement. A $30 trading range today and over the last four sessions the average daily range has been over $31. I like the pattern and when comparing to outside markets I think gold held up well. In fact when prices were down Wednesday morning, I advised some clients to buy more February gold. The strategy I’ve been advising is back ratio spreads as my target, which remains the 50-day MA, in December at $1740. Choppy action in silver as well with a negative close losing just better than 1% on a $1.20 trading range which on the standard contract amounts to a $6000 range. As long as the most recent lows hold I like bullish positioning. Back ratio spreads in March is my recommendation here.

Softs: With the 2.56% loss and close under the 100-day MA, longs should have been stopped out of cocoa today. Keep your powder dry on the sidelines for now. Sugar closed under 19 cents at a fresh contract low down 3.27%. For fresh entries wait for futures to find a bottom before gaining bullish exposure. Those long bull call spreads I will be advising to buy back the top leg once we establish an interim low…stay tuned. This is a speed bump and I still believe in the trade. On a trade close to 66/67 cents in December in cotton I would start to have long entries on my radar…stay tuned. I’ve started to price out bullish plays in March OJ...expect ideas in the coming sessions. Coffee remains at devalued levels but I’ve yet to find a catalyst to buy. If a solid base builds around $1.50 I may be willing to take a stab so stay alert.

Treasuries: Just when I thought we we’re headed lower, a reversal Wednesday off the 20-day MA in 30-yr bonds with prices now within one point of my 151’00 objective. If we get more pressure in equities expect that level before the weekend. 10-yr notes were higher by 0.66% fast approaching their September and October highs. Way too early to tell but could we have a triple top in the making? I’m eager to be a seller in this complex from higher levels with clients.

Livestock: Live cattle lost 0.58% to trade at six-week lows. If equities continue lower I would anticipate a challenge of the September lows. Feeder cattle gave up 0.83% to trade to their lowest level since late July with no ending in sight. With most commodity markets in the red today and lean hogs up in early dealings I advised clients to move to the sidelines at a scratch or very slight loss including their fees. I’m glad I did as soon as we were out prices raced to three-month highs closing up 3.25%. Once the dust settles I will be looking re-establish bearish plays…stay tuned.

Grains: Corn gained ever so slightly probing its 50-day MA. As long as December is under $7.50 I’m in the bear camp but I see far better trading opportunities elsewhere. Soybeans lost 0.56% to trade under $15/bushel in the January contract for the first time in the month of November. Just like corn I believe prices could grind lower but this entire complex does not excite me right now for bullish or bearish plays. The best looking chart formation is wheat showing signs of life. The fundamentals are looking more supportive as well. I’m thinking a trade over $9/bushel will get wheat back on grain trader’s radar…stay tuned.

Currencies: Intra-day, Wednesday, the dollar traded above 81 closing just off that level. A risk-off trade will aid in a further bid but I’m not expecting much more on this leg. Wednesday a failed rally in the Loonie at the 20-day MA with prices feeling the pressure with weakness in energy. Move back to the sidelines. The last three sessions we’ve experienced higher highs and higher lows in the Yen and with the potential of risk off I like bullish options exposure in the Yen…see JPY: Look For Bounce From Oversold Levels.

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