A possible slowdown in China 1/20/11

By no stretch a bubble in my opinion but yes a slowdown in China could temporarily cause a correction in commodities. Crude oil was lower by approximately 2.75% on a bearish inventory report but much of the losses came pre-release. Being there was not increased selling and the 50 day MA held (see previous posts) we suggest starting to scale into longs in March and April contracts. The way I view it is we could have $3-5 of potential downside and I feel we have $10-15 of potential upside. In the last two sessions we’ve seen nearly a 6% gain in natural gas. Longs should be trailing stops as this leg should carry prices north of $5. We will be trying to buy dips for clients likely via April 50 cent call spreads. The 20 day MA held in the S&P today; on a breach of 1268 we would be willing to re-establish fresh shorts for clients. Currently some clients are holding March ES put options at a loss. In early dealings we advised clients to peel off some of their shorts in the Loonie and Pound…we’ve yet to reach our objective but prices appeared over extended. On a rally in the coming sessions we suggest selling the Loonie and Pound again. The 20 day MA held in lean hogs today, wait for further evidence before acting. We’d like to see more down movement in live cattle as well. Silver lost nearly 5% today reaching two month lows. A 50% Fibonacci retracement comes in just above $27 and 61.8% just above $26. Today was a blood bath on longs fortunately most traders have shorts in gold against their silver. More aggressive traders who previously were not in were advised to start scaling into outright longs in silver today. February gold tested the 100 day MA and held. That will be the test in coming sessions serving as a pivot point at $1350. We think the near 7% retracement is enough to get buyers active again. Bullish weather news out of Argentina turned early losses in the grains mid-day causing prices to end in the green. We still have a buy dips mentality in corn and soybeans but would like to see a lower entry yet for clients. It has been some time since we advised clients to start following the short-end of the yield curve, suggesting bearish plays in March 12′ Euro-dollars. Cocoa was higher by another 2.5% today trading near a six month high…stay the course. Cotton was up limit today lifting prices to a fresh 11′ high.

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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