MBWealth’s Commodity Blog

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Energies Crude closed slightly off it’s’ highs last week just above $86/barrel. Either this week or next week we expect June Crude to make a new high which would lift prices above $87.59…trade accordingly. A possible idea could be July or August call spreads; the August $90/95 settled about $2000 on Friday. Both RBOB and heating oil broke out to fresh highs last week to levels not seen since the fall of 08’. Though there may be a little gas left in the tank we have suggested clients to use this as an exit window to unwind longs because if we get a set back it could be violent. After a larger than anticipated build in inventories, natural gas is back under $4. If last week’s lows can hold early this week we may suggest re-establishing longs in futures. The low last week on the June contract was $3.88 which is 6 cents from the current price; this represents $600 on the standard contract and $150 on the mini. We favor buying 50-75 cent call spreads in August or September as they allow more flexibility. We will most likely be shopping the September $4.50/5.00 calls for clients this week.

Livestock June live cattle were down on the week but still unable to pierce the 20 day MA on a closing basis. Continue to use that level as the pivot point; 93.40 in June. Clients have no exposure currently but will be looking to buy a break in the coming weeks. We would be looking for a trade closer to 90 cents before establishing longs for clients. The next entry should provide a good long opportunity being cattle prices typically find a seasonal low around June. Past performance is not indicative of futures results. As for feeder cattle prices remain range bound having stayed within a 4 cent trading range for the month of April. We favor a trade lower here as well, thinking it will trade closer to 112.00 but do not have any positions on with clients. After trading lower early last week, lean hogs finished the week strong gaining virtually 3% last Friday. Clients are expecting a beak lower anticipating that the gap from the end of March should be filled in the coming weeks. We have purchased June 84/80 put spreads. We would lift the trade on a trade to 81.00 in June futures.

Financials
Stocks: After 2 months of positive action indices finally closed lower last week. Though US stocks only closed 2-3% lower on the week could they have been lead lower by a 5.50% decline by the stock market in China?  The S&P, Dow and NASDAQ all ended the week below their 20 day MA’s so look for the floor now to become the ceiling. That level is 1195 in the S&P, 11010 in the Dow and 2013 in the NASDAQ. We have suggested clients to own June and will start pricing out September ES puts this week. Assuming this break is the 10% correction we’ve been anticipating, your targets should be as follows: 1095 in the S&P, 10085 in the Dow and 1854 in the NASDAQ. For fresh short entries in futures we suggest placing stops above the 20 day MA. Depending on the NFP # this Friday we could see buying re-emerge or the selling to intensify so trade lightly until we see that number.

Bonds: With no change in rates and no change in verbiage by the Fed rates have traded down and prices up in the Treasury complex. Neither 30-yr bonds nor 10-yr notes were able to break their trend lines and prices instead traded higher carrying prices to their highest level in 2010. We will be using this trade up to start scaling into short futures for clients and to examine some bearish futures spreads playing the curve. As for open positions clients have a small position long June puts in 30-yr bonds expecting a trade down to 116’00 in the coming weeks. The only problem is will they have enough time? Until Euro-dollars break the 20 day MA we expect sideways action but one could have a small short position in long dated contracts with stops above the recent highs.

Currencies As expected there was no action taken by Central banks last week with the BOJ, RBNZ and FOMC all keeping rates as is. On the calendar this week the ECB should remain at 1.0% but the RBA is expected to raise rates again from 4.25% to 4.50%. The Euro traded down for the fourth consecutive week but as we hinted at last week we feel that prices are close to a value zone. On a sign of a bottom we will be looking to get long with clients. At the moment we’ve only tracked positions from the sidelines. The June Pound failed to penetrate the trend line again last week. Clients continue to sell rallies, as for options clients own June 150 puts expecting a trade under 1.51 in the coming week. The Aussie seems to be biding time but prices should continue to grind higher on spillover strength from outside markets. The only surprise would be if the RBA failed to raise rates this week because we feel 0.25% is built in. Continuing on the same theme from last week we would like to see a rally in the Swissie to sell, perhaps closer to .9350/.9400. If indices trade south we should see a rally in the Yen; we prefer looking for a short entry from higher levels as opposed to buying here. The Loonie closed lower last week with the metals and energies gaining; that could be a tell that we are due for a setback. If prices can get thru the trend line that comes in at about .9830 we should get the trade down to .9500 that we’ve been forecasting. Clients own June puts and are selling rallies. The Kiwi made a new 2010 high last week as the trend remains up but we are a spectator here as volumes are too light. As for the dollar we expect a settlement above 82.50 or below 82.00 to set the tone moving forward.

