The Unpopular Trade 5/2/11

This is not a reference to one specific market but rather a suggestion to NOT allocate all your eggs in one basket and trading markets NOT on every one’s radar. I am torn in Crude as prices could go either way. We printed a new high but failed to break out on the upside and overnight we tested the 20 day MA on the low. A new closing high would likely mean higher ground while a break of $110.65 in June would likely mean a 5% correction…stay tuned. The distillates came under pressure as well today with RBOB losing the most ground; nearly 1.60%. Expect bearish trade suggestions in the days to come. On signs of an interim top aggressive traders may opt to re-enter bearish positions in natural gas. They took a marginal loss last week so this would be their second go. As of this post the indices are negative and nearly 1% off their intra-day highs. Aggressive traders started scaling into shorts with a target of 1330 in June S&P futures via futures and options. The dollar index is showing its first positive session in ten trading days…could the bleeding be coming to a conclusion? Those willing to venture into these waters which has been a losing bet of late are advised to fade rallies in the Aussie, Loonie and Pound. For four days live cattle have failed to penetrate the 20 day MA so we advised futures traders to book a small profit on their longs. Traders in December options could ride it out but if in June liquidate at a profit or loss. Gold will close only marginally lower but silver as of this post is down 8%. We should get the first close under the 9 day MA in six weeks. There was moderate chart damage as we expect more downside. Those who got short Friday via June options booked a 40% net profit today.  The chart is ugly and while we remain under the 200 day MA we still like light exposure long sugar even though clients are taking a bath on longs currently. Coffee closed above $3/lb…if prices do not correct soon we will take loses on clients bearish option plays. Buy dips in new crop corn and soybeans as the death of a terrorist has little to do with the number of mouths to feed or adverse weather. Shorts in 10-yr notes and Euro-dollars continue to lose money but we feel we’re close to a turning point so hang on if you can.

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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