Inflation vs. Deflation

I’m not smart enough to know what is better for the economy inflation or deflation but I do know that things cost more than they used to and I thought that was inflation. Maybe I need to go back to school…isn’t it that easy Ben? Crude oil picked up ground for the third consecutive session today carrying prices back near the 9 day MA at its highs. As we said yesterday we would need to see the distillates turn before Crude could reverse…low and behold RBOB was higher by 3% and heating oil advanced nearly 2%. Look for further evidence in the coming sessions and then we should be in bull mode again. Natural gas made a new high and failed but being the recent sell off has dragged prices to oversold levels we like gaining long exposure. For now our suggested play is purchasing September bull call spreads.

Inside day in the indices and the rally up to Fed may have seen enough. If we fail to trade above 1295 this week prices will likely head back to 1265. If long trail stops to protect profits. The Pound broke down today being the biggest loser down over 1% as of this post. Chart damage was done and we have shifted our bias form bullish to bearish here. The Loonie is still a buy in our eyes and should gather steam if metals and energies advance. Move to the sidelines in live cattle and lean hogs and let prices back off so we can re-establish longs from lower levels. Both gold and silver held onto small gains but are currently trading well off their session highs. We maintain our bullishness and think both metals should be accumulated at these levels.

Cocoa has touched the 200 day MA twice in the last three week but in both instances gains were capped. On a trade above 3055 in September look for upside momentum. Sugar is a sell…a near 25% appreciation in the last five weeks is not justified in our opinion. A bloodbath is the only way to explain the action in agriculture today. Clients will be advised to buy this dip and be long into June 30th USDA report but unfortunately some are already long wheat and soybean oil and today was not kind to them. Remain long but recognize the damage may not be done. We feel wheat should trade back near $8/bushel by late June early July that is why we’ve held on. As we voiced yesterday Treasuries look heavy but they have for weeks. A trade below the 20 day MA should signal an interim top; that level is 125’7 in 30-yr bonds and 123’07 in 10-yr notes.

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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