Trading Correlations 2/11/10
Recognizing the relationship between different asset classes and even different commodities can keep you from getting too concentrated of a position. We got the rally we were looking for in crude to head to the exit door for clients. We do not wish to have long or short exposure into tomorrows report. Clients lost $200 per spread (May $78/85). Crude did trade above the down sloping trend line but as of the close prices are just below. We like the idea of being long but at this point from lower levels. Clients only energy exposure now is June RBOB which as we’ve stated we expect futures to make their way to $2.15/2.20. Stocks found their way to higher ground and are higher by 1.10-1.70% as of this post. We are still looking for more to get clients short via June ES 1000 puts; the current price is $1650. We are thinking on a trade up near 1100 in the futures clients can pay less than $1400/per. We decided to cut losses in the May OJ back ratio spreads for clients; approx. $225 per spread. We are looking for ways to position in sugar with clients but have yet to find a strategy that makes sense. In the last 30 days May coffee has lost 10% in value and taken prices back to levels not seen in 17 weeks. We think $1.30 is the line in the sand and advised clients to gain long exposure today. We are looking for a trade back up to $1.42/1.45 in the coming weeks. We still like having long exposure in agriculture with clients. Our favored play is call options in May and July corn and December futures. To keep it simple we think in the coming weeks we will start to hear talk of planting delays and that prices will need to trade higher to entice farmers to allocate more acreage to corn. Cattle seem to running out of gas but that is only after a 3.25% move higher in the last 2 weeks. That does not seem like much but that is a pretty big move in livestock. Short term we are looking for lower pricing and then a resumption of the up trend; so trade accordingly. Could it be the turning point in gold and silver? April gold was higher by almost $20/ounce today closing at the 50 day moving average. We would like to see consecutive closes above this level to be convinced the pain is over. As for silver a 2.25% appreciation is respectable but we’re not out of the woods yet. These markets have a way of humbling you so do not get in too early there is plenty of upside in the long run. Clients are still in the Euro-Yen trade; today it moved against them ($937.50/per) as of this post. It is too bad we exited the Aussie yesterday as it was the best currency performer today? Classic case of on the sidelines wishing we were in the market.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
Tags: agriculture, Aussie dollar, bradbard, commodity, corn, crude oil, futures, gold, live cattle, RBOB, silver, soybeans
