Today in Commodities: Fall Is Coming

Natural gas started the week strong, nearly gaining over 4% today on the October contract. Clients were buyers on the November $5/6 early today for $1750. What you should notice here is the volume is increasing being we only paid $50 less per spread with the futures about 20 cents lower than our last entry. While prices are at these extremes, we would suggesting buying.

This morning the crude oil:natural gas ratio was 23:1 in October, 18:1 in November and 15:1 in December. We do not think this will last. We advised clients who were long crude on our recent trade recommendation to book a profit today just over 20% net. We have not given up on longs but do not want to get overweight in energies for clients. Also, we are closely monitoring the dollar. We are torn so will stay on the sidelines with clients.

Agriculture bounced nicely today - we are positioned long in corn and wheat for clients. Additionally we traded soybean futures today, buying November and selling September looking for this spread to come down in the next few days. This is a trade looking for a quick scalp of 15/20 cents.

Silver and gold are starting to look tired - look for outside markets for influence.

Stocks should move lower but we are content on the sidelines for now. Lighten up on shares if you have not yet.

Lean hogs had trouble getting through the 20 day moving average. In the next few sessions on a new high, take a profit on the October 50 cent calls, while staying with the December position for now. Cocoa was lower by $34 today. We need much more downside to salvage the October 2500 puts. Stay tuned.

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

[BPYHO:]

I believe you're right, the NG/OIL ratio will not last. Oil prices will fall hard and NG will fall at a lesser rate. Always enjoy your articles and have made some money off trades you recommended but believe you're way off the mark with NG. Massive oversupply, lack of demand, you name it. I am not touching it until the price is around 2.50 or lower......

Aug 24 04:42 PM

[Slvrizgold:]

The real reason higher prices will prevail: MONETARY AGGREGATES HAVE RISEN MASSIVELY! Remember how crappy things were in 2002 and all you heard was "deflation deflation"... They created money out of thin air and commodity prices SKYROCKETED. Fiat money in general and the US dollar in particular as a store of value is a SICK JOKE. All paper hoarders will look like total dumbasses in a few years.

Interesting side note: inflations often happen during BAD economic conditions, not "when the economy recovers" (thats the current DRIVEL being spouted by the centrally planned propaganda news media.

I suggest looking into purchasing a few thousand ounces of silver bullion and a good stash of gold as well. Then, if you are so inclined start researching the PM equities for leverage if you enjoy more volatility. My top pick junior picks are Jaguar and GORO but I would suggest owning midtiers and seniors too. IAG AUY PAAS GFI NEM etc... Juniors are good if they are producing, near producing and cashed up/good balance sheets. Exploration stocks are very very "iffy" and hard to nail winners when so many of them won't pan out...

321gold.com
goldseek.com
JSmineset.com
gold-eagle.com
financialsense.com

Aug 24 06:13 PM

[Slvrizgold:]

In my comment, I forgot to add that I think people who are not building core positions NOW are making a mistake. Many will wait for the "breakout" over $1000 and then buy. As far as I am concerned much much higher gold in the next several years is as easy as predicting that Keith Richards won't live to be 100.

As always, don't blow your wad. I have powder ready should the powers that be spark another panic and give me another opportunity like last fall to increase my positions even more... But I doubt it. I think the PTB desperately want to let the dollar slide some, keep stock markets up, keep tax revenues coming in, and delude the sheeple - who will not understand what has happened and prices are rising - they will just be glad the Dow isn't 6000.

Aug 24 06:16 PM

[TonyNed:]

I think you can get into UNG long here for a good run. There is a chance of a short sideways trade, maybe up to three days, but it looks like it has hit an inflection point. It is extremely overbought technically and today's action looks like the pivot.

Definitely hold off on buying any silver and gold for awhile. I think it will be about a weeks worth of price action before any buy signals will pop up. The SLV might actually be a good short from here if you're gutsy but it's middle of the road technically.

The dollar and oil don't have a clear direction to me. Nat Gas is the only trade happening right now in my opinion.

Aug 24 09:04 PM

[Bill S. Friend:]

It is inevitable energy prices will rise, and when it happens our fragile recovery will be toast. At that point, the emperors' new clothes will be revealed.

Aug 24 09:19 PM

[Maxe Paul:]

Still bottom picking on the NG?

Joke of the day, why do they call a broker a broker?,

because thats what you will be after following their advice!

Aug 24 09:22 PM

[Bill L.:]

Slvrizgold,
I would definitely hold off on precious metals right now, the author is right, they look very tired. You also are misreading the dollar, which actually looks very bullish right now. While it sits at it's lows, it's utility remains relatively the same as two years ago; if you had a million USD two years ago compared to a million USD today, you would actually be better off today because you can purchase twice the land, stock, houses, etc. Furthermore, the gold and silver are failing to make new highs against the dollar, which should be a red flag for you. I would be selling metals here to raise cash and see if the dollar rallies or makes a new low before looking for leverage...


