May crude has picked up steam, advancing the last two sessions and carrying prices back over $108/barrel, but my clients remain on the sidelines. I advised them to take off their shorts when prices bounced off the trend line last week. My inclination is to be a seller if we see prices rally and fail near $110 in the coming sessions ... stay tuned. The fact that RBOB and heating oil have failed to break out to new highs supports my case that energies are over extended. With natural gas trading higher for the last three sessions and consecutive settlements above the nine-day MA, aggressive traders can probe longs with stops below the recent lows. A 15-20 risk looking for 30-50 cents of upside is not a bad risk/reward dynamic.
Stocks have gained the last eight sessions lifting prices to overbought levels on the daily charts once again. This move is unsustainable but I would wait for signs of a top as opposed to jumping in front of this train. May suggestion remains taking profits and lightening up on equities as a 5% decline is long overdue in my opinion. gold has chopped in a $30 range for the last three sessions, closing at the upper end of that range today. Prices may challenge $1,700 in the coming sessions but I am still not convinced that this downward move has run its course. On signs of weakness near $1,700 I will most likely be probing shorts with aggressive clients. Silver has tread water for the last three sessions as well, dancing in a $1 range. As long as May remains below $33.50-33.75 I expect further losses. Ultimately I am expecting a trade below $31/ounce before we see much higher ground.
Sugar is fast approaching our 26 cent sell zone at three week highs as of this post. In one week prices have shifted form oversold to overbought. A possible trading idea would be to get short futures and to sell at the money puts. If prices fail one should make more money on the futures than the loss in the options. If prices push higher buy back your puts and manage the futures trade. Medium term I think prices could get back near 22-23 cents. Treasuries continue to be pressured as in two short weeks months of gains have been erased. Continue to fade rallies in cattle. Use the 20 day MA as your stop level on any bearish plays in feeder and live cattle. With the exception of rice all ag products lost ground today. I am searching for an interim top in corn, wheat and soybeans as they have traded too high in my opinion. As I said in recent weeks I would like to see a decent break to get clients positioned long ahead of the planting intentions report.
Short term it looks like we could see a retracement in the greenback which will likely lead to other crosses temporarily catching a bid. My suggestion is take profits on any remaining shorts in the commodity currencies. Aggressive traders could be starting to scale into longs in the yen with stops below last weeks’ lows. After a 10% drop in the last five weeks one would expect a respectable bounce. Why not play it as a trade with tight stops?
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