Today in Commodities: Holding My Ground

by: Matthew Bradbard

I’m sticking to my positions and holding some winners and some losers putting it out there. Crude oil prices are at a seven week high, approaching $82 in the November contract gaining nearly 7% this week. We could see this leg lift prices to the highs from early August, which would be $2 from their current levels. As long as Crude continues moving higher, RBOB and heating oil should continue to gain. For every $1 move in Crude futures we would expect the distillates to move 3-4 cents.

Natural gas was lower by 4% from Monday’s opening, but that was after a gap lower trade on Sunday night, so this chart is far from bullish. That being said, we’re bucking the trend with clients advising a small bullish allocation in November and December futures and options. This trade has been tough but we will see it through next week as long as prices hold these levels. Fortunately for most option holders we had call spreads and have advised clients to leg out of their top leg on this down move so an up move is welcome and overdue.

Sloppy sideways action in indices this week. We suggest being a seller; our featured play is November 1:2 put spreads. Today traders could’ve bought the 1150/1050 1:2 for just over $850 plus fees. We stepped to the sidelines in Treasury shorts for clients today at a minimal loss and will re-evaluate next week. The reason: there are four Central bank meetings and NFP next week.

Softs are a sell, it is that simple; we feel sugar, cocoa, cotton, OJ , coffee and lumber should move lower. Look for trade ideas in next week’s posts. Today clients were advised to book profits on their December coffee put spreads. Feeder cattle are back above the 20 day MA, if you remain long trail stops. On further momentum $1.14 may happen in the November contract next week. If live cattle break the trend line at 98.50 we will suggest exiting longs, on a breach of the 20 day MA we will be looking to add to longs for clients.

Gold and silver have yet to correct but we think it is likely very soon. Just look at the action this week in agriculture. Corn is 63 cents off their highs, soybeans have lost 87 cents and CBOT wheat over $2 from their August highs and $1 in the last week.

The dollar feel off a cliff this week and we got it wrong thinking the other crosses were overstretched…perhaps a week too early. Look for action from the RBA, BoJ, BoE and ECB to guide next week. Take profits on Yen longs, cut losses on Pound shorts and continue to fade rallies in the Loonie.

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