Today in Commodities: Trading Size

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Includes: AGA, BAL, CAFE, GAZ, GLD, MOO, NIB, OIL, SGG, SLV, UDN, UUP
by: Matthew Bradbard

There is no shortage of events this week so we suggest bringing your trading size down until next week. Crude oil advanced for the second consecutive day gaining just over 1%. As long as prices do not settle above $84.50 in December clients will be advised to remain in their bearish plays. It will take a settlement back above the 20 day MA in December natural gas at $3.90 to get us interested in longs again for clients. Our suggestion would be scaling into futures or purchasing January call spreads.

Indices will close marginally higher but as of this post prices remain below yesterday's high. Clients hold a small position in ES puts and are currently carrying a loss. On a settlement below the 20 day MA’s clients will be advised to gain bearish exposure; those levels are 11035 in the Dow and 1173 in the S&P. The 50 day MA is acting as a pivot point in cocoa with prices bouncing 1.67% today. On a new low this week clients will be advised to exit their bearish options exposure…stay tuned.

Sugar posted a new 30 year high today and cotton a new record high. These moves are remarkable and it is a shame we missed a majority of both with our clients. Aggressive traders can gain bearish exposure in coffee via options as we expect a 10% depreciation in the coming weeks. We will likely be selling a rally in Treasuries with clients but would hold off as from here we could see 132/133’00 in 30-yr bonds and 127/128’00 in 10-yr notes.

Remember the Fed meeting is happening today and tomorrow; while we expect no change in rates we do expect QE talk to be a potential market mover. Aggressive traders could buy live cattle, feeder cattle or lean hogs with tight stops. Our first choice would be February live cattle expecting a new high in the coming weeks. Inside day in both gold and silver? Prices could go either way; we suggest waiting until next week to establish fresh positions. Traders should look to buy this dip in corn and soybeans ahead of next week’s USDA report. Preliminary estimates from FC Stone today appear slightly bullish to corn and slightly bearish to soybeans. Again it is our recommendation to start gaining bullish exposure in ’11 crop having 1/4 -1 /3 of your intended position before next Tuesday.

The dollar is in the driver’s seat…until we see a settlement back over the 20 day MA at 77.55 we would remain on the sidelines. Our current positions with clients are shorts in the Loonie and Yen that are both under water…stay tuned. The RBA raised interest rates today 0.25% lifting rates to 4.75%. FOMC tomorrow and BOE and ECB on Thursday…stay alert.

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