Energies Crude has moved lower for the last 2 week, losing almost $5 last week. That being said no damage has been done to the charts and we still like being long. Support is seen at $67 in October with resistance first at $70 followed by $72. Clients are positioned in December $75/80 bull call spreads. The distillates should follow oil but we have no exposure currently for clients. Natural gas finished lower last week but we did have a bullish engulfing candle last Friday. We have been fooled before but this could be the bottom. We are down in virtually all our client’s longs in natural gas but if any market can get that premium back this is it. The $2.50 level should hold in October, a 50% Fibonacci retracement could carry price back near $3.50. Clients with a 60 plus day time frame should look to gain long exposure. OPEC meeting this week.
Livestock
Live cattle are trading sideways but from our viewpoint a base is being built for a substantial move north. Option traders can get long December or February. Futures traders could get long either month with option protection. How we have most of our clients positioned is long February and short October. We expect live cattle to be 4-7 cents higher over the next 60/90 days. We are not trading feeder cattle currently but the same circumstances exist, prices are basing out and should be moving north in the coming months. We’ve advised clients to take their longs off in October in lean hogs and book a profit. On a move higher this week in December we would advise the same. It is not that we do not see more upside but for a market to go from oversold to overbought in 3 weeks we feel if you have a profit book it. On a set back we would most likely look to get long again.
Financials
Stocks: Two sided trade in equities as the recent move may be running out of gas. Historically speaking the next 60 days is not kind to equities so we would rather be seller of rallies or in cash on the sidelines. Though we may not be active trading indices we would suggest following their movement as their influence on other markets. A move above 1040 or below 990 should signal the next leg in the S&P, in the Dow above 9660 or below 9225.
Bonds: Strictly off the charts Treasuries look as if we’ve seen an interim top last week but that could change at any moment. We have clients positioned long in December30-yr bonds thinking on a stock market correction the flight to quality should flow to bonds but as a hedge we advised October 10-yr puts against the 30-yr bond longs. A trade that you will hear continuously from us is selling rallies in far dated Euro-dollar contracts. For options we are advising June 10′ puts.
Currencies
The dollar has fallen off a cliff and until we get a relief rally the path of least resistance is down. If the dollar weakness persist look for more upside in int’l currencies. As of this post all seem to be breaking higher out of their recent trading ranges. We would give it a day or two to see if this is real. If it is, traders could buy setbacks in all currencies with stops below the recent top of the trading ranges. We should have some ideas mid-week in our blog.
Grains
Prices of grains continue to chop lower as a bottom is yet to be determined. We would like to think on an early frost, increased exports or a surprise on this week’s USDA a bottom is found. Wait and see! For now we are long and wrong in December wheat and corn for clients. We think these calls are correct but we just committed too early. December corn back at $3.70 and December wheat back at $5.70 we think is still feasible over the next few months.
Softs
We view the current pullback in sugar as profit taking and will remain long with clients and advise traders who have yet to gain exposure to view this as a buying opportunity. We would suggest trading the March 10′ contract. We have yet to figure out a way to get long cotton but have been pricing out a few different strategies. Stay tuned. Outside of sugar our only exposure with clients is long coffee. Last week we suggested clients to sell puts in March 10′ and to buy calls in December coffee. We believe last weeks lows should serve as solid support. Our upside targets are 128, 130.50 and then 133 in the December contract.
Metals
The mythical $1000 level has been breached in gold as of this morning. From here where do we go? Longer term we feel there is much more upside but at this juncture we think too many investors are piling into the gold. In other words this trade is becoming crowded. By no way are we saying get short but we have advised clients to take profits on longs and wait for a setback to get positioned long again. Our preferred way to play metals remains long exposure in silver. We have a majority of our clients in December call spreads. We’ve started to look for an exit and will likely get re-positioned long in the March contract on our next entry. Silver could approach $19/20 ounce by years end but we doubt we will go there in a straight line.
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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