Grains Corn was higher on the week as prices are back at the upper end of the trading rage that has contained prices for the last 6 weeks. Fund buying, adverse weather and buying from China were the major contributing factors. We continue to advise clients to have long exposure via July options and December futures. Some of our clients have yet to lift their July short hedges and will be looking for a setback this week to do so. Although in soybeans and soy meal we think there will be a trade higher in the weeks to come and we have advised clients to liquidate all longs thinking there will be a trade lower first. This is not a short trade recommendation but rather a warning as we think prices could come under pressure. Both KCBOT and CBOT wheat prices have managed a trade back over $5 so we may have some short suggestions this week…stay tuned. Under normal crop conditions harvest lows are generally made in June so we will be selling rallies thinking we may get a revisit of $4.70. Past performance is not indicative of future results.

Softs After a 14% appreciation in cocoa, prices appear to be taking a breath. Being we are oversold we would not rule out a setback which we will most likely suggest buying. The 100 day MA in July comes in at 3135 and a 38.2% Fibonacci retracement would take prices back to 3095. July sugar has yet to confirm a bottom but aggressive traders could start probing longs with stops below the recent lows. We should have some bullish suggestions in October options this week. July cotton was lower last week failing to make a new high running into resistance at 86 cents. Though we feel a more appropriate price is closer to 80 cents in cotton we have no suggestions at this moment. July OJ is still trying to determine where from prices go from here as prices have been locked in a 5 cent trading range for the last 2 weeks. We favor a trade back closer to $1.30 in July and if so, we would most likely re-establish longs for clients but in September as opposed to July. Coffee has gained 7 out of the last 8 sessions and we feel is poised for a trade back over the 100 day MA; at $1.3835 in July. Aggressive traders should be long from lower levels and advised to trail their stops up. Some of our clients are positioned in September call spreads and on a trade to $1.40 should hit their profit objective.

Metals July copper has traded lower 9 out of the last 15 days after hitting an interim top nearly 37 cents higher than the current price. Prices are below the 100 day MA and we feel should make their way to the 200 day MA about 20 cents lower. Clients own out of the money December puts and will be placing a profit order if the current price action continues. The daily chart is getting oversold but according to the weekly and monthly data we could see much more downside. June gold is trading a t a 5 month high approaching $1200/ounce. The recent action has been spectacular as in just 5 weeks prices have advanced 8%. Aggressive traders could have small futures position but we highly suggest tight stops as we’ve seen very little back and fill action to date. On the breakout above $1172 last week, clients were advised to buy August call spreads; the $1200/1275 was purchased for $1850/per. On a trade near $1220 these spreads should be worth $3000/per. The price action in silver has been just as impressive with last week’s gains lifting prices very near their 2010 high.  Some clients have a very small long position in futures but at the moment they have no options. We have to admit we were looking for a correction before re-establishing longs for clients and this one got away from us. Being we expect $22 eventually in 2010 it is not the end of the world and clients are advised to wait for a setback before getting long.

 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: bradbard, cocoa, coffee, commodities, commodity, corn, cotton, crude oil, currencies, dollar, energies, euro-dollar, futures, gold, grains, japanese yen, live cattle, livestock, matthew bradbard, MB Wealth, metals, natural gas, oil, options, puts, RBOB, silver, softs, soybeans, spread trading, spreads, sugar, wheat

This entry was posted on Monday, May 3rd, 2010 at 8:49 am and is filed under The Line in the Sand. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.