Heard It Here First 8/25/10

Bearish inventory report and a $2 reversal higher in Crude…smells like a bottom to me. It looks like longs dodged a bullet and we should be moving north from here. Assuming today’s lows hold a $3-5 pop could come relatively quickly. I was most impressed with heating oil today as it led the charge higher early; we expect 10-15 cents quickly. We do not claim to have a crystal ball; we could be wrong so do your own homework do not rely on our word or forecasts. WSI (Weather Services Int’l) revised their hurricane forecast down today likely attributing to the 3.5% loss in natural gas. Clients have been stopped out of their long futures at a loss and will re-enter once a bottom is achieved. Some clients still own call spreads and they are still in the game with time on their side. We feel an interim low was achieved in equities today so clients were advised to book profits on ALL shorts. With the proceeds most clients took their risk capital short 10-year notes. The idea is if indices rally from here we should see a 3% slide in Treasuries; clients bought December put options. Cocoa prices have slid nearly 15% in the last three weeks. Unfortunately for clients they started buying the last few sessions. They are carrying a small loss but if we do not find a bottom in the next few sessions we will advise cutting losses. Lumber remains sideways but we think traders looking for value could lightly buy November. Aggressive traders could start scaling into shorts in live cattle. Clients have put options on their radar but have yet to move…stay tuned. Follow thru on gold after yesterday’s reversal lifted prices to two month highs. I have no idea from here, we’ve been absent from most of the recent move with clients. Fortunately most of our metal trading clients have bullish exposure in silver which is clearly breaking out of an ascending triangle up nearly 6% in the last two sessions. This could be the leg that lifts prices over $20/ounce. Wheat closed down 4%, some clients are short and we predicted this slide…did you listen? On a breach of $6.40 in September CBOT we feel $6 could come into play. Ideally a drop in wheat will drag corn 15-25 cents lower as well; we suggest buying a dip in December 2010 or 2011 contracts. 83.70 is the 38.2% Fibonacci retracement level in the dollar index. On a trade above that level the Euro, Loonie would be our picks for lower trade.