If & When…. 9/13/10
If and when new highs are made and new lows are forged investors must react. Understand the cure for low prices is lower prices and the cure for high prices is higher prices.
November Crude is above the 50 day MA for the first time since August 12th. In the last 2 weeks prices have advanced nearly $7/barrel. We have moved our upside objectives to $82 followed by $84.50 in the November contract. We've been pretty consistent as long as oil marches higher we expect the path to be higher in the distillates as well. RBOB should get back over $2/gallon in the coming sessions and heating oil should challenge the $2.20 level.
As for natural gas we're still waiting for a trade over the 20 day MA; $4.20 in the November contract to add to our clients positions. Our suggestion remains scaling into November futures and purchasing call spreads. We feel the indices are on their final leg and expect a trade lower to resume in the next few sessions. Until an interim top is established our featured play is November ES 1100/1000 1: 2 put spreads. Today that trade could have been purchased for roughly $300 plus any fees. It is a marginable trade so be cautious.
Cocoa continues to kick our clients as we lightly started purchasing calls last week. On continued dollar weakness cocoa should find a bottom but at this juncture we're fighting the Funds as they're building a large short position.
Depending on the magnitude of the bounce we get in Treasuries clients may be looking to fade this rally. It would take a trade over 132'00 in 30-year bonds and over 125'00 in 10-year notes to get us interested in potential shorts for clients.
Live cattle started the day strong but ended weak. Clients remain short expecting a trade thru last week's lows. If for whatever reason prices look like they are headed higher we will advise clients to cut losses before a new 2010 high is made. That level in December would come in above 101.85.
We have advised clients to exit all their longs in gold and to lighten up considerably on their silver thinking there is a correction coming. We would be willing to re-explore longs with clients in December gold closer to $1215 and closer to $18.50 in December silver. December copper was higher by 2.33% today but we think the $3.50 level is a sale and expect prices to be 5-8% lower in the coming weeks.
Corn prices gained just over 1% today lifting prices within 3% of $5/bushell. We are not advising shorts but we do expect a 20-40 cent correction from here. Other trade ideas in grains include: buying a dip in December KCBOT wheat and we've started getting clients short December soy meal thinking prices could come down 5%.
We've yet to make a move but we started pricing out bearish option plays in December Swiss franc for clients. We may wait for the SNB interest rate decision on Friday before gaining exposure.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
MB Wealth Corp. is not responsible and does not endorse anything outside of the content of this article authored by Matthew Bradbard; President of MB Wealth.
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