Reflation…Is this Real?

Crude traded below the 50 day moving average for the first time since 10/9 today hitting our first objective of $76. If today’s low holds in the coming sessions this could be a good beginning to a long scale, trade. At this point we cannot rule out a trade in the short run to $74 on the January contract…stay tuned. Natural gas has been holding it’s own but it is still premature to call a bottom.
We still suggest light exposure in mini-futures and 50 & 75 cent call spreads. We’ve yet to get clients re-positioned in the lumber market but we’re very impressed with the recent action. Ideally we get a trade back near $215 in January to get clients long. As of this post an inside day in the stock market, we expect a move south but would be quick to take losses on short futures on a trade above yesterdays high. We would suggest holding onto the ES puts either way as a surge higher this week could happen but we anticipate a 1060/1070 soon thereafter. Mixed bag with gold $3 higher and silver 8 cents lower. Just to be consistent we like long exposure in metals 3/6 months out but short term we cannot rule out a violent correction.
The bid to cover ratio tells the story as demand for Treasuries is soaring; 30-yr bonds and 10-yr notes appear to be moving higher but that will be without our clients. March corn has come down approximately 35 in the last 5 sessions, which is enough for us to get clients back long once again. 2 suggestions we had today were: buying March $4.30 calls, long May futures against a sale of May $4.50 calls. As for wheat prices March has come down about 50 cents but we think there is a little more downside. Live cattle did not close above the 20 day moving average; we’re still waiting for confirmation before adding to the position.
The yen is very close to the highest level of the year, though we’re not suggesting longs here on a breakout pay close attention because this should mean the risk trade is back ON in a major way. We still like selling rallies in the British pound. On a breach of 1.6450 prices should peel off to 1.6250.
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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