Today in Commodities: Rolling With the Punches

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Includes: BAL, COW, DBA, FXY, GLD, GRU, JO, MOO, SGG, SLV, UNG, USO, UUP
by: Matthew Bradbard

After a $10 move higher, is Crude getting tired? We want to have long exposure for clients but are on the sidelines in oil anticipating a $4/5 break in the next week or so. The 40 day moving average in April comes in just above $78 and the 200 day is seen at $75.50. We have yet to decide on if we will be trading May or June, but we should have some ideas in options as well as futures. April natural gas was lower again today, having lost almost 60 cents in the last 5 sessions. We finally got the trade below $5 we were looking for. We started buying options for clients today and will be looking to buy futures over the next few sessions. Today clients were buyers of June $5/5.50 call spreads for $2050/per.

We continue to think this move in equities to be the lull before the storm; we suggest using the sideways action to get short exposure. Clients are scaling into short futures and buying puts.
Sugar was not so sweet today; May lost 7%, dragging prices back to the 100 day moving average. 23.90 is the 61.8% Fibonacci retracement; if that level holds, we would entertain long futures and potentially buying back half of the 30 calls we sold (25/30 1:2 ratio spread). We will have more ideas to follow, but one move clients made today was to speculate on cotton prices backing off: sold July 90 cent calls and bought July 74 cent puts. The premium paid on the trade was $650/per. On a 4 cent correction in July futures, they should be worth $1250-1500/per. Coffee gave back all the previous week's gains, losing 3.75% today. Clients are long and though they had a gtc profit order working, we suggest reducing that order to 300 O/B.

Agriculture was higher today with wheat gaining 2.3%, soybeans 1.75% and corn just over 3%. This COULD be the beginning of the next leg higher as they compete for acreage. If forced to pick one grain, we prefer corn, thinking we have at least another 50 cents on the upside. There was little action in live cattle today but we maintain that April should find an interim top very soon; our target remains 89.00.

April gold held the 50 day moving average but closed $15 off its intra-day highs. Without a close above $1128 in the next few sessions, we most likely will re-visit $1100. March silver needs to stay above the 200 day moving average or profit taken will ensue; that level is $16. On both metals we would be a buyer of dips, but treat this like a trade and do not fall in love.

The currency market was uneventful with the exception of the Yen which advanced .60%. The dollar remains in the driver’s seat; support is seen at 80.30 followed by 79.80 in March.

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

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