Today in Commodities: Decoupling for a Day, Or a New Trend?

Dollar up commodities down, stocks up oil up, stocks down, Treasuries up… well, not today. Be wary of the decoupling as new relationships may be forming.

We are thankful we took oil shorts off yesterday for clients, albeit at a small loss being prices were higher by $1.25 today as of this post. Natural gas is higher by 2%, clients were able to buy the January $5.50/6.25 spreads recommended yesterday at slightly better levels today paying $1800/per.

Sugar looks to be starting another leg up, gaining almost 2 cents in the last 4 sessions. We have light long exposure and will be shopping ways to add length for clients. Mixed results in the other softs, no standouts. Agriculture was well bid today; our clients' exposure includes long corn and long KCBOT wheat/ short CBOT wheat via a spread.

Silver and gold were convincingly higher in today’s sessions. Gold clearly broke out to new highs on Central bank buying. Call spreads in April is the vehicle of choice though we prefer silver. We bit the bullet and bought most of our clients May $19/22 call spreads today. For straight out futures buy 30/50 cent pullbacks. Middle of the road trade one could sell out of the money calls and buy futures. $16.60 should support pullbacks on the December contract; resistance is seen at the 20 day moving average at $17.30 followed by $18 and then $20.

Clients were buyers of June 10′ Euro-dollar puts today. We were able to get more February calls bought today for clients. We continue to like buying intra-day setbacks in live cattle. We may be shopping some future spreads, stay tuned.

RBA raised rates 0.25% today to 3.50%. D-day with FOMC tomorrow and then ECB & BoE Thursday. Expect violent moves in forex. Most likely we will be selling rallies in the Cable and Euro but not sure at what levels??

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

Comments

[TonyNed:]

The past dollar rally was much stronger than has been typical on this downtrend which can make you question whether or not it has indeed bottomed BUT this latest upswing appears to have come to an end. At least that's my interpretation from the $USD chart. The dollar is at the limit of an overbought condition but has not extended into it. Tomorrow's price action will most likely be lower which should form the rounded top that will mark an inflection point to another correction. The question is how deep or shallow this next correction will be since the stock market is truly an inverse play to the dollar. The dollar behaves extremely well rebounding from oversold to overbought and doesn't really stray from it's pattern so I can say with some confidence that I think the stock market is poised to go higher.

Nov 03 04:13 PM

[rrdaniel:]

Medium/long term, the dollar has nowhere to go but down.
Whatever happens to stocks, I'm counting on commodities to rise.

Nov 03 06:17 PM

[Mad Hedge F...:]

yhb You’ve got to hand it to Warren Buffett, who never does anything half heartedly. The stunning news that he is paying $44 billion for the 73.4% of Burlington Northern Sante Fe (BNI) he doesn’t already own, a 30% premium, had punch drunk traders picking themselves off of the floor. The other rails rocketed, like Union Pacific (UNP), CSX (CSX), and Kansas City Southern (KCSR). The deal is the Oracle of Omaha’s largest in his career, and took the BNI board all of 15 minutes to approve. For me this deal speaks volumes about the long term trends in the US economy as seen by its greatest investor. It screams Commodities! Commodities! Commodities! Rails can only prosper moving bulk freight from the heartland to ports on the three coasts, which foreigners are buying in ever larger quantities at ever higher prices. It also says the coal industry isn’t going anywhere soon, as it accounts for 70% of all rail traffic. Buffet let loose of some fascinating statistics about the enormous productivity increases the industry has accomplished. In the last 25 years, it cut employment from 500,000 to 175,000, while increasing freight by 60% and reducing track by 40%, and now accounts for 40% of the total goods moved in the country. Railroads are the greenest transportation out there, a ton of freight requiring only a gallon of fuel to move 470 miles. When I was growing up, my big goal in life was to become a train engineer. Maybe it’s time for me to revisit that aspiration. And I promise not to text while driving!

Nov 03 07:48 PM