Comments:
Commodities are still strong this week. We continue to sound the alarm about the commodities correction to come. Again we are not commodity bears at all, just no longer bulls in the near term. We are using these spikes to higher prices both last week and this week to exit long trades in commodities. In particular we are exiting long metal, energy, and grain trades. Overall we see commodities going through a “distribution” phase over the next few weeks. Again those of you who are still long or just recently went long, we advise you to use tight trailing stops on any long trade in commodities to protect any gains you already have. Do not chase these markets higher. There will be a time in the not too distant future when you will want to step in and buy commodities across the board again, but that time is not now. Also shorting at this very volatile time is very risky and should only be attempted by those who truly understand and can accept the risks involved. Conservative traders should be looking to lock in gains and then patiently wait for the next dip to buy.
Energy:
Crude oil has now hit our target of $100 and those of you who took our long entries should have exited on the target or had most of your trailing stops hit by now. Either way you should have exited with some great gains. This week we see more downside pressure on crude than upside potential so we are looking to sell rallies rather than buy dips. We see Crude moving back down to test support between 85-90 over the next few weeks.
NG:
Natural gas is trying to hold above 9.00 but here too we prefer the short side of this market in the near term. We are sellers above 9.25 with stops above 9.50 targeting a move back below 8.50 this week.
S&P:
The S&P continues to drift sideways trying to find a way to stabilize. We expect to see the market begin to try and stage a rally back up towards resistance at 1400. We are looking to write short condor of butterfly spreads this week as overall we continue to expect this market to be range bound.
Bonds:
Bonds pushed back above 116 late last week. We continue to target a move to 114 and are therefore selling into these rallies above 116 when they come.
Metals:
Gold did stop out our shorts last week. We are still bearish and do not expect gold to be able to maintain this rally in the near term. We are sellers at or above 950 with stops above 962. We are targeting a move back towards $900 over the next two weeks. Silver is also very strong and after being stopped out of our shorts there as well, we are going flat silver and will wait for a new short signal to develop down the road. Copper pushed slightly through our target at 375 but is already looking negative this week. We are looking to sell short above 375 with stops above last weeks highs targeting a move back below at least 360.
Grains:
Grains are starting this week off with a strong rally. A disappointing wheat crop in Australia has the wheat markets limit up almost across the board. March Minneapolis wheat closed up $4.75 which is this single biggest move I have ever seen in one day in wheat. We believe this is a “distribution” phase in the grains in which those who correctly bough long last year are now looking to “distribute” those contracts at or near current prices because they too feel that the market is at or near a near term top. Do not chase these grains higher but also do not attempt to short them. The only short trades for the near term will have to be done with options to try and manage the risk more effectively. We still favor soymeal puts over all other grains with corn following close behind in second.
Softs:
We exited our long from 1.25 on the push above 1.30 last week. We are buying long again this week below 1.25 and those stops are still working below 1.20. Our cocoa shorts from last week got stopped out at breakeven. We are still bearish this market and will look to short again this week above 2600 with roughly a 55 point stop targeting a move back to 2400. Coffee is still pushing higher. We did exit our long last week and have been waiting for a pullback to reenter. We are looking for the pullback to come back to 1.50 which is where we would like to buy long again. Our exit last week turned out to be a bit early but we still had a great trade. Sugar is still trying to push higher but we are still holding our May 13.50 puts from last week. We held off on our cotton shorts mentioned last week due to the gap that we saw on Thursday last week. We do not advise chasing this market higher or shorting it this week. We will stand aside and look for opportunities elsewhere.
