Financials: Sept. Bonds are currently 3 higher at 127'19. Weekly jobless claims were up 13K versus an average estimate before the report of down 2K. The immediate reaction was a rally to a new recent high of 128'03 before the market backed off to current levels.
Yesterday we covered the short Sept. Bond 122'00 put and sold the Sept. Bond 124'00 put leaving us with the combination of short Bonds and short the sept. Bond 124'00. This stategy of being short futures and short out of the money puts is not a perfect hedge but has enabled us to stay in the market. Depending on where you originally went short the Bonds, this combination trade has a current loss of $1500-$2500. Tomorrow we have the monthly employment report which could move the market dramatically in either direction. I feel that with the 30Yr. Bond now trading below the 4% level and the 10 Yr.
Note trading below the 3% level that being short is the right strategy for the long term. However for the near term anything can happen. If you want to stay in the market but feel that you should be looking to limit your risk somewhat, consider buying a 10 Yr. Note or an out of the money call against the current positions. As someone once said to me Do you want to be right or do you want to make money?.
Grains: Yesterday Nov. Beans closed 9 cents lower, Dec. Corn 29 higher and Dec. Wheat 21 higher. Over night Beans were 1 higher, Corn 2 higher and Wheat 1 higher. As expected Corn rallied sharply closing near the 30 cent limit. I must admit that this is more of a rally than I expected off of yesterday mornings report. I do feel that the report was enough to turn the sentiment from negative to positive on Corn and I am looking to get long on any sharp break. Anoth strategy to consider is being long call spreads. As for Beans, I feel that if Corn stays strong it will eventually help the Nov. Beans and I will be looking to be a buyer below the 892'0 level if the market allows. We continue to hold out of the money call spreads in Nov. Beans.
Cattle: Yesterday Live Cattle closed sharply higher and Feeder Cattle moderately higher. As expected, with a sharp increase in feed grain prices, the Live Cattle gained on the Feeders. To be honest I thought this would occur with a down market. We continue to remain on the sidelines as far as a speculative futures position is concerned. Producers should be looking a rally above 115.00 in Sept. or Oct. Feeders as hedging opportunities and Oct. Live Cattle above 93.00 as a hedging opportunity. I recommend producers to continue to hold out of the money puts in Aug. contracts and consider selling out of the money calls, to partailly offset the cost of those put, on any further rallies.
Silver: Sept. Silver is currently 28 cents lower at 18.41. We continue to hold a combination of long the Dec. Silver 20/22 call spread and short a mini Silver futures contract. I recommend covering the short min-futures contract on a break below the 17.90 level if the market allows. If we are able to cover the futures below the 17.90 level the profit will partially offest the cost of the call spread.
S&P's: Sept. S&P's are currently 1.00 lower at 1025.50. I remain on the sidelines. Near term support is currently 1018.00 and near term resistance 1034.00.
Currencies: As of this writing the Sept. Euro is 171 higher at 1.2419, the Swiss 112 higher at .9407, the Yen 133 higher at 1.4448 and the Pound 142 higher at at 1.5098. We continue to have a short bias to the Yen at this time (either short futures, short calls, long puts). The Dollar is sharply lower this morning, down 102 points at 85.27. Current support is the 85.30-85.50 level, which has been slightly penetrated this morning.