Take no Prisoners 8/4/11

Do not be a hero as this market will take no prisoners….long or short it does not matter…cash is king and keep your size small. Clearly we were wrong on Crude holding the lows from June with prices down nearly 6% today trading to a nine month low. We see the next significant support $3 lower so fasten your seat belts. Most clients with long exposure thankfully have small size and have opted to get short different months or use options to weather extended downside. The near 15% decline in the last two weeks in our opinion is far too much but the market feels different. I like Goldman Sachs believes we could see prices back over $110/barrel in three months but what the next two seeks brings I cannot be so sure. Natural gas traded to a fresh contract low but being we are so over sold we will remain in our clients longs thinking we could see a 7-10% bounce in the coming months. Our suggestion is be in October to give the trade some time. A near 5% drop today and nearly 15% decline in recent weeks in the stock market has been brutal for stock investors. Another reason why we feel investors need to have a portion of their portfolios in commodities. Our timing was horrid getting in ES  bull call spreads with some clients but we will try to manage the trade thinking we could get a relief bounce from here. We advised clients to buy back their top leg (1325 calls and hold the 1275 calls.) Gold will close down nearly $10/ounce but the real story is $35 off its highs. This MAY be day one of the correction we’ve been looking for…stay tuned. Silver dropped substantially more trading down nearly 8% as of this post below the 20 day Ma for the first time in one month. Next support is seen in September at $37.60 followed by $36.50. Bullish engulfing candle in the dollar lifted prices to two week highs. The greenback MAY continue to be a flight to quality and if so 77.00 is attainable…trade accordingly. The commodity currencies including  the Loonie, Aussie and Kiwi will be the weak performers as long as commodities are correcting. The BOJ intervened overnight as the Yen will be in sell rally mode moving forward. The ECB left rates at 1.50% and the Euro rolled over …sell rallies here as well. Sugar hit our second target and stalled so we advised clients to book their profits in their March shorts. A 50% Fibonacci retracement  is complete. OJ gave up nearly 4% today as prices  are making their way lower as predicted…see previous posts. Treasuries have moved up again as the flight to quality play is alive and well. The higher they get the better shorting opportunity but not yet! Let agriculture continue to move lower as next week we should be able to be a buyer across the board at lower levels. Our interest lies mostly in corn and soybeans. We like gaining bearish exposure in lean hogs thinking that resistance will cap rallies and we will see prices down 5% 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.

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