Today in Commodities: The Rubber-Band Effect

We would not suggest being long oil as prices came off even with equities moving to new highs. For now it appears there has been some disconnect. Natural gas was lower today for the second session in a row. We will continue to accumulate $1 call spreads for clients in November.

We advised clients to move their short British pounds out at a profit and into short Australian dollars. We were buyers of the September 80 puts for just over $400 today. If in fact we get a setback in commodities the Aussie should in theory get hit the hardest.

We expect a weak close in stocks today…stay tuned. Clients own ES puts expecting a trade down to 965 in the next 2 weeks. The Euro-dollar was lower by 14-20 ticks today, have you bought your long dated puts yet?

Hindsight being what it is, we should have held off before rushing back long corn and wheat for our clients. That being said we have a light long position into next week's USDA report. I could think of worse places to be. Like gold, we suggest booking profits on longs or moving to silver. If the US dollar moves through the 20 day moving average it would not be unreasonable to see gold back at $900/ounce.

Lean hogs have yet to bottom but we will be there with clients if and when. We suggest buying December calls. We have clients positioned long October live cattle expecting a trade back to 91 in the coming weeks. All the softs were higher with sugar up an additional 5% today. I will need to do some soul searching over the weekend to see how to proceed from here in the Azucar.

Risk Disclaimer: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results.

Comments

[TonyNed:]

Technically, everything is a mess. The dollar just made a random reversal due to the jobs news. Oil just made a lower high and should drop. Isn't there a bullish case for oil since everyone has decided the economy is recovering? Nat Gas couldn't hold above the 50 day MA. Which is still undervalued compared to oil in BTU equivalence. But I guess they will both drop in tandem and keep the inequality alive. The oil and Nat Gas stocks are rockets and have just started moving sideways although they've been extremely overbought on several indicators for over a week and a half. Some are 20% off of their highs while oil has to double to see it's highs and Nat Gas is almost 200% off of it's highs. And the "mutual funds" just want to keep buying everything. The financial news keeps saying to buy or miss the boat but my indicators tell me to go short and my discipline says to hold tight because it can't go up anymore.

It just seems like the financial news is propping this thing up and painting this rally as though it won't do anything but go straight up. That is until it goes down and the world is ending again. Disclosure: I'm a frustrated short who won't buy the hype.

Aug 08 12:20 AM

[Belome:]

Commodities have been a sucker play for a bit now with the exception of crude oil because there are larger forces at work in that market. The fact that this fraudulent rally in equities has sucked the people in to an inflation play on commodities is classic. The dollar will continue to weaken and it will do its job flushing this clog of commodites but not for many months. Its a frustrating market because we want to believe we are cured and the powers that be are trying to trick us into believing but in reality we are not... not by a long shot.

Aug 08 11:55 AM

[AndrewBaker:]

Both the above comments are on the button. I've had to take a long position to recoup from shorts that didn't work. I'm hoping I can trade out fast enough when the drop comes, which it will, and be hard, but ... when?

This market is based on crap(s): roll the dice, and what comes up is as good as your fundamental and technical analysis.

I'm too addicted to sit it out, so I'll keep plugging away, looking for something with a longer term gain possible. Now, in commodities, as well as gold and natural gas, I'm buying long sugar. The reports say there's gonna be a shortage, especially in India: they love the stuff, and there's 1.15 billion of them.

Aug 08 02:37 PM

[bearfund:]

If there were anything like a real recovery under way, natural gas wouldn't be getting stored in huge quantities at $3.70. No one knows whether all the copper and iron that have been bought are being put to any use or are just stored in warehouses somewhere, but we do know that all that unbelievably cheap gas is sitting in storage. Recoveries are micro events - more demand for real products from real money. What we are seeing right now is a macro phenomenon: it doesn't cost anything to borrow, cash loses value rapidly, and real investment (in equity or debt) offers so little return that no one bothers. So, we speculate on commodities. Why not? It's what the Fed is forcing us to do. But don't confuse it with a recovery; there is none.

Aug 08 05:43 PM

[a3A:]

who are these 'clients' we keep hearing about? . cousin ed and your hair stylist?

Aug 08 11:39 PM

[Matthew Bra...:]

I run a commodity brokerage firm "MB Wealth" and these clients are investors that trade through us. I have no cousin Ed and I go to a barber not a hair stylist.


On Aug 08 11:39 PM a3A wrote:

> who are these 'clients' we keep hearing about? . cousin ed and your
> hair stylist?

Aug 09 10:44 AM