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 future 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 too last only because I do not think we are at a point in the cycle that commodities will rally before we get a washout.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor’s needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.