Today in Commodities: Heart Palpitations

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 |  Includes: AGF, BAL, GAZ, GLD, MOO, NIB, OIL, SGG, SLV, TRSY, UDN, UNG, UUP
by: Matthew Bradbard

At 33 years old I should not have heart palpitations but this market can do it to the best of us. While most of you were sleeping crude oil traded at a nine month low under $83/barrel but as of this post prices are $5 off that level, closing positive in today’s session to end the week. The $15 decline we feel is far too over done so we’ve advised traders to use this retracement to be a buyer in October contracts. Being RBOB has dropped 40 cents and heating oil 30 cents via as a temporary setback. Our suggestion for hedgers is to roll their hedges down and to make sure they have some fall coverage because we could easily do an about face and start heading north again. Under 44 we like being long period. A 15% dip in natural gas came in three weeks but give it two months and we expect to get all of it back and some. We’ve recommended long exposure in October via futures and options.

Stocks got hit hard this week and have lost roughly 10% in the last two weeks but as we said yesterday we expect a relief rally from here. Looking at the weekly charts of the indices we were able to hold the 100 and 200 day MAs and aggressive traders should position for a 3-5% bounce ... trade accordingly. Our favored play is options in the ES. Gold may have reached an interim top but it clearly did not see the corrective action silver experienced as prices appear to close the week out just $20/ounce off record highs. On a settlement below the nine day MA, in December at $1,638, we would be more apt to expect a larger correction. Silver will close out the week 7% off its highs and our first two targets have been reached. If we make a new low which we think is feasible next week we could see $36.65 in September. With aggressive clients we are still in sell rallies mode.

The dollar gave up most of yesterday’s gains, closing back under the 20 day MA. We’re in love with nothing in this sector but after the nickel drop in the Loonie we may reverse and be a buyer for some clients ... stay tuned. Cocoa is over sold after the 8% drop in recent weeks, if the dollar does head south we will likely look to gain long exposure here, so trade accordingly. Sugar has closed lower the last 11 sessions, losing just over 12%. If prices break the 50 day MA look for the selling to intensify. This level is just under 27 cents in October. We’ve recommended clients to book profits on their shorts. OJ gave up nearly 5% today and has come off 10% in the last three sessions. See previous short recommendations and targets.

Is it possible? Say it is not so. A key reversal in the Treasury market on today’s jobs number. We like the risk/reward dynamic better on the short end of the curve in euro-dollars but on continued weakness next week we may re-establish shorts in the long end. As of yet clients are not buying back into agriculture and we would like to see a break into next week. We did not move on the signal but we did get a buy signal in live cattle today ... consider this a heads up. Lean hogs held up well this week all things considered but we are suggesting bearish exposure thinking a break is just around the bend. Our objective is the 50 day MA in October at 88.90.

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