Today in Commodities: Indexes Break Win Streak

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 |  Includes: AGA, GAZ, GLD, MOO, OIL, SGAR, USO
by: Matthew Bradbard

After 6 positive days is the stock market's day of reckoning upon us? A failed rally in crude today though the 50 day MA did support prices; that level in August is $76.45. Aggressive traders use that level as your pivot point. The option spread mentioned in recent posts; the October $80/85 settled around $1700 today. Being September natural gas is within 5% of the contract low we think aggressive traders can scale into longs on pullbacks with stops below the contract lows. Our clients have been purchasing October 50 cent call spreads and are currently down on the trade.

The indices' appreciation of late has been impressive but with volumes anemic we feel a correction is likely. The problem is if we see a short squeeze, a 4-5% rise would crush bearish positions. This is the trade recommendation we issued today; buy August ES1150 calls for $350 and buy September ES 1075/1000 put spreads for just over $1000. The idea is on a move higher into next week exit the August calls and hold the puts for the coming leg down. IF prices roll over from here cut losses on the calls and hold the put spreads. Cocoa exploded to the upside today gaining 3.55%. This is now a buy dips market.

Clients have exited about 75% of their October sugar longs; we would continue to exit as we feel a correction is looming. Forced into the market we feel OJ prices could fall an additional 10%. Treasuries are back above the 20 day MA; if short and at a profit we would book it and move to the sidelines. Live cattle accelerated to the upside today closing at an 8 week high. Clients remain long expecting more; December has appreciated 5% in the last 5 weeks.

Until August gold closes above the 50 day MA at $1219 we are skeptical of gaining long exposure with clients. The 50 day has capped ALL rallies in the last 2 weeks. The metal clients do have exposure to; silver was higher by 0.50% today on the close. In early dealings prices violated the 50 and 20 day MAs. Clients are buying dips in September futures and purchasing December call spreads. Agriculture was higher across the board but this was likely due to July futures expiration and we still expect a pull back. As we’ve said buy dips in this sector; our favorite remains corn. Clients remain short the Swissie and Euro looking for a break lower but today took on some water.

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