Commodities Wrap: Correction Looming

That is not to say ALL commodities will correct but examining the technicals and digging deeper into the fundamentals we expect a “healthy” correction in a number of commodities. Those that have already come off the damage may have already been done (sugar, natural gas, cocoa, agriculture) but others look ripe for a correction. Where we see the chances of the largest potential corrections are Oil, metals, cotton, OJ, live stock and the Indices. Oil has been overbought for 2 weeks now but still prices have managed to gain $4 within that time frame. Clients are positioned in $5 put spreads and currently under water. We will not trade futures from either side until we get a clearer picture. Still trying to pick a bottom in natural gas thinking there is not much more downside. Being clients only hold a small position we’ve been able to weather the assault the last 2/3 weeks. Seven consecutive days in the stock market is very impressive but I’m a non-believer. I expect the January highs to act as stiff resistance; if prices get thru those levels unfortunately clients will be forced to cut losses on futures, regardless we will advise them to stay with their June ES and SP puts.

Sugar was down by 2.6% but the 200 day MA is still serving as a magnet and as long as prices do not wander too far from that level we will hold onto May and July put options for clients. Without a bullish surprise in Wednesdays USDA report we think cotton needs to correct 5-8% immediately. Agriculture could be choppy in the next few sessions as traders position ahead of the USDA report. We will hold small longs in soybean meal, and corn and shorts in soybean oil into the report for clients. We cut losses in April live cattle futures for clients today as prices made new highs aided by fund buying. Our logic is the funds are in control and they have much deeper pockets than my clients so we will re-enter once a top looks like it is in place. We think it is very close but we are not willing to lose any more money. Aggressive traders could be short lean hogs with stops above last week’s highs. April gold was lower by just over 1% today but did remain above key moving averages. Clients own NO gold as we feel a trade under $1100 is likely this week. We have yet to determine an entry point for longs…stay tuned. Inside day in May silver as prices were lower by .80%. We think a trade down to $16.50 an ounce is likely within the next week. We will likely be a buyer for clients if we got that move so stay tuned here as well. We have little new to report in forex as the only open position for clients is shorts in the Loonie looking for a trade under .9500 in the March contract.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.