Traders NOT thirsty 7/21/10
Traders are not drinking the Fed’s Kool-aid today. A surprise build in this week’s inventory report had energy bulls on their heels as it appears September Crude oil will close below the 50 day MA. We suggest moving to the sidelines in futures and lightening up on your bullish options exposure. With the dollar due for a rally a set back in stocks and the unpredictability in the weather models there are too many wild cards. Looking at the last five days action in natural gas chart readers should recognize a flag and pennant formation. Our suggestion is to purchase October 50 cent call spreads expecting higher action. Indices were unable to hold their 50 day MA and as of this post are just off the lows on the session down 1.2-1.5%. We suggest selling rallies in S&P futures and gaining bearish option exposure in September contracts. If the dollar continues to appreciate expect cocoa to lose more value; in the last three sessions prices are down 7.8%. We would suggest reversing shorts and a long entry closer to 2800 in September. Sugar maintained the 100 day MA again today but we smell a correction…work out of longs and move to sidelines. We expect to be a seller of cotton closer to 77 cents in December for clients but first a close above the 100 day MA. We’ve yet to make a move for clients but we’ve started tracking December put spreads in coffee and should have some suggestions to follow. We expect to see a trade down to $1.35-1.40 in the coming weeks. Fresh 2010 highs in the Treasury market as this freight train continues to track higher. Indices down = Treasuries up. Clients that remain long December live cattle were advised to buy August puts into Friday’s USDA Cattle on Feed report in case we get a bearish reaction short term. A failed rally in gold today with August down $7 as of this post. We see resistance at $1200 and support at the 100 day MA at $1180. I have no idea where from here so we suggest the sidelines. Tighten stops on your September silver futures as prices are back below the 200 day MA; we suggest below $17.40. Most clients hold December call spreads and are down on the trade. September copper gained just over 2% closing above the 50 day MA for the first time since late April. Clients have no exposure but will be paying close attention to see if this move north is for real. The recent correction in grains may be enough of a breath for the next leg north. We would like to see more back and fill action as we said yesterday.We’re interested in corn closer to $3.70, soybeans closer to $9.45 and soy meal near $270. We may revise these levels higher but for now that is our desired long entry levels for clients. Expect a bounce in the dollar; target 84.50-85.00. How we will play this for clients is short exposure in the Euro and Swissie with targets of $1.25 and .9200 respectively.
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, calls, cocoa, coffee, commodities, corn, cotton, crude oil, currencies, dollar, energies, futures, gold, grains, live cattle, livestock, natural gas, options, S&P, silver, soybeans, stock market, treasuries, us dollar, USDA
