Even when interest rates go unchanged, the Fed's verbiage can be a market mover. There's been a slight rally in the indices off the FOMC decision but we are suggesting fading this rally, thinking a 10% appreciation in recent weeks is unwarranted. In the coming weeks we're anticipating a trade under 1050 in the S&P and below 10,000 in the Dow.
Short end to long end it's green across the board in the interest rate complex after the Fed non-decision. In the short run the path of least resistance looks to be up. Clients will be looking for selling opportunities from higher levels… stay tuned.
Until Crude gets above $77 on a closing basis or below $74 on a closing basis we are neutral. A settlement above or below those levels in the November contract should decide where from here. We have a slightly bullish bias but IF the equity market was to move south or the US dollar north, we would be quick to move clients to the sidelines in Crude and the distillates. The $4 level in the November natural gas contract appears to be acting as stiff resistance. Our suggestion remains scaling into longs in November and December futures and purchasing at the money November and December call spreads.
Plenty of action today in the softs; our recommendations include longs in cocoa, lumber and shorts in sugar. Cotton is trading near 20 year highs and should be ripe for a correction but we’ve unsuccessfully tried probing shorts with clients in recent weeks, so until we get signs of an interim top we suggest the sidelines. Use this sell-off in live cattle to re-establish bullish plays - trade suggestions to follow in the coming sessions in the December 2010 and February 2011 contracts.
A bullish reversal in the metals is lifting gold and silver prices from negative to positive. Most clients will be absent from any short term upside appreciation as we feel a 7-10% correction is imminent.
We’ve prematurely forecast an interim top in agriculture in recent weeks so we may be guilty once again but aggressive traders could scale into shorts. We’re thinking 50 cents lower in corn, 70 cents lower in wheat and $1.00 lower in soybeans. We started getting some clients short December soy meal and likely will be advising shorts in corn in the coming sessions.
Aggressive traders could be long the Pound and Yen with targets of 1.5900 and 1.2000 respectively.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.