Manic Market 6/15/11

The volatility and massive swings we’re seeing across all sectors is not for the faint of heart. One of my clients today said oil is down $3 it cannot go any lower…wrong! Markets can and will do the unthinkable…be careful. After the initial pop on the inventory report it was all down hill for Crude and the distillates with a settlement approximately 4% lower on Crude and the products. We advised hedgers to start working their way back into fall hedges putting on light longs today willing to add in the coming sessions on further weakness. As for Crude we used today’s weakness as a buying opportunity at least for a trade with some of our more aggressive clients thinking we can get a bounce in the next few sessions. However there was chart damage done so after the bounce we will likely be looking for bearish trades rather than bullish…stay tuned. If natural gas futures hold $4.50 the next few sessions we will start gaining long exposure with a medium time horizon say 60-90 days…stay tuned. All of yesterday’s gains were given back and some in the stock market. Stand clear until the dust settles…these move are too manic. The dollar cut through the 20 day MA like a hot knife through butter. This likely cause a a number of stops to be triggered that exaggerated the move. All crosses were hit hard with the Euro and Kiwi getting hit the hardest. A recent trade recommendation was short the Swissie which continues to be a viable trade as for the buy in the Loonie if willing to take some heat stay the course. If 1.0150 holds in September this trade still makes sense to me. Continue to trail stops in lean hogs and move to the sidelines in live cattle as we settle back below the 20 day MA. Gold and silver held up surprisingly well considering action in the outside markets. We like being long both metals for clients but only are suggesting option spreads or trading futures and hedging with options to allow more flexibility. For instance buying September call spreads in silver or October call spreads in gold or getting long futures and selling out of the money calls 1:1. As for softs we maintain that cocoa is a buy at current levels and sugar is a sell. Our respective targets are 3050/3100 in September cocoa and 23.00 in October sugar. Aggressive traders can again sell rallies in cotton and coffee. Corn was down limit most of the day but managed to pare losses closing down 2.7-4% depending on the month. We’re expecting another 15-25 cents lower in old and new crop. Wheat gave up 3% today while soybeans were virtually unchanged. Our advice is still bearish exposure in corn looking to reverse from lower levels…see above. Additionally a spread trade short corn and long wheat 1:1. All our clients’ exposure in the Debt complex lost value today as they remain short Euro-dollars and 30-yr bonds. This trade has been a challenge and we will be happy to leave it. Likely at a loss unless prices roll over in the immediate future.

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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