What will be the next catalyst to get markets moving in either direction? Crude finished marginally lower today…it had been several weeks last we saw two consecutive negative closes. We smell a $5 correction and aggressive traders can gain bearish exposure willing to let go at a loss on a trade above $107 in May. Natural gas challenged the 20 day MA again today at $4 in May. We favor bullish exposure via futures and options with an initial target of $4.25. Back to back inside days in the indices with a close just below the 20 day MA. It is any one’s guess from here but our bias is bearish with some clients holding June ES put spreads at about even.
The dollar took a break today but we still favor a rally and would be fading advances in the Euro, Swissie and Pound. Use a trade below the 20 day MA to be a buyer of June lean hogs; that level is 101.40. Live cattle surged to new record highs…this is a true bull market. Silver had been unable to hold onto its gains the last three sessions. Aggressive clients opted to establish bearish ratio spreads, short (1) silver against (2) longs in gold. The idea is as metals correct more money will be made in silver than lost in gold. Copper lost 3% today and is off 8% in the last week. If we break the 100 day MA look out below. Prices have not penetrated that level since copper prices were $1 lower than their current price.
In the softs sector we advise bearish exposure in cocoa and cotton as both could see a 5-10% setback in the coming weeks…in our opinion. Agriculture sold off as investors booked profits on previous bought longs ahead of tomorrow’s USDA report. We hold soybean spreads and a bullish CBOT wheat trade into the report. We suggest scaling into longs in new crop corn, soybeans and wheat on this set back. We are flat in our clients NOB spreads but will look to re-establish (short 30-yr bonds/long 10-yr notes) after the ensuing rally. Did anyone catch the story that PIMCO is dumping its’ government debt. If the “bond king” is not buying Treasuries neither am I.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.