Clicking on all Cylinders 1/10/11

Commodity bulls have not missed a beat as 2011 appears to starting the same way 2010 concluded. Bullish fundamental noise over the weekend starts this week off on the upside in Crude oil. As long as $88 holds the next few days in the February contract we suggest scaling back into longs. Our trade suggestion to aggressive clients has been to get long futures while selling out of the money calls against the futures 1:1. A 7% retracement in natural gas in the last week is enough to put longs back on our radar but we’ve yet to initiate positions for clients…stay tuned. I smell a correction in the indices but before getting heavily short wait for the 20 day MA’s to give way; at 11510 in the Dow and 1250 in the S&P. Currently some of our clients hold March ES put spreads and will look to add if and when a correction begins. Though there may be a touch more upside we expect 82.00 to act as solid resistance in the dollar. If short the Euro or Swissie trail stops as we feel most of the downside has taken place. Our clients only open position in the currency complex is March puts in the Loonie with a target of .9800 in the coming weeks. Buy dips in lean hogs and live cattle and trail stops. We advised clients to start scaling back into silver today and will remain long as long as the 50 day MA at $28.15 holds on a closing basis. An alternative would be to buy (3) silver futures against the sale of (2) gold futures. 30-yr bonds and 10-yr notes are both back above their 20 day MA’s; aggressive traders can get long with stops below the recent lows. The charts are not saying buy but we suggest lightly scaling into longs ahead of Wednesday’s USDA report in both new crop corn and soybeans. Buy May cocoa at this level as prices have wandered to the bottom of the recent range, a return to the upper end of the channel would mean just over a 5% appreciation.  As long as the 20 day MA caps rallies in cotton we would suggest remaining in bearish positions; that level is $1.46 in March.

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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