Contagion spreads to Commodities 5/4/10
As of this post oil is lower by 4% and it does not look like the selling has abated as of yet. Assuming this is not just a one day event we may have put in an interim top yesterday. Looking at a daily candlestick chart notice the doji formation on heavy volumes. Support is seen at $81.60 followed by $79.85 in June. We would caution trading either direction until the dust settles. Ideally traders were able to take all or at least a portion of their longs off in the distillates as RBOB is down almost 5% and heating oil is down by 3.7% today. Natural gas held its own; clients are advised to lightly buy June futures with stops below the recent lows and to purchase September call spreads. The 20 day MA is in the rear view mirror in the indices and now the critical line is the 50 day MA; in the S&P at 1166, in the Dow at 10775 and the NASDAQ at 1954. We’ve been fooled before but this could be the correction most have been calling for. Our vehicle of choice for those willing to speculate on lower prices would be the mini- S&P (ES). July sugar was lower by just over 3% today; clients have yet to buy but we’re getting close. They are looking at entries in October10′ and March 11′ contracts. If equities continue south we may re-visit the idea of short exposure in cotton with clients…stay tuned. With coffee failing to get thru the 100 day MA we advised clients to modify their profit objective and take a smaller profit. They ended up making about 15% net profit. Clients are taking heat on their June 30-yr bond puts but we do expect to get some value back in the coming sessions, this most likely will be a small loss. As for futures we think it is wise to let prices rise a bit more before selling…stay tuned. Corn ended slightly down on the day but did pare losses closing 6 1/2 cents off its lows on the July contract. We would continue to use set backs in July and/or December as buying opportunities. The only other action clients participated in today in agriculture was buying KCBOT wheat and selling CBOT wheat expecting KCBOT wheat to gain on CBOT wheat. We welcome the sell off in silver, gold and copper as some clients are short copper and looking to be a buyer of gold and silver from lower levels. We see it feasible for June gold to approach $1100 and July silver to see a a trade below $17…stay tuned. If July copper can break the 200 day MA we could see selling intensify; that level is $3.12. The 1.25% appreciation in the dollar had all currencies with the exception of the Yen down today. As we voiced in recent posts on a trade above 82.50 expect a dollar break out. The trend line broke in the Loonie today and clients are positioned short expecting .9500-.9600 in the coming weeks.
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: 30-yr bonds, bradbard, candlestick charting, coffee, commodity, contagion, corn, crude oil, futures, gold, inflation, Loonie, natural gas, options, silver, sugar, treasuries, us dollar, wheat
