CHINA – the 800 lb. Gorilla 12/1/10

So much for a slow down in China. Bullish engulfing candle in Crude oil today with prices reaching a fresh two week high approaching $88 in January. The 20 day MA at $85.40 should support with upside resistance eyed at $89.25. Natural gas was supported today by outside markets but we’ve yet to suggest for clients to re-establish longs. We would like to see further evidence that prices can maintain current levels. Thankfully we did not act on our bearish bias in the equity markets as China’s friendly PMI aided in a surge of 2-2.50% in the indices. We could be headed for an additional 2-4% but we do not want to be involved with clients. The US dollar could retrace from here if monies continue to flow back into commodities and securities. Operating under that assumption we started gaining long exposure in the Euro today; purchasing March call options for clients. Live cattle printed a new contract high; clients are waiting for a retracement to buy February and April contracts. The 20 day MA supported February lean hogs today…lets see what tomorrow brings. We either advised clients to lighten up on their metal positions or tighten stops as the ride up has been nice but we cannot rule out a correction in the immediate future. Those wishing to remain long we prefer positions in silver to gold. Copper broke out to the upside today gaining nearly 3%; buy dips that hold $3.75 in March. Follow the flow of money out of Treasuries into commodities and securities as a inverse relationship should continue. Corn certainly held the necessary levels as did soybeans and wheat which were all higher in today’s session. Clients cut loses on their short January soybean positions while some reversed and got long March contracts. Our favored pick remains corn but as a whole agriculture is a buy on dips. Sugar was higher by 3% today and on a push thru the 20 day MA at 28.80 we should see a trade near 30.00 cents in the March contract. This should allow clients in March calls to book a profit…stay tuned.  I’d rather be lucky than good. Those that listened on our buy in cotton were rewarded with a limit move higher today. As per previous posts we’re expecting a trade in the futures back near $1.30. Those willing to trade illiquid markets could start scaling into longs in lumber with stops just below the recent lows.

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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