A sideway to declining stock market, depreciating US dollar and yields at pathetic levels -- maybe anallocation in commodities is the answer.
October is the front month in Crude starting next week. We see support around $79/barrel but this market is not for the faint of heart as we’ve had a $13,000 swing for one futures contract in the last ten days. $80 is likely a good value zone as we do not see prices getting too bullish until circumstances improve domestically and in Europe. That being said, prices near $80 should be viewed as a buy and a trade much over $90 is likely a sell in my opinion. I wrote a forecast back at the beginning of the year stating natural gas at $4 is a buy and a sale at $5 ... nothing has changed. We advise bullish positioning in October and November contracts at these levels and then sitting on your positions for several weeks.
Equities got hit hard the last three sessions, giving back virtually all their gains. If we see a test of the previous week's lows and prices hold we may scale lightly into longs, but only for a trade! Those holding most of their assets in the stock market should use rallies to exit positions and build cash reserves and, yes, allocate money to commodities as we anticipate inflation over the next several years. Treasuries continued to inch higher; refrain from shorts until we see signs of an interim top in 10-yr notes and 30-yr bonds. Long dated Euro-dollars seem to be running out of gas; aggressive traders can lightly scale into bearish positions. We bought at the money March 2013 puts for some clients today.
Gold finished well off its highs but still higher by 1.6% today and over $100/ounce this week. Could we see $1900…could we see $2000…yes to both, but until we get a correction my clients will not be involved. A breakout in silver? I think so, with prices exploding 5% higher today and nearly 15% in the last two weeks. Clients have been in and out realizing profits on their longs. We will be buying dips and on even on higher trade we may re-enter longs for aggressive clients. Why? Because a trade over $43/ounce potentially signals a trade back to $48/ounce ... stay tuned.
Clients were advised to take profits on their Loonie longs in early dealings and we will now try to get long again next week under 1.0100. The Yen is above intervention levels from last week so guess what, we would not rule out more BOJ intervention. Aggressive clients used an options strategy to get short September to play a potential break to 1.2800 next week.
A delivery squeeze lifts sugar prices nearly 7% today to carry prices near contract highs. On our radar is potentially getting short next week ... stay tuned. Clients are out of their cotton longs, still hold their OJ longs and have yet to make a move in cocoa ... trade accordingly. We are getting very mixed signals in grains and though we view them as longer term bullish in the immediate future we could see a price break in either direction. Our only freshly opened position that we still favor is bearish trades in December 2011 corn but on a new high we would likely let the trade go at a loss. Lean hogs are a buy…the fact that the 200 day MA held and we got a bullish engulfing candle today confirmed our buy signals. We started gaining bullish exposure in October for clients today with a target of 90.50/91.00.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.