The G Manifesto

The Line in the Sand
By: Matthew Bradbard

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Energies Look for guidance from the dollar and the stock market to help positioning in energies. What will be on our radar this week is buying December $75/80 call spreads for under $2000 for clients wishing to gain long exposure in Crude oil, if the support holds? As we wrote last week we would not suggest out right shorts in oil but to play the ratio we have suggested buying puts in oil and calls in natural gas expecting the spread to narrow. As for the distillates we see no viable play. We continue to try to catch a falling knife in natural gas which has yet to show signs of a bottom.

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Livestock We will be advising clients to exit their October lean hogs calls but too remain long on their December contracts. Prices have risen 11% in the last 2 weeks and be may be due for a breather. We rarely trade feeder cattle or pork bellies and have no suggestions for the time being. October becomes the front month in live cattle this week. With prices trading at an exorbitant premium to cash expect December and the forward months to gain on October. We have clients positioned in options and futures to take advantage of this.

Financials
Stocks: Equities continue to climb the wall of worry but at this time we are more content on the sidelines than bucking a trend and getting short and certainly new long entries are late to the party. For stock investors who have not lightened up in their portfolio what are you waiting for?

Bonds: Prices in Treasuries could go either way and with the NFP # out on Friday we suggest to sit on your hands. Longer term as a position trade we still are suggesting long dated puts in the Euro-dollar and will be using rallies to position clients short futures.

Currencies I’ve been predicting a dollar rally for the past few weeks and as you know it has yet to materialize. I still feel it is in the cards as displayed by the sharp baffling rallies last week. This will not be a trade we take but it cannot be ignored as the effect on other markets. The main happenings this week will be 2 central bank meeting; with the RBA and ECB expected to keep rates as is at 3% and 1% respectively. Our only currency exposure with clients is short Aussie dollars in September which is more of a hedge. If we start to see a correction in commodities we will most likely move out to December.

Grains This summer’s weather has been mostly favorable for corn and soybeans, but concerns remain that both crops may be vulnerable to yield losses this fall due to late planting. Crops look huge but there is virtually no margin for error. If we do in fact get an early freeze hello bull market. We have client’s positioned long December corn and wheat and are currently carrying a loss. Before we commit more money we would like to see more of a conformation of a bottom. A base looks like it is being formed but the sentiment remains bearish on both crops. We may take a look at rough rice for clients because of the weather problems in India. We will need to do some further investigation being we do not trade this market frequently.

Softs There is more sideways action in the softs sector than trending markets with the exception of sugar which broke out to new contract highs last week. We were late getting back into sugar for clients but have a majority positioned long currently in the March 10’ contracts. See previous comments. Sugar has both technical and fundamental support to see higher pricing and it has been almost twice its current price, albeit about 30 years ago. Outside of sugar our exposure with clients is short cocoa which longer term looks like a good trade if the dollar rallies but the October puts clients currently own go off Friday so we need a decline immediately. We have long entries in cotton, oj, and coffee on our radar but have yet to commit funds.

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Metals We rarely trade copper but prices should be followed as it is a barometer of the overall economy. It will be a good litmus test to see how prices respond at $3.00. Gold is sending mixed signals and although longer term we expect much higher pricing in the immediate future I do not have a good feel. We would rather be long than short but we would pare your position size and make sure you have stop loses being a dollar rally could be painful. Furthermore if and when the stock market corrects will gold act as a flight to quality? Silver remains our favorite long trade. It may sound like a broken record so we will keep it short and sweet, clients will be positioned long silver for the next 2/3 years expecting $25+ ounce. This move will not happen overnight and it will not be in a straight line. Currently we suggest call spreads in December.

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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions.