Commodities Wrap: The January Effect

With one month under our belt how is your 2012 looking?

RBOB, OJ, stocks, feeder cattle and all the metals were the upside movers in the month of January, while natural gas was the only negative standout. Will these moves set the tone for trading in 2012?

The move lower has been minor, but Crude has closed lower for the last four sessions. Yesterday a $3 rally was rejected as prices closed just above $98, the lowest close in one week. I continue to get mixed signals and would suggest waiting for further evidence before making a move. A number of followers preach about activity in Iran and the Middle East…well guess what folks, it’s called futures  for a reason, and all of that is factored into the current price.

Do not be so sure oil will appreciate in the immediate future. The distillates are holding on to slight gains as of this post and as long as prices remain above their 9 day MAs  a slight edge is given to the bulls. Those levels in the March contract are 2.8430 in RBOB and 3.0275 in heating oil.

Natural gas was slaughtered yesterday, losing almost 8%, closing back under the 9 day MA. Now that this level has given way, do not rule out a test of the recent lows. Trade accordingly.

Equities are unchanged as of this post. I see the 9 day MA as resistance and the 20 day MA as support. Those pivot points are as follows: in the S&P 1295 and 1312 and in the Dow 12495 and 12630.

Gold did not have its highest close but it did have its highest trade in seven weeks getting within $2.50 of our $1750 target. A positive development, but do not rule out a setback. Solid support is not seen for about $45 below the current market level so risk management on longs is critical.

Silver closed marginally lower for the second day in a row but still held the $33 level. As I said yesterday unless we see  a settlement above $34 very soon I would expect a correction back under $31/ounce.  On the most recent leg higher a 50% Fibonacci retracement  would put prices back at $30/ounce.

Trade below 79.00 continues to be rejected in the dollar index. Expect a  give back in the euro and commodity currencies on further dollar appreciation. The Loonie appears to be the weakest link but much of its movement will be governed by the movement in metals and energies, so look for those sectors for guidance.

Sugar and cotton remain sales on any advances. My targets in sugar and cotton are 5-7% lower in the next few weeks. Trade accordingly.

10-yr notes continue their advance to fresh contract highs while 30-yr bonds should be making new contract highs in the next few sessions as bulls remain in the driver’s seat.

From my perspective 2013 euro-dollars look poised to trade above their late summer highs so I would hold off on fresh bearish entries.

Lower trade in Ag was short lived as we saw all green on the screen yesterday with corn and soybeans slightly better than 1% and wheat higher by over 3% lifting prices back near their January highs. Continue to trail stops on any remaining longs.

We advised exiting longs on a breach of the 20 day MA in both lean hogs and live cattle which happened in the last few sessions. Now it appears we may be trading higher so on pullbacks look to re-establish longs placing stops back under the 20 day MA again. The chart looks favorable in hogs so I would allocate there if I had to chose one.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.