On Aug 24 06:13 PM Slvrizgold wrote:

> I suggest looking into purchasing a few thousand ounces of silver
> bullion and a good stash of gold as well. Then, if you are so inclined
> start researching the PM equities for leverage if you enjoy more
> volatility.

Aug 24 09:42 PM

[bearfund:]

The long gas / short oil trade looks good to me. The green shoots trade is supporting oil while NG languishes. Whichever side is right, this trade should show a profit. Especially if you are looking farther out. One interesting possibility is to short December oil and be long November gas.

Aug 24 11:11 PM

[mn33:]

"Silver and gold are starting to look tired"
did you learn that terminology when you took 'how to be a blogger 101"?

Aug 25 12:57 AM

[Matthew Bra...:]

We would suggest being long sugar via options or futures with downside put protection. We have clients positioned in March 10' contracts.


On Aug 24 04:33 PM DB2329 wrote:

> I have not seen you make a comment on sugar recently. It looks like
> sugar has hit a near-term double top. Would your recomend buying
> on dips or outright shorting suger?

Aug 25 08:12 AM

[Matthew Bra...:]

It may be beneficial to look at some of the other trades outside of NG where we are actually making money for clients. As a skeptic you may want to point out all the bad trades but REAL traders are not right every time. Need I remind you again on the natural gas I said I expect a move could take until the end of September...look at your calendar.


On Aug 24 09:22 PM Maxe Paul wrote:

> Still bottom picking on the NG?
>
> Joke of the day, why do they call a broker a broker?,
>
> because thats what you will be after following their advice!

Aug 25 08:16 AM

[hammer:]

NG in Dec/Jan/Feb/Mar look wildly overvalued. Unless there is either more disruptive hurricane activity or extreme cold weather starting earlier than Thanksgiving then the anticipated record NG storage inventories of >3700 BCF will be a huge negative overhang.

The seasonality of the winter months makes being long NG a difficult investment. The high prices for J-V 2010 merit a look in a few months. If winter doesn't occur early short.

Prompt month NG is cheap but fairly valued, but that doesn't translate to the outer months because of contango and seasonality. CL:NG spread is wide for a reason and those waiting for it to close have been wrong for at least a year. These two commodities are negatively correlated at the moment. They have different fundamental at this time and historical comparisons are not appropriate.

Aug 25 08:38 AM

[hammer:]

Better off short NG because of huge inventory overhang and short oil if you believe CL rose because of speculative increases. NGV9/NGX9 spread is way too high given storage levels, supply and demand and weather outlook.


On Aug 24 11:11 PM bearfund wrote:

> The long gas / short oil trade looks good to me. The green shoots
> trade is supporting oil while NG languishes. Whichever side is right,
> this trade should show a profit. Especially if you are looking farther
> out. One interesting possibility is to short December oil and be
> long November gas.

Aug 25 08:41 AM

[Mayascribe:]

Long term, I would not own any NG stocks. Way too many discoveries happening. But I would add to NG pipeline stocks.

Aug 25 10:11 AM

[Maxe Paul:]

I have no issue with your other trades, just NG, it's just such a bad trade it needs highlighting so others dont jump on the bandwagon, such as the horrible stories we read on SA eveyday about the NG ETFs.

I realy do not like the way you have been ramping this trade for months now in the hope you will be right one day.

Obviously the trade has been to sell, not buy, and given the forward price curve, i see no great trade on the upside during the period you quote either.

I think the right thing to have done is just admit your wrong, your timing has been wrong and move on to a trade that is going up, such as anything and everything else!

Obviously one day you will be right, and then i will be wrong, but thats hardly the point given the amount of time this trade has been highlighted.

It's just not the way to play commodities, and you (should) know it.


On Aug 25 08:16 AM Matthew Bradbard wrote:

> It may be beneficial to look at some of the other trades outside
> of NG where we are actually making money for clients. As a skeptic
> you may want to point out all the bad trades but REAL traders are
> not right every time. Need I remind you again on the natural gas
> I said I expect a move could take until the end of September...look
> at your calendar.

Aug 25 11:15 AM

[5142152-337:]

slvrizgold: Very refreshing posts! Its refreshing because they don't moan and groan, whine and whimper about the sorry state of gold and silver. The author did that...and then there's Bill L, who doesn't have a clue....geez, imagine, wanting to load up on USDs. Hell, if you want Bill, I can give you a contact IN CHINA!!!!! They have a couple TRILLION they want to get rid of. I'm sure they will accomodate you!

Aug 25 04:33 PM

[Robert262:]

Without getting into a long protracted diatribe, the thought that gold or silver are tired is rubbish. The single reason the stock market is moving to the upside is not because of positive fundamentals, but because the dollar is and will continue to weaken.

Aug 26 07:20 AM