Today in Commodities: Threshold for Pain
Matthew Bradbard submits: Clients are nearing their threshold for pain but that is generally the case before a market turns. Reading Dennis Gartman’s newsletter this morning he quoted a very successful trader about “making the hard trade” and we feel we have clients positioned in a few currently…short metals, short the indices and long natural gas to name three open positions. Higher high and higher low in oil today but I’m not so convinced the move in Crude today was not due to outside market influence, i.e. weaker dollar and strength in the equity market. Trail stops now with a profit order just below $81 with an upside target of $83.50. Prices appear to be getting over stretched but on a settlement above the early August highs $90 becomes our next target…trade accordingly. Continue to look for guidance from Crude oil with the distillates. After three down days natural gas manages a slight victory today as volumes have started to pick up in recent sessions. A preliminary sign of an interim bottom. Clients are beaten up but most managed to hold onto their November and December bullish exposure. They need to see a move immediately though as most are in options and as most traders know options are a decaying asset. A five month high in the S&P today out of nowhere..is this the blow off top?? Aggressive clients were advised to buy back 1/2 of their bottom leg on their November ES puts today. If this is a fake out we will be advising our remaining clients to unwind a portion of their lower leg as well in the coming sessions. A 12% appreciation in our opinion is not justified and as we’ve said we’re looking for a drop in the coming weeks. Cocoa and lumber were the only soft commodities to move lower today; select clients are short March 11′ cocoa with a target of 2600. We suggest using this rally in sugar and coffee to gain short exposure; look for trade suggestions to follow. Ultimately we expect March 11′ sugar to find its way to 20 cents and December coffee to $1.65. We’ve yet to re-establish bearish plays in Treasuries but it remains on our radar. On signs of prices moving south we will be likely gaining short exposure in 10-yr notes with clients…stay tuned. The nearly 5% correction in live cattle might be all we get. Over the next few days we will be working on bullish plays in futures and options; likely in February or April 11′ contracts. Holy sh71! Gold and silver are unrelenting advancing 1.87% and 3.56% respectively. Clients are not long in fact in recent sessions we’ve started gaining short exposure with clients. No not with futures but rather with put options. Some clients are in December $1275/1225 put spreads in gold and today clients bought December $20 puts in silver. We’re suggesting scaling into bullish plays in July 11′ corn and/or May 11′ soybeans ahead of Friday’s USDA report. My suggestion would be own 30-40% of the ultimate position you want ahead of the report. Bearish engulfing candle in the dollar today which should be bearish but throw your charts out the window lately we’re still thinking an inflection point and dead cat bounce in the dollar is near. As for Central bank action two surprises today; the RBA left rates alone at 4.50% and the BoJ reduced rates to 0%. Clients that are short the Loonie got hit today but they remain in their December puts for now…stay tuned.Complete Story »
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