Today in Commodities: What a Difference a Day Makes

|
Includes: DBA, DIA, ERO, FXY, GBB, GRU, SGG, SPY, UNG
by: Matthew Bradbard

Crude only closed $1 lower but that does not tell the whole story. If the dollar rally continues, which we think it will for the immediate future, prices should come off. We therefore will not be getting long until the dust settles. Natural gas is an entirely different animal. We are advising long call spreads for the month of February and on continued strength next week we will again look for long futures entries. On cold weather or increased buying we expect February to find its way back near $5.

We would have liked to see a positive day in sugar but all things considered a trade is not made in a day. Wait for a settlement above the trend line to confirm the break out; that level is just above 23.00 on the March contract.

An out side day in equities, though the 20 day moving averages held. Longer term we expect the S&P and Dow to trade lower; in the immediate future we expect higher levels; that being said, we advised clients to cut losses on their ES puts today at a loss of $250/per. We’re done trading equities until the New Year.

I’m pretty sure I cautioned metals traders about a nasty correction; well, lo and behold a 5% plus decline in gold and almost 4% in silver. Gold held the 18 day moving average but from yesterday's high, prices are lower by $70/ounce and there could be more downside. This trade is far from over in our opinion, but a trade down to $1100 is not out of the question. As for silver, we see support at $18.20 followed by $17.75 in the March contract. Clients own March call spreads and are carrying a loss but we are confident that prices will trade back above $19.50 after the current correction. Days like today remind me why I do not buy and sit on my gold and silver positions for clients.

It took a loss of 11,000 jobs on the NFP and all of a sudden the likelihood increases that the Fed may make a move on IR next year. Guess what the Euro-dollar did, folks? We expect this to be a huge trade in 2010-2011 and perceive this to be the beginning. As I tell my clients, it is about market perception on rates, the Fed may not even need to raise rates for this trade to play out.

Corn was lower by 3% today; clients have yet to buy more call options but we did execute a futures/options combination for clients today. We suggested buying May futures while simultaneously selling out of the money calls. Clients were advised to cut losses on their February lean hogs puts today at $150 loss/per. Even with weakness commoditywide, live cattle managed to close higher. We took profits on April shorts and put stops below on the December live cattle for clients. Clients are now currently long December and February futures and own February call options.

Call it a dead cat bounce, but the dollar was higher by 120 ticks on the day, closing at a two-week high and poised to move higher. Continue to sell rallies in the Pound and Euro-currency. We may be looking for longs in the yen next week as prices collapsed this week. A move north in the dollar could be a game changer temporarily as commodities may go on sale.

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