Panic Deleveraging 5/5/11

The panic deleveraging should subside in the next few sessions and prices will likely turn north again. These moves are violent and not for the faint of heart but remain disciplined as I’ve seen some of the largest moves in my career in recent sessions…which equates to big money making/losing opportunities. A $10 decline in Crude oil drags prices under the 100 day MA for the first time since late November. Because the magnitude of the move we would book profits on shorts. To take it a step further to play a bounce some aggressive traders have bought June calls with two weeks time expecting a bounce of $3-5 in the coming sessions.  RBOB and heating oil were hit hard as well which we predicted in recent posts… we just did not see it happening in one session. Our short target was reached in natural gas today…see previous posts. Scale out and book partial profits. The indices will close lower but held on better than other markets…all things considered I was impressed. If the trend line from mid-March holds on tomorrow’s jobs number we could bounce from here and retest the  highs. A dollar rally lifts the greenback 1.50% touching the 20 day MA for the first time in two weeks. We continue to like fading rallies in the Euro, Pound and Aussie. Their decrease in today’s session was 2.14%, .83% and 1.72% respectively. Gold is down nearly $100 in the last four sessions touching the 40 day MA which will serve as support; in June at $1462. We think there could be another $30-50 but then we would be an active buyer with clients. A $5 move in silver puts silver 30% lower in just under a week. This is why investors use risk capital and need to understand leverage . A 61.8% Fibonacci retracement has taken place and aggressive clients have started to work back into longs. Our suggestion is scaling into futures or selling puts under the market. The additional 2% decline in coffee today allowed clients to book a 68% net profit on their options trades from last week. We could see more downside in coffee and most of the soft commodities in the short run but in this market we ‘re all about booking profits when we have them. Agriculture prices were hit today but we suggest using the current set back to be a buyer of new crop corn and soybeans. Clients are holding losing shorts in 10-yr notes and Euro-dollars into tomorrow’s jobs number willing to take a little more heat…stay tuned.

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