Today in Commodities: Market Meltdown

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 |  Includes: AGF, BAL, CAFE, CORN, GAZ, GLD, MOO, NIB, OIL, SGG, SLV, SOYB, UDN, UUP, WEET
by: Matthew Bradbard

Crude oil slides again today taking prices to their lowest level in one month, now approaching their lows from June approximately $3 from current pricing. We feel most of the downside damage is done and have advised clients to start probing longs as we feel there is more upside potential than downside risk with Crude futures at $93/barrel. Lightly work long futures or opt for October bull call spreads would be our two suggestions. Natural gas held its own today trading only marginally lower. As for the September contract it appears we have solid support just above $4, so as long as these lows hold we suggest taking advantage of this recent drop.

Indices got clobbered today taking the equity market to five month lows. We’re suggesting catching a falling knife as we feel this is an overreaction by the skeptics on the debt ceiling debacle. Do we agree …do we think this is a long term solution? NO on both counts but the sun will come up tomorrow and a 7% decline in less than two weeks we feel is a bit exaggerated. We’ve advised buying September bull cal spreads to aggressive clients. We were early as we started yesterday with some clients. That being said, we may buy back the top legs…stay tuned.

December gold bounced of the 9 day MA picking up 2.3% today carrying gold to fresh record highs. This runaway freight train may have plenty of steam left in its engine…back off shorts for now. Silver recouped the previous days loses and is approaching the top end of the recent trading range, gaining 3.6% today. Some clients remain short but we’ve been active managing the trade, trading mini-futures and options against their core futures position. We’re still anticipating a trade under $38/ounce but expect an extremely bumpy ride.

The Aussie closed down for the fourth session in a row giving up 1.5% today. We still like fading rallies thinking an interim top is in place. The Swiss franc like Treasuries are way high and due for a major re-pricing in our opinion but that does not mean prices are near a top. An 11% advance in the last month is too much but we see no signs of a top yet.

Sugar lost another 2.8% today breaking a trend line that had been in pace since mid May. A 38.2% Fibonacci retracement leads to 27.40 in October and 50% drags prices near 26 cent/lb. Momentum has shifted to the bulls in cotton with prices hitting a two week high today. $1.15 is attainable in the December contract sooner than you think…in my opinion. OJ remains on our radar as a sale…trade accordingly. Yields down, Treasuries up again the theme today with 30-yr bonds and 10-yr notes hitting new contract highs today. Clients are losing enough money on the short ends of the curve so they will be absent from the long end as Treasuries may continue to climb the wall of worry. Weather concerns (muy caliente) and some revisions on yield combined with fund buying got grains moving higher today. Corn traded limit bid while soybeans were higher 1-1.3% and wheat jumped by 4.5-6%. At some capacity clients will have bullish exposure before the USDA but as of this moment most are on the sidelines in this sector. An early rally in lean hogs fizzled out and if outside weakness continues look for that to spillover to the pigs. We’ve suggested bearish exposure in October to clients.

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