Today in Commodities: Calm Before the Storm?

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 |  Includes: BAL, CORN, COW, EU, FXC, FXE, FXY, GLD, MOO, SGG, SLV, SPY, TLO, UNG, USO
by: Matthew Bradbard

A supportive inventory report aided energy prices today with Crude oil and the distillates putting in another positive showing. We feel prices are overdue for a setback so we advise tightening up stops and lightening up on longs. On a pullback we would not expect much more than $3-5. At that point we would be a buyer again for clients. With natural gas prices unable to push thru $5.20, this could be day one of the pullback we had anticipated. A 38.2% Fibonacci retracement would also fill the gap from Friday we mentioned yesterday. We will be looking to be a buyer of September for clients if prices come off an additional 4-6%.

We expect another 20-30 points higher in the S&P but think the 50 day MA at 1140 could be a significant hurdle. September 30-year bonds will close below the 20 day MA for the second day in a row but we’ve expected more of a breakdown. It may take the last gasp of air from stock traders to break Treasuries. Clients remain in bearish positions expecting 120/121 in September 30-year bonds.

If October sugar trades above 16.50 in the balance of this week, we will be working out of most of our clients' remaining longs. Risk to reward we still like the idea of short exposure in December cotton with tight stops or put options. Continue to work long December live cattle via futures and options. We suggest light exposure ahead of Friday’s Cattle on Feed report and then we will be adding to positions next week as long as we get no curve balls on the report.

Sideways congestion in gold and silver, as metal traders are trying to figure where from here? If we see new highs in gold and buying does not come into the market we will be offsetting those positions in the next few sessions. Stay tuned and we will let you know the outcome if we make a move for clients. Most clients have bullish exposure to silver but are growing impatient of the non-action.

Those carrying large positions long corn we advised to establish some hedges or to lighten up on their longs taking some money off the table. We think there is more upside but we could get a setback in the short term. We pulled back the order on the wheat we mentioned in recent commentaries; buying CBOT wheat and selling KCBOT wheat. Not because we do not like the trade…we do. We need to exit other positions before feeling comfortable gaining more exposure for clients. Trades could have been filled at our suggested limit today (25 cent premium to KCBOT). We suggest risking 8-10 cents, looking to make 20 plus cents on the spread.

Clients remain long the Euro expecting 1.2600, short the Yen expecting a trade below 1.08, and we put on a trade in the Loonie for some clients today. We think the upside should be capped at .9850 and could see prices give back after the 4.25% appreciation in the last week. Clients went short futures and sold puts against their position with an initial target of .9600.

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