Today in Commodities: Avoid Crowded Trades

Most people are wrong so I generally do not want to do what the herd is doing. Short dollar, long metals and long equities have been great for momentum traders but all three are looking way too crowded for my liking. Crude broke out to the upside today. We had suggested waiting for a setback before buying again but we may re-evaluate depending on how the trade looks going into the weekend. Yes, the daily chart looks toppy but visiting the weekly chart this move may have legs. It may be premature to enter long futures in natural gas but we did issue a trade recommendation in January call options today to clients. We advised buying the January $6/7 call spreads for $2500.

Sugar was higher by 5% today; it appears we may reach our objective of 25 plus cents sooner than expected. Be prepared to take a profit in coming sessions on a spike. Cocoa was higher which is against our clients positions. It may be just too much to pick a top or even ask for a correction. We may cut losses in coming sessions so stay tuned. Today’s rally partially failed in cotton, if the stock market comes off expect cotton to sell off hard, just a heads up. Grains were lower across the board with the exception of soybean oil which was largely buoyed by the gains in Crude.

We like buying March corn about 20-30 cents lower. Look for an exit on your oat puts bought yesterday on a trade to $2.35 in December. I smell correction in the metals but I have been fooled before. Clients December silver puts that we had all but written off may be back in play on a drop to $16. We will be suggesting longs but from lower levels. The April 1100/1200 gold call spreads may take some heat but that is why we suggested spreads and not out-rights. On a significant break we may buy back the top leg for clients. We would rather be short than long Treasuries but have no fresh news. We are not opposed to buying long dated puts in the Euro-dollar or shorting futures with stops above the recent highs. Continue to buy December and February live cattle. The big movers in the forex today were the yen and pound; we have no exposure there with clients and prefer the sidelines until things become clearer.

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

[GMiki1:]

Long metals may look crowded, but that doesn't mean it's wrong, especially now that we have a small pullback and if you sold a little on strength. I noticed that last Thursday/Friday were a bit weak, too. I think that's partly because traders didn't want to go into the long weekend long, but also, there may be some suppression so the week doesn't close too high. Just a thought. :) At any rate, in the long run, these prices will be low. I don't think silver is going down to $16, but who knows.

Oct 15 04:26 PM

[picman:]

I beg to differ. Once again, metals drop and suddenly Matt is cautious and now even predicting silver dropping all the way back down to 16. Well, he's wrong. Silver has taken a drop due to day traders grabbing some profits but those of us long on silver know that this dip is just typical volatility for silver and now that the day traders with no backbone are out the rest of us will enjoy a rebound as silver returns on its course toward $20 a share. At least one of us sticks to his guns.

Oct 15 10:00 PM

[rick12345:]

Gold is struggling big time at $1050 even with the weak dollar. I'm anticipating some hefy profit taking in equities toward the close on Friday, regardless of earnings results; Hence, I sold most of my holdings yesterday. Will the Dow head below 10,000? Probably, however this would be better than racing toward 10,500 straight away and then come crashing down like an avalanche.

Oct 16 06:50 AM

[picman:]

Gold "struggling" at $1050???? A few short weeks ago it was at 950 so how is it "struggling" at $1050? If you think just because gold hit $1070, that indicated it would continue climbing and never see $1050 again, then you clearly have no clue when it comes to metals. Gold and Silver are very volatile in any market. It's not a smooth consistent ride upward but if you have the guts to stick it out you will be rewarded. For me, silver is more rewarding than gold because I don't need a $100 an ounce jump to see good gains. Silver jumped from $15 to $17+ in a very short period of time and at that price $2 per share can bring nice profits and since its going to $20 soon enough, those bullish on silver will keep that ear to ear smile for weeks to come.

Oct 18 10:01 PM

[rick12345:]

Wow, a 3% return on yor money with a depreciating US dollar.

Oct 19 04:21 AM