Commodities remain the darling of the investment world. Let me briefly comment on something currently in the media. There is talk that speculators are responsible for the high price of Crude oil and other commodities. The people who make this argument clearly do not understand how markets work. Speculators are not responsible for the high prices, in fact, if anything the opposite is true. If the speculators were bared from these markets, that would mean less open interest and therefore more volatility. I don’t say this because I am one of the speculators, although I am, but as usual the media is doing a disservice to the public by perpetuating this lie. The only thing that would happen if you bared speculators from trading these markets is prices would go higher much faster. The reason oil is so high is due to a long history of energy and currency mismanagement here in the US. Don’t waste time pointing fingers, the solution lies in alternatives not in blame.
Energy:
Crude oil has been able to maintain its high prices. We have seen a sizeable expansion in the overall short position held by small traders which should drive the price even higher. Here again is a good example of how wrong the media has this story. The majority of small speculators are short crude oil meaning they are betting the price will fall not rise. So the argument that speculators are driving up prices is just pain stupid as if that were the case they would be betting against there own trades. We have exited crude and frankly have no interest in trading it at these levels. We do expect a sizable correction sometime soon but trying to short in anticipation of that has been a losing proposition so until we see definitive signs of a pullback we will stay on the sidelines. The potential for this market to continue blowing off to the upside remains high and we would not be surprised to see 130 tested this week.
Nat Gas:
Natural gas is still trying to hang on to its gains. We are still expecting this market to pullback to about 10.00 by months end. We then expect this market to trade within a range between 10.00 – 12.00 over the coming weeks. .
S&P500:
The stock market is trying to stage a sustained breakout above 1400. So far it has been able to hang onto these levels and near term we are becoming bullish. We are now looking to be light buyers of dips below 1400 with stops below the daily trend line targeting a move to 1450 before this rally begins to stall.
Bonds:
Bonds are building a solid sideways channel between 115-118. Near term we see little that would break us out of that range and would therefore be buyers of dips towards the lower end of the range and a seller of rallies near the upper end of the range.
Metals:
Gold managed to claw its way back above $900. We are buying dips as we see this market moving back up to the mid 900’s before this rally stalls again. Any buys below 900 should do well with stops below 845, but keep position size low as volatility remains abnormally high. Silver too is a buy on dips with stops below 16.00.
Grains:
Wheat is still trying to hold support at the 8.00 level. We continue to see this market holding above 7.50 and are therefore still buyers of dips to or below 8.00 with stops below 7.50 targeting a move back to at least 9.00. Corn remains a sell on rallies as long as we do not close above 634 basis July. Beans are a buy below 1334 with stops below 1300, targeting a move back up to at least 1400 near term.
Softs:
OJ failed to hold support and we did in fact exit once support was broken. We will stand aside this market for the time being. Cocoa remains a sell on rallies. We are still targeting a move to 2400 before any real support is found. We have so far exited 50% of our longs from 130 at an average price of 139. Our stops on the remainder are between breakeven and 135. We are still looking at the possibility of a breakout above 140 later this month. Sugar’s support level at 11.00 is being tested and we may become buyers if support holds this week but frankly we see this market drifting sideways at best and will therefore focus on other markets. If cotton closes above 72.50 we will move our stops up from 66 to 70(entry) and try and begin to exit above 75.
