Sunday, October 21, 2012

Today In Commodities: Buy The Dip

This market is not for the faint of heart and only risk capital should be used. As for commodities…Buy this dip is all I have to say.

Lower trade was rejected in Crude and it looks like we will get a settlement back above $80/barrel. As we said yesterday trades under $80 should not last for long and we still sing that tune. If we find buying in Crude at these levels we should see the distillates trade higher as well. That being said those hedging RBOB and heating should have the next few months covered as once we get moving higher the hedges will become more expensive. Continue to scale into longs in natural gas but do not get overcommitted as weakness elsewhere may spill over into this market. Once we see signs of an interim bottom we would be adding to the position.

Stock traders dug in their heels today holding at 1100 in the S&P and 10500 in the Dow. We are looking for a bounce back to the top of the recent trading range but we will be on the sidelines as the action is too sloppy in our eyes. Aggressive forex traders can buy the Swiss and Pound.

The metals complex was a disaster for bulls as I’ve never seen in my 10 year career the selling pressure this complex experienced today. Gold down 5%, copper down 5%, palladium 4.5% , platinum 6% and the clear winner was silver down a whopping 15%. The weak longs are certainly long gone and even as a seasoned trader these moves were gut wrenching. We have started buying silver the last two days but literally a few seconds' difference can mean the world as for fill prices so be very careful. We think metals have overshot to the downside and we are suggesting to aggressive clients to buy gold and silver at these levels as long as willing to take some heat expecting significant appreciation into year’s end. Silver will need to hold the $30 psychological level and gold will need to hold the 100 day MA just under today’s close for me to remain positive.

Cocoa remains a buy and we are waiting for rallies elsewhere in this complex to re-establish shorts for clients. Unfortunately we left their sugar and coffee shorts prematurely but a profit is a profit. Treasuries closed the week out lower today but until we get a close below the 20 day MA stand aside; 140’4 in 30-yr bonds and 130’4 in 10-yr notes. Corn held the 200 day MA even with a 1.7% loss today. We have slightly started to work clients long here. As for soybeans we would like to see the selling slow before initiating bullish exposure. Wheat was the long positive in the Ag sector today gaining just over 1%. Aggressive traders can be a buyer of either CBOT or KCBOT wheat . On a lower trade next week we will be exiting all remaining shorts in live cattle for clients and looking to reverse. Based on today’s cattle on feed we think once a rally starts it could be the beginning of a run to record highs. We should have some bullish trade ideas in December and February contracts to follow…stay tuned.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

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