Today in Commodities: Different Directions

While short or long is only a difference in direction, why do traders have a problem getting short? Maybe it is the psychology; perhaps it is easier to cheer for an asset to move up rather than down. To be extremely successful in this volatile environment we think a long-only mentality is not the way to go.

Why I touch on this is: though we are bullish a variety of commodities, we have and will continue to suggest shorts in futures or put options when we feel a drop in price could occur.

Today marks the seventh consecutive positive day for Crude oil. The momentum is certainly up but this one got away from us. We will be looking for a long entry on the next retracement for clients. The good news is we did buy natural gas options for clients yesterday, prices were up by 6.5% today. On the highs today prices were against stiff resistance, because of this we suggested clients to buy November $4.25 puts against their January $6/7 calls on the close. On a 20-30 cent correction early next week we would exit the puts.

We advised clients to lighten up booking a partial profit on their March sugar calls today. We feel the recent OJ appreciation of 25% is too much. Clients bought January 105 puts today looking for a trade back near $1. Agriculture was quiet today, next week should be determined by the next few days' weather and if farmers can get in the fields. We suggest buying corn and wheat from lower levels. Additionally on a sell off in oats near $2.35, exit your December puts.

With all the hype, gold and silver ended the week about the same levels they started the week. Long term we are extremely bullish but short term who knows?

If the double bottom holds in Treasuries we should bounce; we advised clients to enter NOB spreads today. They went long December 30-yr bonds against a short in 10-yr notes. If they pick up 1 basis point on the trade we would exit.

Cattle look to be building a solid base. Let’s see how the market digests today’s cattle on feed report. To me it looks neutral.

As for currencies we feel the Loonie is due for a setback but would caution a large position being BoC meets next Tuesday. We got clients short futures and sold puts as a hedge. On a pullback we would expect a move to .9400 and then look for an exit door.

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

[Macro_Man:]

oil certainly looks bullish and may not get the retracement you are looking for. Silver looks week, had a Reversal week while gold is not looking great.

This makes sense. If people are piling on to oil, makes sense to reduce gold and silver to reduce correlation risk

Oct 16 04:53 PM

[bigbear4511:]

OPEC has been pumping more oil per month (cheating on their quota) for the last 13 months and this is likely to continue. As the Nash equilibrium states the incentive to cheat is so great that it results in everybody cheating bringing the average price down. Quotas are becoming increasingly hard to maintain and this is becoming increasingly evident. As the increase output continues it will be more than enough it will be more than enough to compensate for any increase in demand. The American consumer cannot afford an increase in fuel costs when unemployment is almost at 9.8% and climbing soon to over 10%. Overall any increase in fuel costs will be detrimental to the economic recovery.


On Oct 16 04:53 PM Macro_Man wrote:

> oil certainly looks bullish and may not get the retracement you are
> looking for. Silver looks week, had a Reversal week while gold is
> not looking great.
>
> This makes sense. If people are piling on to oil, makes sense to
> reduce gold and silver to reduce correlation risk

Oct 17 02:49 PM

[cantudoit:]

The Canadian Dollar is a freight train- better get out of the way, (at least in the short term.) You can not go long Oil and at the same time unload or short the CAD.....that's illogical. BOC can chatter but have few tools to stop the upward momentum.

Oct 17 09:43 PM

[Old Trader:]

Macro_Man,

I take your point, (I think), but aren't you forgetting about the dollar? Continued dollar weakness would likely cause all three (oil, gold, and silver) to rise in tandem.

What I like about oil (my holdings are via Canadian oil trusts, rather than directly via futures contracts), is that it should be fairly strong from a demand standpoint, assuming that demand from emerging markets will offset (at least to some degree), weak demand from the US and EU. Failing that, continued dollar weakness should provide support.


On Oct 17 09:43 PM cantudoit wrote:

> The Canadian Dollar is a freight train- better get out of the way,
> (at least in the short term.) You can not go long Oil and at the
> same time unload or short the CAD.....that's illogical. BOC can chatter
> but have few tools to stop the upward momentum.

Oct 18 06:43 PM

[Moon Kil Woong:]

Pumping more and more oil by the middle east is driven by the same forces that drives other countries into running massive deficits all the time. The defining difference is that they actualy have assets to back their rampant government spending.

Oct 18 08:30 PM