Long Jan. Heating Oil/Short Jan. Gasoline

With about 2 weeks until expiration look for heating oil prices to gain on gasoline. Stocks of distillates are now 6.9% below last year's levels, according to the EIA. The current spread is at 27 cents and we are looking for 31 cents. This is not for the faint of heart or under capitalized trader as this spread has the potential to move against us 5 cents before we would abandon the trade. If everything works as planned we are looking to book a profit of $1680, the current margin on the spread is approximately $2700.

July Cotton

We are expecting cotton to be one of the main beneficiaries from the coming run for acres. With current price points we see farmers planting many more acres of corn, soybeans and wheat as opposed to cotton. The competition for food and fuel should take a front seat to a crop that is used for clothes. The ultimate wild card here is what type of demand we see out of India and China; which account for 58% of the world's cotton usage. We suggest buying the 80 cent July call option for $500, although 10 cents out of the money it has a 20% delta and with plenty of time (180 days) we expect this option to go intrinsic. On a move to 80 cents in July Cotton this should be worth upwards of $2000. So with a risk/reward ratio of 4:1 we feel this is a viable play.

April Live Cattle

Look for an entry to get long April Live cattle, ideally closer to 96.00. Momentum indicators are still showing weakness so we are hoping to steal this position but either way we will get long by months end. Since 1987, April Live cattle have posted gains in December 13 times. January strength has followed December strength 11 times (84.6%). Once we enter we will be trailing stops looking to hold this position into the new year and a new contract high which currently stands at 101.525. Assuming an entry of 96.50 and closing the position at 102.00 sometime in January we would book a net profit of $2200 per contract.

Long March Wheat/Short May Wheat (CBOT)

With wheat prices making new contract highs on heavy volume we do not see this rally running out of gas any time soon. When wheat prices were at record highs in September this spread was trading at $1.25 premium to the March. Currently the spread is at 10 cent premium to the March, with full carry being at roughly -16 cents. Look for an entry between 5-10 cents to the March and ride this until wheat is done going up or the spread has widened to 35-50 cents premium to the March. Assuming an entry of 5 cents we would be comfortable risking 20 cents looking to pick up 30 -45 cents initially. In dollars and cents that equates to a risk of $1000 looking to pick up $1500-2250. On a move back to $1.25 on the spread we would profit just about $6000 per spread, which is not bad because the margin is minimal.

Long March Silver

Although past performance is never indicative of future results we like seasonal tendencies that coincide with a supportive chart. March silver has moved higher 13 of the last 15 years from mid December until late February for an average gain of 47.25 cents. Assuming an entry of $14 even and just seeing the average move although we expect much more that would be a gain of $2,362 on the 5000 ounce contract and $473 on the 1000 ounce contract. If you prefer options buy the $14/$15 bull call spread for roughly $1750, help finance the cost by selling the $12.50 put for $1000; total cost of the trade would be $750 with the potential to earn $4250 with limited risk as long as silver did not trade below $12.50.

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 assurance of future trading results. There are no assurances of market outcome stated, everything stated above are our opinions. Calculations of profit and loss have not factored in commissions and fees.

Canadian Dollar

Oh CANADA! Looks attractive to me down at this level. From the November high we've corrected over 10% and Friday we hit the uptrend line on the weekly chart. Technical indicators are obviously oversold but are in a position to correct if we get a confirmation of a bottom: Trade: Buy Mar. Can$(CDH8)@ 9880 on a stop. Use a contingent stop loss at 9750(CDH8). Targets: 10200/ 10500.

Cocoa

Cocoa has broken out on a weekly scale but in the short-term look for a drop. This should cause the weak longs to abandon their position and an opportunity for us to establish a position. Trade: Buy Mar. Cocoa(COH8) 2005 with stop protection at 1905. Targets: 2200/2400.

10yr Notes

Looks like the 1/4 point was built into this market and has taken it out of its overbought levels. The recent drop in the 10yr. Notes have taken us back to the moving averages and to attractive levels to go long again. Trade: Buy Mar. 10yr. Notes(TYH8)@ 11329 on a stop. Place contingent stop loss at 11130. Target: (TYH8) 11700.

Japanese Yen

Look for a buying opportunity in the March J-Yen at the uptrend line on the daily chart and a revisit of the downtrend line it broke in November. Buy March JYen(JYH8)@ 8805 with stop protection 8600. Targets: (JYH8) 9400/9800.

Crude Oil

Lately, we can throw the technicals out the window when it comes to trading the energy complex. UP $2 Down $3 UP $4 Down $3....Look at Crude Spreads. If your bullish look at "bull spreads" and if your bearish look at "bear spreads". Crude spreads offer lower margin requirements and offers spreading your risk with the potential to profit. Its a smoother ride. Call me for specific overbought and oversold levels and further explanation of energy spreads.