Playing Correlations 6/14/10
For the time being indices are in the driver’s seat and as long as stocks are moving higher RISK is on. A falling dollar should also lend support. Oil made a higher high and higher low today but as we posted in our weekly commentary we need to see a settlement above $76 in July to think higher trade is ahead. Longs already in the market should remain long as long as the 9 day MA holds; current level $73.50 in July. At this time we would not recommend new entries until we get a clearer picture. The distillates should continue to track Crude oil higher or lower. As for the magnitude expect heating oil and RBOB to move 3-4 cents per $1 move in Crude futures. Natural gas advanced just over 5% today lifting prices to 4 1/2 month highs. We are still looking for a set back before re-establishing longs for clients. We have moved our buy objective up 20 cents from $4.40-4.60 to $4.60-4.80 in the September contract. Moody’s downgrade of Greece and the fact that prices could not hold the 200 day MA contributed to the failed rally in the indices today. We’re advising clients to sell rallies but we would like to see more upside to do so. Clients have no exposure currently. We view 1120-1145 as a sell window in the S&P. Sugar traded above but closed just below 16 cents today. We advised clients to start lightening up on their longs. Though there is likely more upside we could get some back and fill action after the 12% advance in the last two weeks. Cotton is making new 2010 highs; aggressive traders can get short with tight stops or buy December puts. We could see more upside in the immediate future but in the coming weeks we expect cotton to be 6-10% lower. OJ has advanced five out of the last six sessions with prices gaining 6%. Clients will start working long September and November contracts this week expecting an additional 7-10% appreciation in the coming weeks. Coffee exploded to the upside on freeze concerns in Brazil lifting prices 4% higher today. Clients have no exposure. Treasuries were lower on the day but unable top make a new low. Clients are short expecting support at 122’17-122’19 in 30-yr bonds to give way. Our target is a trade to 120/21 in September futures. Continue to scale into longs in live cattle via futures and options as we think prices are undervalued. August gold was slightly lower today but as long as the trend line and 20 day MA hold near $1215 clients remain long. A failed rally in silver has prices in July back under the 50 day MA. Clients that are long remain long futures and options still thinking $19/ounce is in the very near future. July copper prices are back above the 200 day MA for the first time in two weeks. If prices are able to push thru $3 expect $3.25 shortly thereafter. Agriculture has been the most consistent sector as grains have been consistently gaining in the last week. We suggest longs in corn, soybeans, soy meal and we will be trying to buy clients a CBOT/KCBOT wheat spread this week. See commentary for more details. We started to work out of client’s longs in the Aussie today when prices failed to get thru .8575. The Yen was in our favor in the morning and then reversed after lunch. This trade is predicated on a rally in the indices. If we break down in stocks we will advise clients to cut losses in their Yen puts. Aggressive traders were advised to buy the Euro today as we feel it is possible to see a squeeze in the coming weeks lifting prices to 1.2600.
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: australian dollar, bonds, bradbard, commodity, corn, cotton, euro-currency, futures, gold, japanese yen, live cattle, MB Wealth, options, silver, soy meal, soybeans, sugar, treasuries, us dollar, USDA
