No Coal in the Commodity Stocking 12/21/10

Commodities appear to ending 2010 on a high note with several commodities reaching multi year and multi decade highs as we speak. Only a 40 cent advance in February Crude futures today but we should see the highest settlement in two weeks. On follow thru into tomorrow forget the correction and we should move north from here. We will be absent for the next four trading days so we wish not to have exposure with clients unless they are carrying a profit or are hedgers but as long as the 20 day MA supports at $87.75 onwards and upwards. Aggressive traders can use today’s inside day in natural gas to scale into longs but be quick to exit the trade at a loss if we make a new contract low; that level is $3.89 in February. Traders in March ES put options are now playing defense as we will be looking to cut losses on a retracement. The US dollar advanced for the fifth consecutive session today but we think there is more room to run. Continue to fade rallies in the Euro, Swissie and Pound. Our downside targets are as follows: 129.00, 1.0100, and 1.5250 respectively. Live cattle is back above the 20 day MA; our suggestion is gain bullish exposure in either February or April contracts looking for new contract highs and potential record highs into next year. Silver and gold have yet to correct but we have yet to rule out this possibility. As we said yesterday on a settlement below the 50 day MA in gold and 20 day MA in silver expect sellers to be in the driver’s seat. Until then we’re cautiously optimistic. Copper is at a fresh two year high and though we’re not suggesting shorts we do not think this appreciation is sustainable without a healthy correction. That likely means 40-50 cents but the question is from what level…$4.30 or $4.50? We still want to see a correction in Agriculture, namely corn and soybeans before re-establishing bullish plays for clients. In reality we probably will hold off until early 11′ but we do want some type of long exposure before the January USDA report. Another limit move higher in cotton today. Some of our more aggressive clients own March put options and premiums were crushed today. Being we think we could get a violent move lower we will stay the course for now. DO NOT trade futures in cotton right now and options traders take your size down as we’re in uncharted waters.  We missed a long entry in coffee with clients and remain onlookers from the sidelines. We will be looking to buy a set back of 15 cents if we are given that opportunity for clients. If you trailed your stops in lumber futures you should have been stopped on your longs at a profit today.

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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