Buy the Dip 5/6/11

Use the set back in metals, energies and agriculture to be a buyer. As of this post Crude is lower and in the middle of a $8 trading range for the day but once prices re-take the 100 day MA we think the correction is all but over. That level in June comes in at $100.30. We suggest buying this correction and see $105-110 in the coming weeks. Additionally we’ve advised hedgers to re-establish upside hedges in the distillates; heating oil and RBOB for the fall. As we voiced yesterday we’ve reached our downside objective in natural gas so book profits on shorts but we’ve yet to reverse…stay tuned. NFP was friendly and as long as the 20 day MA’s hold we should see fresh highs. Those support levels come in at 1330 in the S&P and 12460 in the Dow. We have no long or short exposure with clients at the moment in the indices. The dollar should get momentum from here with prices above the 20 day MA. This leg should carry to 76/77 in the June dollar index but not much more in my opinion but it could only take a few sessions as the rats scurry for the door. Continue to fade rallies in the Euro, Pound and Aussie. Start exploring September contracts if you want to stay for more than a few sessions. Aggressive trades can scale back into longs in live cattle and lean hogs via futures with tight stops under the recent lows. We’ve yet to re-deploy client money but will likely be a buyer next week. We’ve been a buyer of silver for clients scaling back into longs but the test will be if July can hold the 100 day MA in the coming sessions. That level is $34.25 if not expect a trade to the 200 day MA at $28.50. We do not feel that is likely but always possible. Aggressive clients are scaling into futures, buying bull call spreads and selling put options. Metal traders were also buyers of August bull call spreads in gold today as we anticipate a $50 appreciation in the coming weeks. Clients bought more sugar today…the chart is ugly but we like the fundamental story and we feel prices have come down to much in recent weeks. In fact ytd prices are down almost 50% and we do not feel that is justified. Though it is not easy with all the media frenzy about a bubble in commodities we suggest building a long position in new crop corn and soybeans for traders willing to stay with a trade as expect a surge higher in the coming weeks. You know the story in Treasuries we are short and wrong at the moment but willing to stay with the trade as it is such a small position for our clients. Also because when it turns it will likely be on a dime.

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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