A correction is looming. That is not to say ALL commodities will correct, but examining the technicals and digging deeper into the fundamentals, we expect a “healthy” correction in a number of commodities. For those that have already come off, the damage may have already been done (sugar, natural gas, cocoa, agriculture) but others look ripe for a correction. Where we see the chances of the largest potential corrections are oil, metals, cotton, OJ, livestock and the Indices.

Oil has been overbought for two weeks now but still prices have managed to gain $4 within that time frame. Clients are positioned in $5 put spreads and are currently under water. We will not trade futures from either side until we get a clearer picture. We're still trying to pick a bottom in natural gas, thinking there is not much more downside. Being clients only hold a small position, we’ve been able to weather the assault the last 2 to 3 weeks. Seven consecutive days in the stock market is very impressive but I’m a non-believer. I expect the January highs to act as stiff resistance; if prices get through those levels, unfortunately clients will be forced to cut losses on futures. Regardless, we will advise them to stay with their June ES and SP puts.

The phrase 'March Madness' is coined for the college basketball tournament, but I think it is an accurate description of what to expect as a trader this month.

At its highs today, oil was less than $3/barrel from making new highs on the year. Being bearish for the last 1-2 weeks has made our clients no money, but we still feel a trade to $75/76 is imminent. We are not disputing a trade in summer is likely up to $90, but first, a correction. We still favor $5 put spreads. Natural gas should finish down 3.5-4.0% lower on the week. That is not too bad! Clients have a small long position in April futures and June call spreads, and at the moment are all under water. We expect the next 2 weeks to be better to us in energies; that means crude down and natural gas up.

By Brad Zigler

Earlier this week ("Add Soft Wheat To Your Hard Asset List"), we noted bottoming action and bullish seasonality in Chicago wheat futures bolstering the price of the iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSE Arca: JJG).