The New Correlations 4/7/10
Metals, energies and stock indices appear to be moving in tandem with one another. The inverse relationship between Treasuries and equities also seems to be back in play. Crude failed to make a new high and those looking for a dip to get long we could see prices come back to the 20 day MA; in May that level is $82.60. We are not advising shorts but we may have made an interim top on futures yesterday around $87/barrel. We would advise tightening up stops on longs as to not give back profits. Buy dips in natural gas as we’ve seen the last 2 sessions. We’re advising a small long in May futures and July 50 cent call spreads. Could indices finally be rolling over; as of this post it appears so. Assume we do get a set back your targets should be as follows: 1140 in the S&P, 10550 in the Dow, 1890 in the NASDAQ and 650 in the Russell. Sugar looks to be forming a base, we’ve yet to commit capital with clients but we’re tracking July and October anticipating a long entry in the coming sessions. We like the open interest in the July 18.50 and 20 cent calls and the October 20 cent calls. Cotton has tuned lower once again; aggressive traders could sell rallies as long as July stays below 84 cents. We will have some bearish options strategies in the days to come. A near 15% loss in OJ prices has us close to entering longs for clients…be patient we’re getting close. We will most likely be looking at September contracts. Why the demand for Treasuries is beyond me but needless to say buyers were active in today’s auction. It appears a trade higher is ahead but we prefer the sidelines and to be a seller from higher levels with clients. Sell the rally in Euro-dollars but place a gtc stop loss above the recent highs. On the June 2011 contract from these levels that equates to about $400 risk per contract. Corn was higher by nearly 3% today on good volumes. This could be the beginning of the move we’ve been calling for. We’re advising long call options in July and long December futures. Corn remains our client’s largest speculative play. Depending on the magnitude of this rally we may be selling wheat and/or soybeans from higher levels…stay tuned. In the immediate future cattle will likely trade higher but we are looking for a way to get short as we feel in the weeks to come prices could break hard. Initially were thinking a delta neutral strategy shorting August futures and buying multiple upside calls…stay tuned. With the exception of copper all other metals were higher on the day with gold trading above $1150 for the first time since mid-January and May silver closing back over $18/ounce. If we see $18.50 we will be looking to exit all clients July longs…stay tuned. Aggressive traders we are again advising shorts in the Loonie with stops above today’s high. A 2% move lower could happen relatively quickly in our opinion. Expect fireworks tomorrow morning on the ECB and BoE rate decisions. At the moment both crosses are in a sell rallies mode.
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: BOE, bradbard, commodity, corn, cotton, crude oil, ECB, futures, gold, natural gas, options, silver, soybeans, sugar
