We view the current sell off in a number of commodities as merely a correction not an end to the decade old bull market. The chart was ugly but I did think we would see $94/95 in Crude before this correction…I stand corrected. The fact that we closed below the 20 day MA we should see a probe at the 50 day MA; in February at $87.20. The trend line that has held for several months comes in at $85 so at worst we could see an additional $4-5 from today’s close…only my opinion.
We will likely be looking at scaling into longs in March and April contracts on a trade $3 lower from here. On a 25-30 cent pullback in natural gas we would once again look at scaling into futures and purchasing 50 cent call spreads for clients. A sell off in early dealings was erased as the indices are slightly positive as of this post. We have positioned our more aggressive clients in bearish option positions in the ES thinking we are overdue for a correction; target in March futures is 1215-1225.
We hinted at a few plays in forex yesterday (shorts in the Yen, Swissie and Loonie) which were all hit today. Much of the move came overnight especially in the Swissie so we opted to get short the Loonie. Some clients purchased put options with a target of .9800. Lean hogs and live cattle should continue trading lower. We welcome a break of the 20 day MA’s in coming sessions. About 1.5-2.0% lower in live cattle and we would look for an exit door on shorts. At a crossroads as tomorrow action will be critical in both gold and silver. Gold was hit 3% today closing at the 50 day MA. We expect there to be more downside, next target $1335. Silver lost 4.13% and was down over 5% intra-day. The low of the day tested the trend line that has held for six months. On a breach of that line look out below as we could see 5-8% further depreciation…trade accordingly.
Sugar and coffee may have reached an interim top; we may have bearish trade suggestions…stay tuned. We will be using this setback in cocoa to be a buyer of May contracts for clients; we have both options and futures suggestions. Inquire for more detail. Day two for the correction grains, as suggested yesterday we would like to see more of a set back in new crop corn and soybeans to be a buyer ahead of the January 12th USDA report.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.