Today in Commodities: Out of Treasuries and Into Commodities, Stocks

by: Matthew Bradbard

Crude powered through the 40 day MA closing at three week highs just under $99/barrel in August. We maintain a $103 target and continuing at the current up pace prices should reach that level by this time next week. The 2% surge in crude was dwarfed by the strength in the distillates with RBOB higher by 4% and heating oil higher by 4.4% ... talk about the tail wagging the dog. Natural gas lost just over 1% after trading at four month lows on what we view as an overreaction to today’s’ AGA. Note prices did close 10 cents off their lows. We advised those holding September bull cal spreads from higher levels to buy back their top legs today.

Stocks remain overbought but after today’s activity prices have advanced to two month highs. We’ve been selling into this strength buying September bear put spreads for clients but if we get above the May highs we may leave the trade at a loss ... stay tuned. The 7% rally has been on light volume and in our opinion too much too fast. The stand-outs in the currency complex remain the commodity currencies; the Aussie , Kiwi and Loonie. Our pick remains the Loonie as a settlement above 1.0415 should signal 1.0500 in September.

Lean hogs sentiment shifted back to bullish with the settlement back above the 20 day MA today, in August at 94.25. Use that level as your pivot point as we will likely be buying dips for clients. Live cattle cleared the upside resistance and though we have no current exposure we will likely see higher pricing. We will not partake though as we see better risk/reward opportunities elsewhere. Gold finished in positive territory but was unable to take out the previous day’s high. It should just be a matter of time as we feel a $30-$40 move higher is imminent ... trade accordingly. Silver advanced 1.5% picking up just over $2.50/ounce in the last three sessions. We like the chart pattern and feel we could see a 5% surge in the coming week or so ... trade accordingly. Sugar is pushing 30 cents/lb making it a near 50% advance in the last two months ... OUCH for our clients shorts. Futures move south from here or we will likely take a pretty heavy hit ... stay tuned. Today we bought back clients puts with the expectation of prices turning on a dime any day now. If cocoa challenges the recent highs we will try to liquidate our clients remaining longs tomorrow. Agriculture is a buy, corn, soybean and wheat in my opinion. Today’s activity December corn gained 1%, September wheat 1.2% and November soybeans picked up 1.45%. An additional play could be soybean oil which should benefit from the appreciation in soybeans and crude oil. Notice the correlation in recent months. Past performance is not indicative of future results. Money appears to be flowing out of the perceived safe haven “Treasury complex” with 30-year bonds, 10-year notes and euro dollars all trading lower. At this juncture looking at the risk/reward we suggest the short end of the curve i.e. longer dated euro-dollars ... December 2012 for example.

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