Today in Commodities: Flow of Funds

|
Includes: AGF, BALB, CAFE, CORN, GAZ, GLD, MOO, NIB, OIL, SGG, SLV, SOYB, UDN, UUP
by: Matthew Bradbard

At the moment it appears money is leaving the stock market and trickling into Treasuries and commodities. Inside day in Crude oil today as prices were unable to remain above the 9 day MA. As we said last week we recommend the sidelines until we see what OPEC does or we get a change to be a buyer below $97/barrel…whichever comes first. Natural gas was higher today but in the last three sessions we’ve run into selling near the highs…aggressive traders can gain bearish exposure as we anticipate a trade back near $4.40/4.50.

Stocks closed down for the fourth consecutive session giving up nearly 5% in that time frame. This sell off has dragged prices to four month lows and while the bears remain in control we do not see too much more downside. Trail stops or look for exit doors on shorts. The dollar could get a dead cat bounce from current levels but we would not expect more than a trade back to the 20 day MA; in June at 75.25. We have no favored plays in forex at the moment and if still long the European crosses from past weeks book profits and move to the sidelines.

Live cattle held up surprisingly well considering weakness in outside markets. Some clients hold light long positions and have been advised to stay the course as we are looking for a revisit of the 20 day MA’s; in August at 107.10 and in December at 116.10. Both and gold and silver maintained positive levels but on our gut were expecting a trade lower. We have a target in August gold at $1515 and a trade closer to $35 in July silver…trade accordingly. Aggressive traders can get short sugar after the 15% appreciation in the last 30 days. It has been a challenging remaining bullish cocoa but that is where we stand as clients have been buying this dip in September in recent sessions. Coffee and cotton are back on our radar as sells...look for bearish trade recs in the coming sessions. We’re getting the break we anticipated in grains...our patience is paying off. Look for more downside in corn, soybeans sand wheat. We expect an additional 20-30 cents in corn, 45-65 in soybeans and 30-40 in wheat. Look to reverse shorts and start scaling into longs if the aforementioned scenario plays out. Another trade idea is to be a buyer of CBOT wheat and a seller of corn 1:1 looking for that spread to widen. Treasuries appear over extended but we may need to see a bounce in equities for the flow of money to help send prices of 30-yr bonds and 10-yr notes lower. In full disclosure some clients hold bearish positions at a loss still.

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