The Hard Trade

In my career generally the hardest trades have been my most successful. Buying on days like today is not easy but likely the correct move. The EIA’s move of releasing SPR’s will grab headlines in Crude but in our opinion will be a moot point by next week if not sooner. We consume north of 80M barrels a day and they are releasing 60M barrels…do the math. Today’s candle in Crude was ugly but we did pare loses trading $2 off the lows as of this post. Analysts are screaming $85/barrel I don’t see it. We suggest using weakness as a buying opportunity but in full disclosure we recommended clients to buy from higher levels. It’s called hedging for a reason…heating oil and RBOB got hit hard today…thankfully we advised clients to scale into their fall hedges. Natural gas gave up 2% today closing at a five week low. We’ve advised clients to purchase September bull call spreads. An additional trade idea would be to buy December 2011 and sell December 2012 3:1 call options. Inquire for exact strategy but it is a longer term bullish play with little out of pocket cost.

As of this post indices have fought back to almost get positive on the session…very impressive considering early trade. The dollar should close about 0.70 higher but well off its highs. Without follow through tomorrow we still feel south from here. Use last week’s high as your pivot point…in other words when we’d admit we’re wrong. As for trading the only play we have is buying the Loonie. Lean hogs should trade lower perhaps back to the 20 day MA; in August at 92.75 stay tuned. Selling was rejected in live cattle today after filling the gap from early this week. We missed the buy for clients but buying dips remains on our radar. Gold down 2% and silver off by nearly 4% was not what we anticipated but we like the late day rally and are feeling a little better about our clients long exposure. August gold will need to hold $1510/ounce or things could get extremely ugly. Some clients have light exposure in October call spreads. Silver remains sideways trading back near the bottom of the recent trading range. We like buying but if $34 in July gives way look out below. We would not suggest owning both gold and silver at the same time as they will likely move together.

Cocoa breaks below the 20 day MA or above the 200 day MA and there you go…we like being long. Sugar bounced off the 20 day MA closing 7.5% off its lows. We suggest fading rallies anticipating 23 cents/lb in the coming weeks. Mixed bag in Ags but as we said use this setback to gain long exposure ahead of June 3oth USDA. We closed well off the lows and corn, soybeans and wheat are a buy on dips in our eyes. Treasuries are back at their highs which means a higher selling point but all this trade has done is lost clients money. We will likely walk away until a top is confirmed.

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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