Today in Commodities: Intestinal Fortitude

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Includes: BAL, COW, DBA, FXB, GRU, JJA, JO, MOO, SGG, UDN, UNG, USO, UUP
by: Matthew Bradbard

If you do not have the stomach for volatility, our suggestion would be to take the week off. Crude oil is showing signs of life, posting a higher high and higher low in today’s session. Use a trade below $76 in June or above $79 as a sign of where from here. On further signs of an interim bottom we will be suggesting clients to gain long exposure. We’ve advised any traders who hold bullish positions in the distillates to use a 20 cent appreciation to exit remaining longs. June natural gas has managed a close back above the 9 and 20 day MAs, jumping virtually 4% today. We remain convinced that a 10-15% appreciation is just around the corner. Look for ways to get long via futures and options as we see a trade over $5 in the coming weeks.

The rally back in equities is spectacular but in our opinion short lived. There was too much damage done to the daily and weekly charts, and as soon as the false hope of a resolution wears off from the actions over the weekend in Europe we expect another leg down. We see all of these bailouts as nothing more than kicking the can down the road. We view upside resistance in the equities at the 50 day MA; in the S&P at 1170, 10800 in the Dow and 1960 in the NASDAQ. We are still suggesting selling rallies in Treasuries; as we said in the commentary we expect most if not all of the recent gains to be given back.

Sugar prices traded up to the 9 day MA but failed to get thru that level; in July at 14.55. We feel an interim low is close if not already in place and could see a trade back over 18 cents. Continue to sell rallies in cotton as we feel a trade closer to 75 cents is in the cards in the coming weeks. The only circumstance in which we would change our mind is a super bullish USDA report tomorrow, so stay tuned. We would still like to see a lower entry in coffee and OJ before re-establishing longs for clients. Corn and soybeans were flat ahead of tomorrow’s USDA. Wheat was lower by 2.5-3.5% today. The December KCBOT/CBOT spread picked up just over 2 cents.

We still need to see a settlement below the 20 day MA to confirm a move lower in lean hogs; clients are short June and August via options.

The divergence lives on in metals with gold slightly lower and all other metals catching a mild bid. Our clients' exposure is long silver via a small position in July futures and September call spreads. As for copper, clients remain short via put options and on a trade closer to $3 in July we will look to unwind.

We expect currencies to trade all over the place this week. We most likely will be looking to sell rallies in the US dollar and Pound but have no specifics on our radar as of yet. Today the BoE left rates unchanged at 0.50%.

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