Today in Commodities: Trading Around the Core

 |  Includes: BAL, COW, DBA, FXC, GRU, JO, MOO, SPY, UNG, USO, UUP
by: Matthew Bradbard

As a swing trader I’ve been whipped around of late as markets slog back and forth. What I’ve been forced to do is trade against core positions. By this I mean if you want to be long corn, for example (our clients' biggest position), sometimes you may have to trade options or futures of a different month against your core position.

Oil failed to get above yesterday's levels and as of this post just went negative. We expect prices to drift lower but would advise cutting losses on any open shorts on a settlement above $82 in May; our target remains $77/78. Now that natural gas has seen a trade below $4, will buyers enter the market? We are expecting the long Crude/short natural gas unwind to help natural gas find a bottom. Additionally check out the inverse correlation with natural gas to stocks. A top in stocks may equal a bottom in natural gas. We have advised clients to cut half their position on May longs at a loss on a trade below $3.90. We still like purchasing June 50 cent call spreads.

Surprise, equities higher on the day! June ES puts are the only way I’d suggest having exposure speculating on indices coming off. Treasuries broke a key trend line today and look to be heading lower. We would refrain from being outright short, but a possible idea would be a pair trade; short 30-year/long 10-year or short 10-year/long 2-year.

Cotton lost 1.5% today putting May just above 80 cents; our targets remains 78 and then 76. Coffee prices perked up today, gaining 2% closing above the 50 day MA for the first time since mid-January. We have started to price out July 10 cent call spreads for clients… stay tuned.

Agriculture came under pressure today. We advised clients who were long December corn futures to sell May futures 1:1. Those who have held back or only have a small position we would advise lowering your cost basis and buying more corn ahead of next week's USDA. Bear in mind you may need to take some heat, but we view this as temporary. The KCBOT/CBOT wheat spread picked up a few pennies today; again we are expecting December KCBOT wheat to be at a premium to December CBOT wheat.

Both cattle and hogs were lower on the day; continue to sell rallies.

Metals were sideways today but the fact that they were able to remain positive in the face of a stronger dollar does show some resiliency. We are expecting gold and silver to trade down before we see any substantial upside; $1075 then $1045 in gold and closer to $16 in silver.

As long as the dollar stays above 82 we should see pressure in foreign currencies. If the Loonie were to trade to .9600-.9650, we would start looking for an exit door on shorts.

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