May 23, 2011 at 19:21 PM EDT
Risk OFF
Is risk off indefinitely, could this be a change in the market dynamic? We think it is a temporary pause but time will tell. Inside day in Crude oil with prices back near the bottom of the recent trading range...

Is risk off indefinitely, could this be a change in the market dynamic? We think it is a temporary pause but time will tell. Inside day in Crude oil with prices back near the bottom of the recent trading range down 2.6% today. Looking at the charts this level has been supported in the last two weeks but will history repeat itself? Aggressive traders can scale into longs and remain long if $95 holds in July. Some aggressive clients were buyers of August bull call spreads today. Natural gas advanced approximately2% depending on the contract month as we advised traders to start scaling out of their bullish plays. We think it is possible to see an additional 3.5-5% appreciation but if in a profit lighten the load. The indices broke on renewed fears in Europe as both the S&P and Dow traded through their 50 Day MA's which should serve as pivot points. Those levels come in at 1321 and 12335 respectively. The dollar traded to a two month high today but I do not understand all the buzz...the move in the last three weeks has only been 5% and we think it is overdone and would expect an about face almost immediately. Clients are fighting back on their Aussie dollar shorts looking to cut losses this week ideally from lower levels. Client are down on their Pound longs from last week as it was off by 1% today...stay the course for now.

Live cattle and lean hogs were down limit today for most of the session. The lack of demand is evidently being factored into pricing but as for live cattle anyway we feel we're due for a bounce. It may not be the resurgence of a bull market but at least a traceable bounce...in our opinion. We expect a 4-6% bounce in the August and December contracts...trade accordingly. The trend line has been respected in gold so as they say the trend is your friend. The fact that gold caught a bid even in the face of an advancing dollar is bullish. We suggest bullish exposure as long as $1500 holds in June...look for trade recommendation to follow. Silver continues to dance along the 100 day MA...aggressive traders can gain light bullish exposure... our favored play has been purchasing September bull call spreads for clients.

In the last three weeks cocoa has depreciated nearly 15% and as we said lat week we feel this is not justified. Clients have been accumulating longs and are down on the trade. We continue to like building a bullish position in September via futures and options depending on your account size and risk tolerance. In a bull market we generally would rather be long or on the sidelines so at this juncture because we could see a set back in agriculture we would book profits and move to the sidelines in corn and soybeans. We will be suggesting to buy a dip in new crop for clients. Clients are holding losing bearish trades in the debt complex thinking we're forming an interim top as we speak. Clients have positions in options in 10-yr notes and 30-yr bonds and futures in long dated Euro-dollars...all bearish plays.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

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