Reversal Day 4/11/11

Perhaps an interim top in Crude as prices are down over 4% today with the front month trading back near $109/barrel. We expect to see some downside follow through in tomorrow’s session and have a first target at the 20 day MA, about $3 from current pricing. That should equate to a 15-20 correction in the distillates as well. In our opinion natural gas is a buy…we’re suggesting July futures or July bull call spreads. We feel there is roughly 20 cents of risk while we see 40 cents of potential profit…trade accordingly. The indices have lost ground for the last three sessions but there has been very little downside movement. We continue to like scaling into bearish plays as we feel the sentiment has become far too bullish. We anticipate a 3-5% correction is around the corner. Shorts in the Aussie are far from out of the woods as clients are still carrying a loss but based on the chart formation and a potential commodity correction we think bearish exposure here remains the play. We recommend the sidelines in the livestock sector as we will be looking for long entries in both lean hogs and live cattle from lower levels. Similar action in the metals as we experienced in energies as early gains became loses by the end of trading today. Gold will settle approximately $10 lower and while silver will trade only 30 cents lower in today’s session we will settle approximately $1.50 off its’ intra-day highs. Could this be the onset of the violent correction we’ve been preaching…it is still too early to say. Cocoa traded above the 50 day MA but we would like to see a settlement above 3045 in July before gaining more exposure for clients. Mixed bag in grains with corn higher and wheat and soybeans lower. The only trade that continues to work for our clients in Agriculture is the CBOT/KCBOT wheat spread which has picked up 40 cents in the last four sessions. 30-yr bonds and 10-yr notes continue to consolidate as we feel scaling into longs is the most viable play at these levels expecting a two basis point bounce in the coming weeks.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Read more at MB Wealth