Crude will close down about $1.50 on the day and about $6 off its highs intra week highs. The fact that prices did not break down and heavy buying came in below $70/barrel this correction may be close to over. Clients are still holding their May call spreads and are under water but we expect this trade to be profitable. We have NO opinion here until the dust settles. We have no long or short exposure in natural gas with clients.
We started to buy June RBOB call spreads this week and will most likely be adding to this position in the coming weeks. We expect to see a rally in Indices to start next week. That being said we’re not saying to get long but rather to use this rally to exit positions or to sell; ideally we get a window of 1105/1115 in the ES and SP to sell. Softs were crushed today with cocoa losing 3.8%, sugar down by 5.3%, cotton by 3.4%, OJ by 2.4% and coffee by 2%. Sugar closed just below the 50 day moving average; we are pricing out July bullish plays but have yet to make a move. Prices are down 13% just this week but remember prices were at a 29 year high so there could be more downside…stay tuned.
We suggested a buy in cotton if we saw a drop which we have seen but re-evaluating we think it is possible to fill the downside gap from October which would take prices about 3 cents lower so hold off for now. As Treasuries make their way closer to 121′00 in the March contract we are more interested in gaining short exposure for clients; at the moment we are flat. We misspoke about the USDA report; it is next Tuesday not Monday. Clients are lightly long May soy meal and hold calls in May and July corn. As for the December corn futures clients are long and have bought March puts for protection into the USDA report. The delta neutral strategy is allowing us to stay about even in the live cattle even with prices moving higher; clients are short April futures and Long (3) April 92 calls. Originally the trade was expecting to see prices down in the short term and higher in the medium to longer term. The 100 day moving average held today in April gold but to determine if the bleeding is over will be up to the dollar next week. We think it is aggressive but after the near $85 break in prices one could wade back in futures lightly. We see support in April at $1140 followed by $1125. The $14.75/14.90 level is a buy in March silver in our opinion, today’s low was $14.65.
Traders may need to risk down close to $14 so trade accordingly. We still prefer $2 call spreads in May or out rights in July. Today some clients bought $18 July calls for just over $2000/per. We think a trade back over $20/ounce in 2010 is likely so buying at these levels though painstaking in the short run could prove to be very profitable. The Euro/yen trade hit clients a little today but we think the worse is behind them. We will treat this as 2 different trades and on rally above 1.38 exit the Euro next week. Over the weekend if we get rhetoric out of Euro-zone DO NOT rule out a quick trade to 1.39/1.40.
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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