Commodities: For all Scenarios

When I started working in commodities, almost a decade ago, they were considered a dirty word and certainly not a place for the average Joe to invest. Within the last few years, thanks to investors becoming more open minded, the overall performance of commodities and other asset classes, commodity futures and options are quickly becoming a respectable asset class. Case in point, over the weekend while reading the WSJ there were 3 different scenarios and portfolio allocation suggestions, regardless of the scenario all 3 had a place for commodities. One that fears inflation should have as much as 25% allocated to commodities, one fearing deflation only a 10% allocation, with the middle of the road being 15%. While we agree with the percentages we suggest investors get more informed on trading futures and options not just commodity ETF’s.

The DOE reported that crude oil supplies were down 1.8 million barrels, supplies of gasoline were up 800,000 barrels while heating oil supplies were also up 800,000 barrels. September crude oil ended higher by $3.68, the highest close since 7/2. The pivot point currently stands at the 50 day moving average of $67. $68.50/69.00 should act as resistance with support at $65.00. The easy money has been made on longs being that in the last 10 sessions prices have gained 11%. September heating oil was higher by 13.93 cents last week. Support comes in at 1.78 followed by 1.75 with resistance seen at 1.86/1.87. On a further rise in crude we could see 1.90, if long trail stops.
September RBOB gained 14.30 cents last week though prices are starting to look toppish. We’re not advising getting short but we could see a setback, follow crude’s lead. Support is seen between 1.83 and 1.8450 with resistance at 1.9250.
The DOE reported that natural gas supplies were up 66 billion cubic feet last week to 2.952 trillion cubic feet. September natural gas closed up 4 cents last week with a trading range of almost 40 cents. A potential double top formed last week at $4.05 as prices failed to get through the 50 day moving average after 2 attempts. That level should serve as resistance at $4.03 with support at $3.65. We are still advising clients $1 call spreads, on multiple positions split the purchase between October and November.
September cocoa gained $134 last week trading above 2900 which had not happened in 11 months. If the US dollar moves higher as we expect we should see a sizeable pullback so we’ve bought clients October 2500 puts. We paid $350-370 and are currently holding a loser. Last week’ high around 2920 should act as resistance with support at 2840 followed by 2750. In the next 3 weeks we expect a trade down to 2660.
October sugar closed up 98 ticks to a new contract high, supported by expectations for a production deficit in 09′-10′.So much for the expected pullback? Be patient and although we missed the last leg up with all clients we are still anticipating a back off. 18.50 should act as resistance with initial support at 18.00. On a trade back to 17 cents, near the 50 day moving average, we will look to re-establish longs for clients.
October cotton fell 4.51 cents last week finally closing lower after 4 positive weeks. The US cotton crop is getting substantial relief from the hot and dry conditions that started early in the summer. We have clients positioned in October 55 cent puts; we paid $600 and have limits in for $1000 currently which should be filled on a move to 55/56 cents. Resistance is seen at 59.00 with support at 56.00 followed by 54.00.
After gaining 40% in three weeks, September orange juice closed down 7.55 cents last week, blamed on profit taking. Resistance comes in between 98.00 and $1.00 with support eyed at 93.65; the 38.2% Fibonacci retracement. On a move to 88/90.00 we may get clients long once again.
September coffee was higher by 4.95 cents last week. Resistance comes in at last week’s high which serves as the 38.2% Fibonacci retracement level near 125.00. Once prices get through that level next stop should be 127/128 where we will exit out December 15 cent call spreads for clients. We paid between $1000-1250 and have a target of $1875 or 5 cents per option spread. Support is seen at the 200 day moving average at 122.35.
August gold closed up $14.60, the highest close in five weeks. Resistance comes in at 955/959 but on a trade above that level we see no significant resistance until 980. Support is seen at 944 followed by the 50% Fibonacci retracement level at 929. We have advised clients to lighten up on their October contracts and will be advising fresh entries to trade December contracts. We are currently directing the purchase of $100 and $150 call spreads in December. Buying gold on or around July 27th and holding until September 1st has been profitable 26 out of the last 33 years with a success rate of 79%. The last 9 years in a row have provided an amazing win streak, with a cumulative profit of $9,670 per 100 troy ounce futures contract. Past performance is not indicative of futures results. Moreover options do not move 1 for 1 with the underlying futures market.
September silver closed up 47 cents, the highest close in two weeks. Prices have traded higher 8 out of the last 10 sessions. Resistance is seen at last week’s high just above 13.90 followed by 14.20. Support comes in at the 100 day moving average at 13.58 followed by the 20 day moving average at 13.38. We are buying clients December $3 call spreads. If the US dollar was to rally as predicted we could see a setback to 12.50/13.00 where we would be a buyer with both hands for clients. If forced to pick either long exposure in gold or silver we prefer silver.
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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions.


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