Today in Commodities: A Fitting End

US dollar is lower again today as the short term trend has clearly turned lower. We could see a test of the previous lows next week at 77.50 on the September contract. Oil continues to have a hard time getting through resistance. If we fail to break through $75 by mid next week, we suggest taking longs off. On a breach of that level, next stop $80. Natural gas was lower today but UNG was higher -- could that be a forward indicator of an impending bottom in the futures? Additionally the forward months held their value, trading only slightly lower. The November$5/6 is where we would suggest looking currently.

Corn held its own today, cannot say the same for wheat. We will most likely now be looking for a rally to cut losses for clients.

Silver and gold were both gainers today, as the 100 day moving averages seem to be the line in the sand.

Why cutting your losses is important…since we advised clients to get out of their S&P shorts the market has rallied 35 points and there seems to be no end in sight. Euro-dollars rolled over today with the flow of money out of the dollars and Treasuries back into risk assets, i.e. stocks and commodities.

It has been a very long time since we’ve had 4 consecutive positive days in lean hogs but it happened this week. October and December are bumping against resistance at the 20 day moving average. Continue to remain long live cattle, see previous posts. We are expecting a significant move in sugar, we have clients covered either way but would prefer a move to the upside. See trade recommendation from yesterday.

Risk Disclosure: 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

[tunaman4u2:]

The fed destroying the dollar makes your all your trades right... pretty awesome position

Aug 21 05:56 PM

[Belome:]

Agreed...Hard to compete with the black hole of market manipulators (the Fed). The question is when do the fundamentals eventually catch up with the whole complex? Apperently we are headed to 1100 on the S&P whether we like it or not. That should keep the dollar weak and commodities artificially higher for the nexy 30 days. You know its really bad when the commodity of choice has not rallied during this dollar decline...reminds me of when the bed starts spinning just before I hurl.

Aug 21 06:49 PM

[marketman54:]

Now that we are $2 trillion in debt on top of the additional $700 mil that Georgie left us we get to get screwed by the commodities.

Massive inflation is right around the corner boys and we may be talking about stuff that made Jimmy Carter inflation of 18% look like nothing.

Get you gold and hold it. Short the treasuries. Hold on! When this market goes south, and it will go south soon because there are no fundamentals that support this craziness, I will be betting the farm on the short side and riding DOW to 6500 again!

I don't know anyone making any money except the big boys who are making the market.

Aug 21 11:05 PM

[Moon Kil Woong:]

As the rest of the wold's economies bounce back that will only add to inflationary pressure back home where the dollar seems to keep dropping. If dollar declines actually turn into real converse inflation the 10% dollar drops we see would translate into inflation exceeding 10% this year. Scary, will the Fed and Treasury ever smell the coffee and turn of the money tap.

Aug 22 07:42 AM

[AndyMan:]

I don't think the fed can raise interest rates.....the market will try to force them. Since most of americas debt is short term ARMs.....they will need to print and print just to cover the massive interest on the debt. We will be money printing machines.

Aug 22 09:31 AM

[jeffgroove:]

Mr. Bernanke has definitely made me a holdout in some loser positions.

Aug 22 10:15 AM

[SanDiego:]

Georgie left us with $700 mil in debt? That would have been nice. Try $10 trillion.


On Aug 21 11:05 PM marketman54 wrote:

> Now that we are $2 trillion in debt on top of the additional $700
> mil that Georgie left us we get to get screwed by the commodities.

Aug 22 11:54 PM

[BullnBear:]

UNG, (ETF), from a trading standpoint should probably have its own volatility index at this point. I can’t help but believe that the probing and speculation debate currently taking place is exacerbating the swings and probably bringing more players into the mix not to mention that we haven’t yet seen a clear catalyst for Natural Gas usage pick up for our current storage levels.

The oil and gas markets is where I thrive and from a volatility standpoint you really like a time like this but from a fundamental standpoint it’s a madhouse. I believe that if/when the dollar regains strength we will see a pullback in oil prices but until that time I’m very cautions whether I’m long or short.

Aug 23 01:35 AM

[BullnBear:]

Matthew,

I’m not asking for you to give up too much of your game I hope but what is your main catalyst on an upward sugar push from these levels? Are you just looking at supply and pricing on shortage currently or possibly a longer term shortage?

Any thoughts on CZZ or IPSU at these levels with a potential push upward in raw sugar pricing?

Aug 23 01:40 AM

[Bill Herbert:]

Matthew, or anyone -

I've been holding off valiantly on the long nat gas / short crude oil trade for the past two months. With the ratio now around 26.3 to 1 as of the close on Friday 8/21, I can't stay away from it any longer.

I know we have an enormous NG glut and I also know that demand is likely to remain stagnant for at least the next few months, as we get into milder weather and slack industrial usage. It could get ugly, but I will be surprised if the Crude-to-NG ratio can go beyond 30-to-1.

I'm wondering if anybody has some insights as to how to most effectively position the account in terms of moderate risk, a hedged position, and reasonable use of leverage. I want to be there when the spread comes in, and I would love to triple my invested money in a few months from riding the position, and the move may occur quite suddenly and violently depending on world events and/or a big hurricane.

Any constructive thoughts would be appreciated,

thx

Aug 23 03:43 PM

[Matthew Bra...:]

I agree, at the moment we have some clients long both crude and natural gas. We are looking for an exit in crude very soon. I would not suggest getting short out right but I too notice how far this ratio is out of whack. Depending on your account size and risk tolerances you could trade futures, mini-futures or options. Based on the fact that you would be bucking the trend on both positions we would most likely suggest options with 2/4 months. Contact us for pricing or so we can discuss the risk:reward. Logically this spread should come in over ther next few months. By putting on both positions it would be non-directional but rather just a bet on the ratio coming in.


On Aug 23 03:43 PM Bill Herbert wrote:

> Matthew, or anyone -
>
> I've been holding off valiantly on the long nat gas / short crude
> oil trade for the past two months. With the ratio now around 26.3
> to 1 as of the close on Friday 8/21, I can't stay away from it any
> longer.
>
> I know we have an enormous NG glut and I also know that demand is
> likely to remain stagnant for at least the next few months, as we
> get into milder weather and slack industrial usage. It could get
> ugly, but I will be surprised if the Crude-to-NG ratio can go beyond
> 30-to-1.
>
> I'm wondering if anybody has some insights as to how to most effectively
> position the account in terms of moderate risk, a hedged position,
> and reasonable use of leverage. I want to be there when the spread
> comes in, and I would love to triple my invested money in a few months
> from riding the position, and the move may occur quite suddenly and
> violently depending on world events and/or a big hurricane.
>
> Any constructive thoughts would be appreciated,
>
> thx

Aug 24 08:30 AM

[Matthew Bra...:]

Major breakout on the charts, the trend is clearly up on top of the #1 and #2 producers in the world are having crop issues; Brazil and India. The margins are currently reasonable and one can still buy quality options with a ton of time and not pay an arm and leg. We would suggest positions out til' March 10' currently.


On Aug 23 01:40 AM BullnBear wrote:

> Matthew,
>
> I’m not asking for you to give up too much of your game I hope but
> what is your main catalyst on an upward sugar push from these levels?
> Are you just looking at supply and pricing on shortage currently
> or possibly a longer term shortage?
>
> Any thoughts on CZZ or IPSU at these levels with a potential push
> upward in raw sugar pricing?

Aug 24 08:33 AM