The Dollar and lack of correlations 2/3/11

The dollar will likely bounce from here but that does not mean commodities priced in dollars will all lose their value…case in point today’s action. Very indecisive action in Crude and the distillates today. We favor bullish exposure but a breach of the 50 and 100 day MA likely brings prices back near the trend line at $86.50 in March. We are cautiously long willing to cut and run with clients on a trade lower and add length on a new high…trade accordingly. In March natural gas a trade closer to $4 and we would start exploring longs again for clients until then stand aside. As we alluded to yesterday all eyes will be focused on the jobs number for the next leg in securities albeit higher or lower…we have no feel clearly thinking a correction is long overdue. A dead cat bounce in the greenback…yes a near 1% appreciation today. Continue to fade rallies in the Pound and Euro; lower by 1.3% and 0.25% as of this post. Live cattle traded down today but were able to maintain the 20 day MA once again. We like scaling into longs in April expecting fresh contract highs. Both gold and silver were higher by nearly the same amount on a percentage basis picking up 1.4%. Longs may have dodge a bullet as we should be back near the highs in coming weeks. For confirmation it would take settlements over the 50 day MA in silver at $28.80 and above the 100 day MA in gold at $1360. Day one of a correction in Ag’s…we would like to see additional downside to get clients long ahead of next week’s USDA report. The likely play will come buying new crop corn and soybeans for clients at some juncture early next week…stay tuned. 3o-yr bonds and 10-yr notes are breaking down, on a trade below the mid-December lows look for selling to intensify. A thirty year high in sugar yesterday followed by a near 10% one day correction. This is why timing is so important when trading with leverage! If the trend line is breached just below 32 cents in sugar we could see  additional 10-15% depreciation. Cotton was down the daily trading limit with a bearish engulfing candle. Are we finally going to get the correction we’ve been calling for? We expect to see 10-15% depreciation in the coming weeks and have advised bearish options trade in May. Coffee traded marginally higher today but we suggest gaining bearish options exposure thinking a 7-10% swoon is coming in this market as well.

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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