China, The 800 lb. Gorilla

A positive GDP number out of China influences commodities today. I think today was an overreaction, but a good sign medium and longer term. Crude picked up 1% today and has quickly pulled away from the very critical $100 mark with prices approaching $104/barrel. I maintain that if we stay below $104 on a settlement basis going into the weekend we will see a sub $100 trade next week. My target remains 97.50 in May futures. I believe, today, the case was the strength in the distillates lifted Crude.

In the last two days both RBOB and heating oil put on a quick 10 cents but this is not sustainable in my opinion. The lack of demand should start to equate to lower prices very soon. Natural gas tried to regain $2 and failed miserably closing near its lows and making a fresh contract low.  Virtually a 1.5% appreciation in stocks today has prices closing in on their weekly highs but I will not get sucked in as I’m thinking a dead cat bounce. Though mildly bullish with prices regaining their 50 day MAs, I expect this to be short lived.

Gold is approaching its 100 day MA having picked up $60/ounce this week. I do not expect much more as aggressive traders can fade this rally. For one month silver has been stuck in a $2 trading range as the 100 day MA has served as a magnet for prices. Expect the sideways action to continue. I prefer to be a buyer as opposed to a seller just from lower levels. In this environment there are certain markets I am not comfortable having short exposure and the metals currently fit that bill.

As a purely spec play, traders that are ok trading illiquid markets can gain long exposure in OJ. After a 30% deprecation in the last 3 months we should get a bounce from oversold levels. My expectation is at least a 10% pop. Let coffee work its way closer to $2 before initiating bearish trades. Treasuries should trade inversely to equities, so if my assessment is correct, we will get an opportunity to be a seller of 10-yr notes and 30-yr bonds from higher levels. Limit up in live cattle and feeder cattle. We’ve gotten consecutive closes above the 9 day MA in feeders and a breakout in live cattle so buy dips as I’m speculating an interim low is in place. A 50% Fibonacci retracement in June live cattle would put prices back near 121.50…trade accordingly.

Grains traded higher today, but I remain in the camp that short- term aggressive traders can gain bearish exposure with stops above the recent highs. Conversely, the other strategy I suggested was a short in futures while selling puts 1:1. The corn/soybean trade mentioned yesterday was brutal today, but this should be viewed more of a swing trade. That being said, if the spread widens to a new high I would suggest cutting losses. I feel the spread should be closer to $6.50, so it may be worth taking a little heat because the massive profit potential. The commodity currencies were the standout today, with the Aussie being the biggest winner. I don’t expect this to last only because I do not think we are at a point in the cycle that commodities will rally before we get a washout.

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