Today in Commodities: Risk Appetite

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Includes: COW, CRB, DBA, DBC, DJP, JJA, MOO, UDN, UNG, USO
by: Matthew Bradbard

We’ve advised clients to lighten up on longs and some of our more aggressive clients have started to scale into shorts in Crude. My suggestion is to give the trade a few more days, but from here I could see $3-4 in either direction. A client pointed out to me the $10 trading range Crude oil has been in since mid-summer, and we’re nearing the upper end of this channel, so be cautious. Natural gas powered higher by 3.5% today, nearing the 100-day MA. Aggressive traders should be trailing stops on longs. In the coming weeks we could actually see a $5 print, which we have not seen since late July … stay tuned.

Sideways action in the indices ... the next leg should be determined on if prices fail at these levels or we can get a close above the November highs. My assumption is that if we settle higher, we could see a push 3-5% higher and on a failure 3-5% lower. Until a direction is determined, we suggest the sidelines.

The 20-day MA supported the dollar index today, as I expect it will remain the pivot point in the coming sessions. A trade below 79.40 and we would expect the European currencies to trade higher. That being said, buy dips in the Swissie, euro or pound on a dollar break.

Lean hogs broke the 20-day MA; aggressive traders who were long should have been stopped out at a loss. Live cattle were able to hold onto slight gains today, but as seen in recent posts we're expecting a trade lower and have advised clients to start initiating bearish positions.

A broken record, but it needs to be repeated: Gold was a gainer of nearly $20/ounce and silver traded over $30/ounce for the first time in 30 years. The trend remains up with the bulls in control but it seems too easy. We’ve advised clients to lighten up or trail stops. Aggressive traders could try longs in Treasuries again with tight stops. We hinted at this last week, and those that followed likely got stopped at a small loss.

In the last four days wheat has gained nearly 15% and has clearly been the leader in the grain complex. This may continue, but we missed the trade with clients … maybe next time. Continue to buy dips in corn and soybeans. We could get another 3-5% correction in corn and 4-6% in soybeans. Our top pick in agriculture remains ’11 corn bullish plays. We have coffee and cocoa on our radar but wish to see a correction before establishing bullish plays for clients. We should have trade suggestions in the coming sessions.

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