Today in Commodities: If You're Long, You're Wrong

If you’ve been short energy, congratulations; if you’ve been waiting for a correction to get long, it is well underway. In the last week crude oil is down 18%, RBOB is lower by 17.5%, heating oil is down by 18%, and natural gas by 19%. We will continue to buy October $1 call spreads for clients. We are down on all positions in natural gas currently but we expect that to be a different story 2-3 weeks from now.

Guess what… the yen was higher by 2.5% as of this posting, trading to a new six-month high. If you read our weekly commentary we were looking for higher pricing if the weakness persisted in the stock market, but this move exceeded our expectations. The calls we suggested Monday for $1000 traded near $3000 today.

Do we have a double top in the March 10″ Euro-dollar? Short futures or buy puts. Equity markets lower again, for those of you who own August 850 ES puts, put in a limit at 39 points on 75% of position and 49 points for the remainder.

We bought more December $4 calls in corn for clients today for just under $600. Serious technical damage has been done to silver and gold but we are still suggesting call spreads in both metals. Our logic is premium is being sucked out of the options, but once the market turns the options will be pricey. Again I would rather be early and wrong for 1-3 weeks than have to pay extra for this strategy.

Trade idea: Buy the October 86/81 put spread in live cattle for $450.

We just missed our profit objective for clients in oj. We will now hold for the next leg up with the same target.

Comments

[Anthony B:]

Is technical analysis all you can do in commodities markets? seems to me like these products don't trade on fundamentals

I guess there are inventory reports that come out, and it's just gambling whether they'll beat expectations.

Jul 08 06:06 PM

[cameroni:]

Yup, thanks for the update Matthew. I am seeing some good opportunities arising now and a whole new set off entry points on everything from heating oil to natural gas that will develop nicely before the fall and winter months set in. This is a happy pullback at this time for me. I smell money.

Jul 08 08:18 PM

[Ryu Mei Co:]

Yup, I kept saying YEN will go higher. Wait and see! Cause' the Japanese baby boomers are starting to bring their huge *ahem* foreign, tax-free, safe-heaven savings back to Japan. Some companies and funds have already started selling funds and assets to pay pensions and retirement money!

You are right on commodities in the short term, but I like that fact that it is falling and chances to buy more at cheaper prices.

Gold and Silver is harder to tell at this moment.

Jul 08 08:43 PM

[Everyday Joe:]

I need to know what do you mean by october $1 spread, can you be little more clear
Thanks,

Jul 08 08:49 PM

[JasonMichael:]

Premium is being sucked out of the options? Maybe this was last week's logic.

Jul 08 09:50 PM

[Fighting Yoda:]

Green shoots have turned out out be deadly weeds and the market and commodity down cycle has begun. Too early to buy now - lot better opportunities will come.

Jul 08 10:43 PM

[inflate me:]

Some sympathy setbacks in commodities is to be excepted as a result of the overdue correction. During precipitous falls the most capital intensive industries/materials (farthest from the consumers) will be hit hardest. In regards to hard assets, I wouldn't expect any damage beyond what has already occurred within the last year as the calamity within the US should/is becoming more and more isolated ensuring markets abroad to compete for resources.

Jul 08 11:44 PM

[Matthew Bra...:]

For example buying the $4 call (debit) and selling ther $5 call (credit). The idea is on a move higher one will make more on the lower strike then he/she loses on the higher strike.


On Jul 08 08:49 PM Everyday Joe wrote:

> I need to know what do you mean by october $1 spread, can you be
> little more clear
> Thanks,

Jul 09 07:47 AM

[totheabovej...:]

you option guys just love it since it is a legal online craps table

Jul 09 11:44 AM

[Old Trader:]

I think the "trick" is going be to find that "sweet spot" in commodity demand, when the rate of demand decline from developed nations slows, and and starts to be offset by increased demand from emerging economies. That's the ideal time to shift from short to long.

Jul 09 07:58 PM