The move by the Ag minister in Russia overnight kept things interesting in commodities today.
Aggressive traders could look at shorts in Crude oil as long as prices remain below $83 in the September contract. Some clients started to price out October and November put options today… stay tuned. We are anticipating a trade back to the trend line that has held since early July, which would drag prices $4-5 lower. If our analysis is correct in Crude, we would expect to see a drop in the distillates of 15-20 cents over the next few weeks. Natural gas broke the upsloping trend line today but the 100 day MA did hold. We suggest refraining from futures but still like the idea of November 50 cent call spreads. Previously purchased spreads may opt to buy back their top legs once an interim bottom is established.
Tomorrow’s jobs number will determine where from here in the indices. We would continue to fade rallies in the S&P thinking we are in the ninth inning and see NO new bullish developments. The S&P has rallied 12% and I see no reason for that magnitude of a move. (If you do, please post a comment and let me know what I’m missing.) We like the idea of December ES put spreads. Treasuries will wait for tomorrow at 8:31 EST before making a decision as 30-year bonds have had a 1 basis point range for the last four sessions. We would like to get bearish exposure but have yet to make a move with clients.
Sugar lost just over 3% today; as previously stated a 10% correction looks likely. We would suggest looking for long opportunities closer to 16.25- 16.50. Weak close in December cotton today closing 2% off its high; buy December put options. Coffee looks heavy; we feel a move back to $1.50-1.55 could happen in December relatively quickly.
Live cattle failed after making a new contract high; after a setback we will be looking to get clients long again. The 20 day MA which has supported for the last month comes in at 95.90 in December. Lean hogs put an interim top this week; sell rallies. We expect to see prices track back to 70-72 in the October contract.
As long as gold remains above the 100 day MA the bulls are in the driver’s seat; in December at $1190. Clients currently have NO exposure. The 100 day MA also supports in September silver at $18.15. Aggressive traders could have stops just below that level. We prefer buying December call spreads on dips. September copper closed down 1.76% today and looks heavy. If indices turn south we think a trade back to $3.20 is likely.
The fact that Russia temporarily banned wheat exports means all bets are off in the grains sector. Where the top is was the question I was asked today and my answer: I have no idea. On a correction we will be looking for long opportunities but we suggest taking your position size down and to possibly trade options instead of futures because when prices correct we could move down twice as quick. December corn, closed to $3.80, is a BUY in my opinion and we will try to be a buyer ahead of 8/12 for clients if given the opportunity.
We will need to see the dollar back above the 200 day MA tomorrow to believe a rally is upon us. The 80.50 triple bottom seems to be support. If and when we get a squeeze in the dollar we expect the Euro and Swissie to get hurt the most… trade accordingly. The ECB and BoE kept rates unchanged at 1.0% and 0.50% respectively.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.