Markets Settle In

The markets have relaxed but as investors you must not. Their will be wild gyrations in the weeks to come so start thinking long and hard how you want to be positioned. At the moment $69 appears to be the line in the sand on front month Crude oil; July as of this post is at $70.20. Aggressive traders could buy futures with stops below the recent lows. We prefer to be buyers of August and September $5 bull call spreads for our clients. On the August contract we expect to see a trade over $78/barrel in the coming weeks. We have started to advise clients looking to capitalize on movements in the distillates to get long; if our analysis is correct in Crude we should see a bounce 20-25 cents in heating oil and 15-20 cents in RBOB. As for natural gas it is not high on our list but traders wishing for exposure should continue to trade the 40-50 cent range.
Continue to sell rallies in the indices; our downside targets are 1050 and ultimately 1000 in the S&P, 9600 in the Dow and 1710 in the NASDAQ. This could be a bumpy ride and we may see a rally back to the 100 day MA before the next leg lower. This comes in at 1135 in the S&P, 10545 in the Dow and 1895 in the NASDAQ. Cocoa closed above the 9 day MA today for the first time in two weeks; expect bullish trade recommendations in the days to come. Another 2-4% correction in sugar and we will start getting clients long October 10′ and March 11′ contracts. We likely will be sellers of cotton this week for clients so stay tuned. OJ closed lower today for the first time in eight sessions; could this be the beginning of the correction we’ve been calling for?
We’re pricing out bearish play in Treasuries with futures and options but as of yet we’ve yet to price out a viable play. Based on the last two sessions we want to be selling rallies for clients but have yet to decide on a futures or options strategy…stay tuned. The short end of the curve remains a sell as we’re advising clients to buy long dated puts or to sell futures. It appears the market is starting to price in higher interest rates. We will be looking to unwind the remainder of client’s short August lean hogs on a drop of 1.50-2.50%.
Gold traded higher for the first time in eight sessions gaining virtually $20/ounce on the session. We see light support at $1170 in June but have yet to establish any positions for clients until we get further proof that the recent 6.5% correction has run its course. July silver was higher by 1.90% on the day but has yet to take out previous support which is now acting as resistance at $18/ounce. Needles to say we’ve advised clients to start working lightly long again via July futures or September $1.50-$2.00 call spreads. In Agriculture we suggest longs in September and December corn, November soybeans and December soy meal; for specifics contact us. The US dollar and Euro will likely set the tone this week as other crosses look for guidance. At the moment clients only exposure is longs in the Pound via July options.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.