The January effect 1/21/11

We expect the action in many markets in January to set the tone for the remainder of the year. The 50 day MA has supported March Crude the last two days just above $89/barrel. As we said yesterday we would start scaling into longs willing to stay with the trade and add from both higher and lower levels. The downside risk we see is $3/4 with twice the upside potential. Natural gas prices have gained now five out of the last six weeks putting on 4.6% this week. Trail stops on futures as a trade north of $5 is possible on this leg. We’re still waiting for a settlement below the 20 day MA in the S&P at 1270 before we believe the recent action is anything more then just routine profit taking. The dollar broke down today completing a 61.8% Fibonacci retracement of the move higher from early November. We see limited downside in the immediate future. To play a dollar bounce from here we suggest fading rallies in the Loonie and Pound. Live cattle broke the 20 day MA in February contract today, look for selling to intensify into next week. We’re suggesting getting long April contracts from lower levels…stay tuned. Silver has experienced a near 15% correction just from the first of the year but we feel that is enough to get longs interested once again. Clients have been advised to start working long in silver again and also to initiate a 3/2 silver gold ratio trade mentioned in previous weeks. Gold closed below the 100 day MA today for the second day in a row, we see the next support level at $1325. Wheat was the front runner in Ag this week out performing soybeans and corn. We will be looking to gain long exposure next week in some form with clients…stay tuned. Another 1-2% higher in cocoa next week and we would be looking for the exit door. Sugar picked up 3.25% today closing back over the 20 day MA. Traders must respect the trend line that has held since early August. Another limit move higher in cotton as we may see new record highs next week. What amazes me is that even in the face of rising prices exports aren’t letting up.

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

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