Today in Commodities: Market Vindication

by: Matthew Bradbard

Today could mark a key reversal for several markets, including but not limited to the US dollar, metals and energies. Oil reversed from these same levels in August… will history repeat itself? In recent blogs we hinted at this, and on confirmation tomorrow Crude will likely move back to the 50 day MA; in November at $77.70. If that is the case, we’ve seen an interim top in the distillates as well; that would drag heating oil and RBOB 12-15 cents lower. A bearish AGA report prompted natural gas to lose 4.4-6.25% depending on the month. Some clients have thrown in the towel; others will likely be out in the coming sessions if we do not move north from here. I feel we’re close to a bottom, being the sentiment is so bearish, but as the saying goes, markets can be irrational more than most investors can remain solvent. What really irks me is that Goldman is forecasting a 20-25% advance in natural gas in the coming months and clients will likely get out at the bottom. Unfortunately sometimes that is the way the cookie crumbles. We will advise clients to re-establish positions once an interim bottom is established.

The next leg in indices will be determined by the NFP tomorrow. We’ve positioned several clients short the S&P via November put spreads.

We're seeing a failed rally in cocoa; as we’ve voiced, our downside target is 2600. Sugar rallied 6.88% today; if a new high is not reached we will be looking to add to clients' short positions. Same story in cotton: if the recent high acts as resistance we will be looking for bearish plays. Although we would have liked a larger rally aggressive traders could be short coffee with stops above $1.7850 in the December contract. Lean hogs traded to a three month low today though pared losses by the close. If we can find some buying interest around these levels we may start probing longs for clients. We would recommend booking profits on ALL remaining shorts.

Could today be day 1 of the correction in metals? Gold will close just over $30 off its highs, silver nearly $1 and copper just over one dime. It is way too premature to celebrate, but our more aggressive clients are positioned short gold and silver thinking a sizable correction is around the bend. Targets in December gold are $1295, 1278, 1256, 1235 and December silver $21.23, 21.00, 20.40, 19.75.

USDA is out tomorrow before the grain open. We’ve positioned some clients slightly long July 11′ corn. We feel both soybeans and corn will benefit from the fight for acreage and we will have buy objectives and price targets in the days to come.

The dollar lifted its ugly head today to close positive and looking at a candlestick chart a doji star on good volumes. The ECB and BoE left rates alone today at 1.0% and 0.50% respectively. Our featured play in forex remains shorts in the Loonie expecting .9550.

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