Today in Commodities: Liquidity Squeeze

Well, as month end nears and volumes start to drift, expect volatile movements as seen with the reversal in equities mid-day, the rally in oil, and the fall in the dollar. We remain spectators in the stock market, comfortable viewing from the sidelines.

The move in oil was impressive as we missed a pretty nice rally. We are pricing out December $75/80 call spreads for clients currently. A trade over $73 should lead to an attempt at $75 in October. Was natural gas down? Yes, but we should close 10-15 cents off the lows. Being the talking heads are calling for $2.50, we most likely are nearing a bottom. A trade $1 higher in the futures in the next 30/45 days is not out of the question.

We do not have a good feel for the metals either way so we would trim your position. Metals could go either way in the short run. We suggested for clients to exit their gold today and lighten up on silver longs. Longer term we remain very bullish. On market manipulation we may get a healthy set back. By no means are we advising shorts in metals.

Corn is slightly higher, still building a base, and wheat slightly lower. Both of the ags have been sideways but our bullish bias still lives; clients are long December calls. For a futures play one could get long, with stops below the recent lows.

Cocoa got hit by almost 5% today. We are on the right side with clients, but will we have enough time on the October contracts?

Live cattle and lean hogs were higher on the day. We suggest traders who are not following livestock to start, because we could be in the beginning stages of bull markets for both. Of course, just my opinion.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Comments

[BPYHO:]

I think you should wave the white flag with NG! Come on man, give it up! Not trying to bash you, I have made some $ off of your trades... However, right now it's like you've made your mind up to stick to your position with NG just b/c so many people are bashing it.... Just eat a small helping of crow and admit NG is not a good trade(unless you're shorting it).
Everyone thinks now is a great time to buy b/c of "the ratio" but there is a very realistic possibility that NG storage reaches capacity before the 'magical winter' that is supposed to bring about higher prices. If that happens you can expect NG to crash MUCH further...

Aug 27 04:34 PM

[nobby73:]

I remember when spot prices for natural gas in the UK market went negative, because of extreme shortage in storage space....

What does this sentence refer to?

"On market manipulation we may get a healthy set back."

Aug 27 04:54 PM

[fry'n pan:]

if we do get a healthy pull back in equities, then oil should follow it down. I see oil in the 60's before we break through 75.

Aug 27 05:33 PM

[whidbey:]

Tsy Fox is on point.

Lacker is a loose cannon and while he may have the best wishes of the White House he is a partisan.The market regards him and the Fed as just servants of the Administration, not the recovery of the economy. The commodities are going to trade as hedges against what may be terrible federal monetary policy.

Aug 27 06:45 PM

[Faisal Humayun:]

There are already evidences of credit tightening in China....Moreover, their coal and iron ore imports have dropped significantly (due to huge stockpiling)...These can also be negative for commodities in the near term.

I would also like to point out that the sentiment on the Dollar is very bearish and any reversal in the trend (highly likely in near term) can also lead to relative tightening of liquidity..This will be negative for all asset classes...including commodities....

Aug 27 11:17 PM

[Moon Kil Woong:]

China has warned that they are concerned with inflation. You would think the US would notice as well, but as usual, Bernake is too busy patting himself on the back and getting kudoes for declaring he saved the world. In the meantime, he is once again asleep at the switch as we drown in easy money which is one reason why we got into this mess in the first place.

Aug 28 12:57 AM

[Domino412:]

I've been averaging into ETN (COW), the livestock fund. Anybody have any opinions on this? From what I can tell, by examining the CME charts, it doesn't seem to accurately follow the the daily moves in livestock futures. Also, the daily volume is pitifully low. Any input is helpful. Are there other ways to play livestock?

Aug 28 09:37 AM