As seen by the last few sessions, it will not take much to move oil prices higher or lower with Dubai on Friday and the British racing vessel today causing whippy action. We’ve yet to commit capital for position trades but we’ve been pricing out bullish plays. The obvious would be bull call spreads, but at the advice of a seasoned energy trader we’ve entertained the idea of selling deep out of the money puts and buying deep out of the money calls, paying little to no premium for a “Black swan” that could potentially lift Crude back over $100. We are monitoring both January and February call spreads in natural gas but have yet to jump back long with clients. Thankfully we advised exiting on Friday as prices were lower by almost 7% today. Traders should have been stopped out of mini-futures if they trailed their stops. We will be looking to enter long again but want to see tomorrow’s action.
Lumber was up limit today, trading near the highs of last July; we’ve yet to re-enter clients long but this needs to be on your radar.
Both the Dow and the S&P remained above the 20 day moving averages; the Dow at 10250 and the S&P at 1085. On a close below those respective levels, look for more selling. Treasuries were bid higher today for the fifth consecutive day; no doubt the trend is up but we do not like the charts or sentiment so we reside on the sidelines with clients. Currency markets were quiet; we still like selling rallies in the Pound.
Gold and silver moved quietly higher; readers know where we stand. Upside is likely but it will be far from a smooth ride. Those who question how we choose to manage gold and silver positions for clients, just one word…LEVERAGE. When you buy SLV and see it move from $15 to $20 and make your 33%, understand when trading 5,000 ounces that same move in the futures represents $25,000.
Agriculture was higher for the most part; we’re advising buying dips across the board in addition to some soybean spreads playing the carrying costs as well as the March KCBOT/CBOT wheat spread. February live cattle closed just below the 20 day moving average; we’re still anticipating higher pricing but have yet to get confirmation from the markets. We advised clients to buy puts in February lean hogs today and will be shopping short futures in the coming sessions.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
