TGIF – Commodity Wrap – 021511

(MB Wealth) – Feb 25th   With the crazy volatility I am happy this week is over. Not that it has not been profitable but these wild swings have my blood pressure on the rise. Inside day in Crude today but after a range of nearly $8 yesterday I’m not sure you can read into that? Clients have been advised to exit their futures all together or to pare down their position size as we expect a a$10 move in the next few weeks but do not have a strong opinion in either direction.

A possible strategy could be to buy out of the money calls and puts in April or May trying to capitalize on a volatile swing in either direction. Short covering was the likely culprit in natural gas 3.50% advance today. We suggest buying at these levels in either futures or call spreads anticipating a move back near $4.50 in the May contract. The indices were higher in today’s session but will end lower on the week for the first time in the last four weeks. Look for guidance early next week to see if this is the start of a bigger correction or just a pause in uptrend.

The US dollar held the support from three weeks ago but we would like further evidence before making any calls on direction. The Swissie is showing initial signs of a top so our only suggestion currently is buying dips in the Yen. We started working some aggressive clients long live cattle today; purchasing June call options. Next week look for bullish suggestions in the futures market. Gold and silver recovered most of the ground they lost yesterday. We would like to still see a trade closer to $1350 and $30 respectively before re-establishing bullish plays for clients. We may in fact miss this trade… yes folks that is possible.

Next week we may explore getting short cocoa and long sugar so stay tuned. Cotton was up limit today and coffee was higher by just over 1%. We like being short and have clients positioned in bearish ratio spreads looking for lower ground in the coming weeks. Ag was higher on the day; clients booked profits on their soybean oil and have put in a profit order on their recently purchased corn. On a trade to new highs they should hit their profit objectives. The soybean spread has likely seen its worst as well (long July/short November).

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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