Today in Commodities: Why Commodities in a Portfolio?

by: Matthew Bradbard

This is not an April Fool's joke: Commodities belong in all portfolios if an investor has some risk aversion; just look what’s happening in commodities compared to other asset classes. Crude has its highest close in 2011 to kick off the first trading day in Q2. The momentum should carry prices upwards of $110/barrel, but we would prefer to be a buyer from lower levels -- so unless already in a position, we would remain on the sidelines. Natural gas is on our radar, but we anticipate a trade back near $4 before we see more upside, so look for a dip into next week.

Indices were flat today after a muted reaction to the jobs number this morning; we’ve lightly worked aggressive clients back into bear put spreads in June ES contracts. The greenback's 1% early day rally failed as prices will close flat in the dollar on the week. We feel the best play at current levels is scaling into shorts in the Aussie to play a 3-4 cent correction in the coming weeks.

Aggressive clients established bearish futures and options positions in June lean hogs today, anticipating a trade back to the 20 day MA in the coming weeks; in June at 100.70.

Both gold and silver traded down in today’s session, but we’re anticipating much more than the small incremental moves today. We could see $50 lower in gold and $3 lower in silver, in my humble opinion.

Cocoa rallied 2% today but failed to penetrate the 200-day MA; in July at 3045. We suggest bullish exposure to play a trade back near 3300. Both coffee and cotton gave up 2% today; we continue to suggest bearish exposure in both. Old crop corn was higher by 6% today, coming off limit in late dealings. We do not think the highs are in, but would prefer trading new crop from the long side until we get a retracement in old crop contracts. We opted to take profits for clients on their soybeans as we did not get the expected reaction off yesterday’s USDA. We will look to get them long again from lower levels.

Treasuries are in no man’s land, but our bias is starting to shift from bearish to bullish, so stay tuned for fresh trade recommendations.

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