Today in Commodities: Fed Stays the Course

FOMC: No change in rates and no significant changes in the verbiage as expected. There was mention of inflation expectations but excessive and extended remained in their statement. The problem I see with no change in their course is they are headed down the wrong road, the market is giving the Fed too much credit on getting their timing right. I’m not smart enough to know if they move too early or too late but I’m confident they will get it wrong.

As for the markets, the dollar has started its move lower and virtually all commodities benefited. Oil should close back above $80 as we will be looking for long opportunities for clients. Clients are getting hit on their recent purchase of natural gas, prices are down by 3.5% today… stay the course. Equities trade higher but at this moment we have no opinion, it could go either way?

We used today’s setback in sugar to buy March 30 cent calls for clients, expecting a trade back to 26 cents shortly. Mixed results in agriculture… little change in the wheat spread, corn was down by 1.5%. For traders yet to get long use this setback as an entry. Those already in the trade, stay the course. When December trades above $4 we should see new buying emerge.

Gold prints a new record high as $1100/ounce is eyed. Expect a sharp move, we favor a continued acceleration higher. Clients own April $1100/1200 call spreads purchased 2 weeks ago. We’ve yet to move on futures in silver but May options bought for clients yesterday have already gained 40%.

We re-entered NOB spreads for clients today before the FOMC decision; we’re currently down but will hold the trade for now. We are expecting 30-yr bonds to gain on 10-yr notes. Additionally clients shorted June Euro-dollars.

Live cattle is a buy, we have clients long February via futures and options. Furthermore we bought December against April today looking for that spread to come in. The 2.5 cent rally in the dollar index is over as we closed back below the 20 day moving average. Clients are holding March puts in the Euro-currency and are taking on water. Hold at least thru ECB tomorrow.

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

[rrdaniel:]

Where is the bottom for natural gas ?
How low it's gonna sink ?

Nov 04 05:20 PM

[rick12345:]

PMI at 55.7. Good for manufacturing, good for employment and the US economy, but most importantly good for the dollar. Assets in the US are just bottoming out so people have been buying euros and Aussie dollars. I expect the Yen and USD to strengthen as asset prices increase, eventually leading to a flight back into greenbacks. Gold is ridiculously overpriced given supply, indicating that it has become the new safe currency. This will not last, deficit or no deficit. If you're making money good on you, but just remember the golden rule of investing - don't get greedy.

Nov 04 06:43 PM

[TonyNed:]

Picking bottoms in Nat Gas is extremely tricky. Unfortunately I can only get charts with daily durations so it's much more difficult to build a strong hypothesis. I believe from the limited information I have that this movement is at the end of it's momentum and should turn up shortly. Sticking to the long trade seems to be the correct move at this time. One downside I see is that this movement created a lower low on the chart.

Nov 04 07:29 PM

[Aricool:]

unless the consuming region has a bitter cold winter starting from now until end Jan, you will lose your ass on Nat gas. The pipes are literally bursting w/ High pressure. The low injections are not bullish in my eye b/c they are even less than the '02 rate, which was a bitter cold year. The model you should go by is '04, which max'ed storage like now and had avg winter- Nov and Dec crashed. You should not go long until Nat gas drops to 3.5 or until Feb. I've been short since Oct. and it is only b/c of the darn cold snap and damn whimpy bulls that I'm only up 10%.

Nov 06 04:12 AM