SA: Today in Commodities: It's Better on the Sidelines
by: Matthew Bradbard March 04, 2010 | about: BAL / COW / DBA / FXB / FXY / GRU / MOO / SGG / SPY / USO
Sometimes traders can make money by not being in a trade. It is okay to be in cash when you cannot find a trade that you are comfortable with. That is not to say we are not trading; we have just been trading more options than we typically do and scaling down our size.
$81/81.50 continues to act as a ceiling for April crude but the fact that prices have not broken down more means we could see one more gasp at higher ground. We suggest refraining from short futures unless you are willing to ride prices up $1.50-3.00. We prefer a top to be set before we revisit shorts for clients. That being said, we still like $5 put spreads as they allow a bit more flexibility without the inherent risk of a potential overnight loss.
Whenever I trade natural gas I am remembering how unforgiving this market is; today prices were lower by almost 4%. Clients have a small long position in futures and are willing to stomach it with plenty of margin if need be. The June $5.50 call spreads we started buying at $2000 are now closer to $1200. We still like the trade and expect it to be a winner, but the same position can be bought at a 40% discount.
Until prices break above 1125 or below 1111 in the S&P, we have no new trade suggestions. Our bias remains down and clients continue to sell rallies and buy puts.
Sugar closed below the 200 day MA today; that being said, we would refrain from long futures and buying calls until an interim bottom is made. Clients that are already long via calls could take some heat in the short run, but we still think a violent trade back to 26 cents in May is viable. Cotton looks like a sell at these levels; we are thinking a move to 75/76 in the May contract this month. Could the Euro-dollar be rolling over? We’ve been fooled before but this trade should remain on your radar. Agriculture turned south today with corn down almost 1%, soybeans 2.25% and wheat 2-2.50%. We advised clients to spread off some of their corn exposure by shorting May against their December. Being they have a large corn long position, we also wanted to get short something in agriculture in case of a larger break. What we opted to do was buy in the money May soybean oil puts. If soybeans continue lower and Crude oil comes off as we’ve been anticipating, there is no reason why we cannot see soybean oil retrace back to 38.25-38.75.
Live cattle were higher but failed to get above yesterday's highs. The Goldman roll starts tomorrow, so being we have record open interest in cattle, we think that April could come under pressure in the coming sessions. Clients remain long puts and short futures looking for 89.00 in April.
April gold was down just over $10/ounce today, we are operating under the influence that yesterday an interim top was made and a setback to $1085-1100 is in the cards. Clients have no long or short exposure in gold presently. With silver taking the January high and February low, a trade to $17.35 serves as the 61.8% Fibonacci retracement level in May silver. We like silver in the medium to long term but a correction back to $16.50-16.85 is not out of the question short-term. The reason we choose to trade spreads often in gold and silver is because of the flexibility it allows in case a trade moves against you. Likewise if you are right out of the gate on direction, you still make money, just less than an outright.
Continue to fade rallies in the Pound, though we do not suggest trading without stops. We are using the 5, 15, 30, 60 minutes charts for entry and exit. The Yen was lower by almost 1 point today; clients hold June puts expecting a trade near 1.10 in the coming weeks. As for central banks, both the ECB and BoE kept rates as is; the ECB at 1.0%, and the BoE 0.50%.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
AI
