My take is the dollar is due for a bounce and indices are ready for a reversal lower while most commodities could trade down in the immediate future. The 20 day MA at $82.20 continues to act as the pivot point in December Crude. Though we may see a probe at $84 we continue to think a trade down to $77/78 is in the cards. Clients are positioned accordingly and if we’re right we will look to reverse and get clients long near those levels. Assuming our assessment is correct in Crude look for the distillates to trade 12-18 cents lower. A new low was rejected in early dealings in natural gas and by the end of today’s session prices are 10 cents off their intra-day lows. A very preliminary sign of an interim bottom. If confirmed we will advise clients who have previously left NG at a loss to re-establish bullish plays in December and January contracts.
Early this morning it appeared like we would have a large trade higher in the indices off overseas markets and the G-20 but as of this post a failed rally with the Dow 50 point off its intra-day high and the S&P 10 points off its highs. Most clients maintain their bearish options exposure in November and December ES. For those with deeper out of the money strikes we’ve advised buying back the bottom legs. With the exception of lumber the remaining soft commodities were well bid today; cocoa was higher by 2.95%, sugar 1%, OJ 1%, coffee .85% and cotton just over 4% lifting prices to a fresh record high. What goes up must come down but still we suggest waiting for signs of a top before gaining bearish exposure in cotton and sugar. Some clients are positioned short in cocoa via options carrying a small loss.
Continue to fade rallies in the Treasury complex as we feel 30-yr bonds could drop to 127’00 and 10-yr notes to 124’00. Buy dips in February and April live cattle as we expect the 20 day MA to act as solid support; in February at 101.50 and April at 103.75. Clients that are positioned in February lean hogs remain in the trade but we would not add to the position until we get a settlement back above the 20 day MA; at 75.45. Our upside target remains 77/78 cents.
December gold was higher by 1.11% but remained slightly below the 20 day at $1339 on the close. We continue to feel a break of the trend line is coming on a trade down to $1250/1270. Some clients own December bear put spreads. December silver has yet to settle below the 20 day MA at $23.10 but we feel it is just a matter of time. We’re looking for a sharp $1.50-2.50 correction and have positioned some clients in December put options to take advantage of that. Buy dips in corn and soybeans; we’re looking for a 40 cent break in corn and 80 cents to $1 in soybeans…trade accordingly. The initial reaction off the G-20 was a lower dollar but as long as the recent lows hold we’re still expecting a dead cat bounce. That being said aggressive traders can fade rallies in other crosses.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.