Trading on Inflation 1/26/11

Maybe inflation is not a concern but one can trade it as commodities look to be more expensive in the coming sessions and coming weeks to months. The 100 day MA has supported Crude futures the last two sessions; in March at $86.20. As voiced in previous posts we suggest scaling into longs in futures and purchasing bull call spreads thinking we could see the recent highs visited very soon.  Add to the position on a settlement above the 50 day MA; in March at $89. The distillates are outpacing Crude on this acceleration higher; a possible trade idea could be buying either RBOB or heating oil against a sale in Crude. We’d suggest still holding off on natural gas purchases as we feel there is too much risk probing longs at current levels. The Fed’s inaction did little to discourage bulls in the stock market as 1300 in the S&P and 12000 in the Dow look likely in the coming sessions. We would suggest looking for an exit door in the Loonie on the next set back being metals and energies could move north from here. As for the Pound and Euro we still like bearish exposure with targets of 1.5400 and 1.3400 respectively. Lean hogs were limit higher today on demand news from Korea…buy dips. We will be looking to re-establish our bullish stance in live cattle….expect trade ideas in the next few sessions. Has the metals correction run its course? We advised clients to lighten up on their gold shorts and be ready to buy more silver on follow through strength tomorrow. As of this post gold is higher by 0.80% and silver by 2.60%. Grains were higher by 1-2% today but we’ve yet to re-establish bullish plays for clients. Yes several months from now we feel prices will be higher but we feel a correction will come first…trade accordingly.  Treasuries are waffling to and fro and I cannot get a good feel if we should be long or short the long end of the curve so I suggest moving to the sidelines. Sugar was higher by 4% today, technically it looks like we may see a test of the old highs but we will be absent with clients as I do not trust the current move. Cotton was higher by the daily trading limit again today. We’ve yet to get clients short again but it is on our radar. Continue to fade rallies in coffee as we suspect $2.00 in the coming months.

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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