Weighing Your Risks 8/22/11

Before entering every trade it is important not just to examine your upside but also the risks involved with the trade. Novice investors want to trade what is viewed as the hot market or where they think they can make the most money but I feel that is the wrong approach. As a trader with ten years experience in commodities I have a bigger interest in trading where I view the least risk and I do not want to general public to be involved heavily in that particular commodity . Crude oil should finish up just over 2.25% today but we would like to see a settlement back over the 9 day MA to confirm a further move north from here. That level is $85.25 in the October contract. Stand alone Crude looked strong today but without the distillates tracking higher it may be a challenge to gain any steam. RBOB will need a settlement above $2.75 and heating oil above $3.00 to confirm higher action. Natural gas has traded lower now for the last five sessions but the loss has only been 4.2% and though it sounds like a broken record we maintain that prices should not remain below $4 for an extended period of time. We've suggested bullish exposure in October and November contracts to our aggressive clients. Mixed bag in stocks as prices are still trying to find their footing after last week's sell off. We're not suggesting long exposure at this juncture although we do anticipate a bounce of 4-6% from current levels. A fresh record high with a trade above $1900/ounce in gold today as the rubber band continues to stretch. Gold is clearly being viewed as a currency and likely will continue north for some time but we cannot justify a long entry until we get a $150 plus correction. Silver gained nearly 3.25% today with prices approaching $44/ounce. We remain longer term bullish but like gold think prices are over bought short term and we have advised clients to wait for a correction before re-establishing longs. The Loonie failed to hold onto gains the last two sessions even with metals and energies on move...if this continues we will likely exit our clients existing bullish plays. The Yen overnight traded down to the 20 day MA but failed to penetrate that level. On a breach of 1.2950 expect selling to intensify. We have a small position via September put options with some clients trying to capitalize on a trade down to 1.2800. November OJ traded to a two week high and is slowly making its way to our target approximately 5% from current pricing...trade accordingly. Coffee shorts are on our radar with prices up nearly 15% in the last two weeks. We've yet to make a move but bearish plays in December are on our radar...stay tuned. Continue to scale into shorts in long dated Euro-dollars playing the short end of the curve. We're suggesting positions in 2013 contracts currently. Agriculture prices were in the green today but clients are on the sidelines as we anticipate a break lower very soon. We wish not to get short wheat, corn or soybeans but prefer to be a buyer at lower levels. Lean hogs were flat today...we continue to like bullish exposure as long as the 200 day MA holds; in October at 86.60.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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