Today in Commodities: Day Early, Or Day Late?

Neither scenario -- being early or late to a trade -- is ideal, but I would rather myself be in early. I am convinced that is the case with our most recent oil trade. We advised clients to get short via options yesterday, followed by a 3% rally today. We expect a trade back to $75 on the December contract. Trades from yesterday are showing about a 20% depreciation. We still like the trade.

Soft commodities were higher across the board but nothing out of the ordinary. Stock indices remain range bound waiting for the next leg. A move back to the 50 day moving averages is what we’ve been calling for; in the S&P at 1038 and 9570 in the Dow.

Agriculture was higher today without our clients. The weather is not cooperating and farmers have yet to get into the fields. We are bullish and will be looking to buy breaks but have yet to commit to longs. If weather does not improve we may need to bite the bullet and get long from higher levels than we would’ve liked. Stay tuned.

Silver and gold were higher but we would’ve expected more with the weakness in the US dollar. Yields ticked higher, prices ticked lower in Treasuries. We will be pricing out longs once again via calls or NOB spreads again.

Though we think the bull market in live cattle is just beginning, we would tighten up stops or institute hedges against your longs being we could get a washout very soon. We are expecting higher prices but a 3% giveback is not out of the question. If this was to play out we would be an aggressive buyer of February futures and call options near the level seen 2 weeks ago.

The dollar got crushed today with every rally being met with formidable selling pressure. We took a marginal profit on the Loonie shorts in the AM and then put the same trade back on after the rally; short futures just above .9600 and sell 96 puts to lighten the load.

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

[Commies are people too]

What's going down in N.G. tomorrow?

2009 Oct 21 04:22 PM

[rrdaniel]

Any ideas about natural gas (e.g. GAZ) ?

2009 Oct 21 05:48 PM

[Mistrofan]

All commdities will be up into the year end except Oil and Gasoline. Cheers.

2009 Oct 21 07:01 PM

[TonyNed]

The Nat Gas chart looks like it has broken to the downside. Stochastically the movement is downward and sharply meaning the chance of an upward push in the next day or two very slim. The run from $2.63 to $5.76 was basically straight up. A correction appears to have begun. The 50 day is at $4.13 but is sloping upward. It looks like the $4.50 neighborhood would be support.

2009 Oct 21 07:54 PM

[TonyNed]

GAZ doesn't behave like Nat Gas. Chartwise, it looks like UNG but both have essentially been moving sideways. IMO, APA is the better vehicle for Nat Gas exposure than either of these ETFs. The price movement doesn't match short term but the trend is the same.

2009 Oct 21 08:03 PM

[rick12345]

The cartels see $80/barrel as fair value, even with the US under performing the global economy; Anything less and they're producing at a loss. A chronic shortage of oil over the next 30 years suggests that average prices of $200 are a real possibility, but as per normal it will be too late before we realize the severity of the problem.
As usual the USA is looking after its own interests via a low greenback, as well as invading countries like Iraq and Afghanistan to bolster reserves. Once the oil dries up of course they couldn't give a shit what happens in that region of the world.
I must say that even though I'm a westerner, I can finally understand why people want to cause acts of terrorism against your nation. How does that line in the bible go, "do unto others as you would have them do unto you". I really don't think you guys get it.

2009 Oct 21 09:55 PM

[bigbear4511]

YoY jet fuel demand has decreased around 3.5%. Hence because fewer people can afford to fly. Diesel has drop almost 10% because there is very little shipping going on. In September gasoline demand was up around 5.2 percent. I was really surprised to see that despite the recession with millions of people not driving to work that gasoline demand would be up. It finally makes senses. Last year crude was sickeningly high and demand for gasoline hit an old time low. But as we move along the last years price of fuel was dropping while this years is going up. Soon there will be a cross roads

Demand for Gasoline was up 6.2% YoY in September
Demand for Gasoline in Early October was 5.2%
Last week demand for Gasoline was up 4.2 %
I just read another article that states YoY gasoline was up 3.9% from this time last year. See the trend

Very soon demand for Gasoline will be down YoY as are prices edge up while last years oil prices plummet.

Conclusion
jet fuel demand down
diesel demand down
Gasoline demand down

Possible short?

2009 Oct 22 04:04 AM

[mb2]

Yes, I believe it is a short opportunity.

I'm short USO now. I was painfully early, in at $38, but not too worried about the position yet. Moving in & out of delta neutral option hedges has taken some of the sting out and actually raised my b/e on the trade. The one thing that makes me sleep with one eye open is the possibility of a geopolitical shock. I am therefore, a very cautious oil bear & will keep protective options positions.


On Oct 22 04:04 AM bigbear4511 wrote:

>
> YoY jet fuel demand has decreased around 3.5%. Hence because fewer
> people can afford to fly. Diesel has drop almost 10% because there
> is very little shipping going on. In September gasoline demand was
> up around 5.2 percent. I was really surprised to see that despite
> the recession with millions of people not driving to work that gasoline
> demand would be up. It finally makes senses. Last year crude was
> sickeningly high and demand for gasoline hit an old time low. But
> as we move along the last years price of fuel was dropping while
> this years is going up. Soon there will be a cross roads
>
> Demand for Gasoline was up 6.2% YoY in September
> Demand for Gasoline in Early October was 5.2%
> Last week demand for Gasoline was up 4.2 %
> I just read another article that states YoY gasoline was up 3.9%
> from this time last year. See the trend
>
> Very soon demand for Gasoline will be down YoY as are prices edge
> up while last years oil prices plummet.
>
> Conclusion
> jet fuel demand down
> diesel demand down
> Gasoline demand down
>
> Possible short?

2009 Oct 22 11:00 AM

[Commies are people too]

Thank you Mathew and commentors on S.A.

You've provided me better guidance than I got from my $150 / trade Nesbitt brokers.

Cheers.

2009 Oct 22 07:36 PM