Beware of Excessive Leverage

The exchanges have raised margins on a number of commodities but DO NOT fully leverage trading accounts as with the large whippy moves traders can lose big on just a few bad decisions. Crude hit a five week high today trading over $100/barrel for the first time in July for the September contract. It sounds like a broken record but we’re still friendly looking for a trade to $102/103 likely next week. The only reason we’re not more bullish is that the distillates may correct and it may be difficult for Crude to gain much steam if the distillates fall off 10-15 cents/gallon. Natural gas lost 2.6% today closing lower for the fourth consecutive day. Another 10-15 cents and we will likely start shopping longs for clients in October contracts…stay tuned.

As of this post indices are higher by 1-1.5% and may make a run at their contract highs. We have been day trading from both sides the mini S&P for some clients but outside of that we are not comfortable picking a direction for a position trade. Gold and silver both seem heavy to me and I am anticipating a trade lower in both gold and silver. My targets are $30-40 lower in gold and $1.50-2.00 i silver…trade accordingly. Remain short the Swissie with stops above the highs and depending on stop placement traders may have taken a loss on their Loonie shorts. Most of our clients positions are either in options or futures and a combination of options so they are in the trade carrying a loss. We’ve yet to purchase cotton for clients as we are sill taking heat in sugar…stay tuned.

Sugar gained 3.25% today and we remain in bearish positions with clients. I could not find any news and remained in the trade for now still expecting a sizable sell off. If 30-yr bonds close below the 20 day MA we may get short…stay tuned…that level is 125’3 in September. We still like the short end of the curve and have some clients short December 2012 Euro-dollars. Wheat and corn were lower today and soybeans held onto slight gains. Aggressive trades can gain bearish exposure as we anticipate a 3-5% break in the entire complex. Some of our clients got short November soybeans today via bear put spreads. We did not like the action in lean hogs today so we opted to take a small profit for clients and start over next week after tomorrow’s cold storage 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.

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