Today in Commodities: Deflation Curveball

by: Matthew Bradbard

Crude recovered the two previous days' losses, gaining 1.8% today. We expected to see the 50 day MA give way and prices to trade lower, we were wrong. We would move to the sidelines until Crude gives a clearer signal on direction. We expect a trade above $79.50 to signal higher ground, and a trade below the 50 day MA at $76.35 to signal lower ground. Natural gas is higher by 2.44% as of this post, having gained all four sessions this week. For futures traders, as long as the 50 day MA holds, on a closing basis we would remain long. For option traders, we like purchasing 50 cent October and November call spreads.

We would think after a 50% Fibonacci retracement and a failure to remain above the 200 day MA indices are headed south again. Whether it be talk of deflation, a disappointing jobs number or lackluster earnings, a move below the 50 day into next week, at 1077 in the S&P confirms lower action. Aggressive traders could short indices with stops above the recent highs.

The action in sugar has been remarkable with prices closing at 3 1/2 month highs today, lifting prices 40% off their lows from May. I admit we left longs way too early for clients; sometimes playing it safe costs you money but in the long run playing it safe keeps you out of trouble. Higher trade was rejected again today in December cotton; we feel prices could move south and advise a sale above 77 in futures and purchasing December put options. Coffee had its highest close of the year today so we are no longer interested in purchasing December puts for clients. We advised clients to cut losses on their December live cattle today; losing $220/per including fees.

Inside day in September silver today with prices failing to get above the 200 day MA. On the week, prices are down 2.7%; we would like to see a recovery tomorrow and a close back above the 200 day MA at $17.73. Aggressive traders are scaling into longs in September futures and purchasing December call spreads. I’m a little confused about the deflation comments with copper gaining over 3% this week back near $3.30? Agriculture remains a buy-dips across the sector as we continue to recommend a bullish position into the August 12th USDA report. Our suggestions remains long December corn, November soybeans, December soy meal and we may try again to buy the December KCBOT/CBOT wheat spread at even money for clients.

It was a painful day for our currency traders today as the dollar slide had all crosses higher. They remain short the Euro and Swissie but on a higher trade especially in the Swissie we may be forced to cut losses. Overnight action into tomorrow will be key.

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