Today in Commodities: False Hope

by: Matthew Bradbard

Has the stock markets' 10% rally painted a false hope that the circumstances have improved in the economy? Because I do not see the improvement. Crude’s recent ascent has not convinced me that more upside is probable just yet, but we’ve seen a higher high and higher low the last 3 sessions. On a settlement above the 50 day MA in November at $77.38 we will look to re-establish longs for clients. Natural gas gapped lower but held its own for most of the session. Futures traders should lighten up as this chart pattern is ugly for longs; at minimum tighten up stop loss orders. For new entries we’re suggesting at the money December call spreads.

Failed follow through after Friday’s trade is a little discouraging for the bulls case in indices. If prices tune south from her, this failed rally should serve as an interim top… the next few sessions will be critical. Some clients remain short via November put options. Wait to see if Treasuries make new highs but a sell in 10-yr notes and 30-yr bonds are on our radar.

If cocoa was to advance 2-3% higher and run into resistance we will be looking for bearish strategies with clients… stay tuned. Sugar advanced an additional 2% today lifting prices to 6 month highs. The weekly and daily charts say sell, but until we see further evidence of a top we would hold off selling. Cotton gained 4%, lifting prices to new highs. Get out of its way because prices appear to have more room to the upside. As we’ve said for several weeks, prices are too expensive, but as the saying goes, the cure for high prices is higher prices. We will be looking to sell rallies in coffee for clients in the coming sessions.

Bullish engulfing candle in live cattle today with December gaining 1.30%. On a trade above the 20 day MA in the coming days look for a quick move to 101.75 to fill the gap from last week.

What a surprise gold and silver were higher in today’s session. You know our stance, we’re not advising shorts, but we smell a violent correction. That means $50-80 in gold and $1.50-2.00 in silver. If stocks fail to trade up, aggressive traders could probe shorts in copper with stops above the April highs.

Soybeans managed to keep their head above water but wheat and corn were lower, closing just off their lows on the day. Corn lost 1.72% and wheat gave up 1.88% for CBOT and 2.34% for KCBOT. We are looking for much more downside across the Ag complex before establishing bullish plays for clients ideally ahead of the October 8th USDA report.

The only viable risk/reward trade we see in currencies is short the Loonie with tight stops or purchasing December put options. Prices are trading near the upper end of the band that has acted as resistance for several months.

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