Today in Commodities: Signs of an Interim Top

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Includes: BAL, COW, DBA, FXC, FXY, GLD, GRU, MOO, SGG, SLV, SPY, UNG, USO
by: Matthew Bradbard

We have a number of shorts on commodities, thinking a setback is due. A failed rally... say it is not so! Crude looks to close higher on the day but below $82 and $1 off its high. We remain convinced a 5-7% correction is right around the corner. Forget the fundamentals and technicals; throw it all out the window and just recognize that even in a bull market, it is healthy to get corrections. In the last 5 weeks Crude has moved almost 19% higher without any significant correction; it is time.

Buying is starting to emerge in natural gas. We have been early to this trade but have held our guns thinking a short squeeze could lift April futures back over $5 in a hurry. Clients are long April futures and June $5/5.50 call spreads.

As of this post we may have a double top at 1148 in the S&P, we will see what happens in the next hour. If that is the case we would sell more futures with stops just above that level.

Sugar lost an additional 3% today but at its low under 19 cents in May, prices hit the trend line that has held in futures since the low in the fall of 2008 when prices were near 12 cents/lb. Clients have been scalping futures both long and short because of the wild swings. Additionally they own May and July calls that are down significantly. Keep the faith - just as quick as prices came down, we could trade back to 26 cents, in my opinion.

May cotton lost for the third consecutive day trading to the 20 day MA. When that level gives way we should see a further 2-3 cent loss. Clients are positioned to take advantage of lower trade. Neutral reaction to the USDA report with soybeans and soy products gaining and corn and wheat trading lower. Clients were advised to lift their May short futures in corn and hold their December longs. Now with the report behind us and being we filled the gap from last Friday, we feel comfortable being net long. If we see cattle trade down again tomorrow we will re-explore getting clients short exposure with futures and futures spreads.

Tug of war in the metals today with palladium, copper, gold and silver all losing over 1%. We are still thinking a trade lower in the short term is likely in both gold and silver. We expect to see April gold challenge $1080 in the coming sessions. As we’ve said in recent blogs, $16.50 is the magic number in May silver. How the market responds to that level would dictate how we trade for clients.

We will not take the signal, but aggressive traders could short the Yen as long as we remain below 1.1125 in March. We are still looking for the Loonie to trade below .9500 by this time next week…trade accordingly.

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