In this market traders need to understand that sometimes the toughest trades are their best trades. In order to navigate these volatile markets do not stand aside just take your position sizes down to a comfortable level. Sub $80 trades in Crude continue to be rejected with oil, currently trading more than $3 off its intra-day lows. We suggest buying this dip and see oil making its way back to the mid 80′s and on a dollar retracement potentially back to $90/barrel in short order. The 9 day MA is out first target for longs; at $85.25 in November. RBOB and heating oil have likely seen their worst as well as $2.50 supports November RBOB and $2.75 is the line in the sand in November heating oil. $3.75 continues to support November natural gas as bargain hunters are still able to scoop up long exposure under $4…we do not expect this to last long. Gain bullish exposure in winter months as we think that once we penetrate the downsloping trend line that has capped rallies in recent months a 10-15% short covering rally will follow.
Stock indices are higher by 1-4% and should continue to inch higher in the coming weeks. As we voiced last week we're expecting a trading range and from here a move back to 1240 in the S&P and 11600 in the Dow at a minimum. In our opinion the only thing that could derail this type of appreciation is a horrific jobs number the first week of October. Treasuries appear to be rolling over again…is this time for real or just another head fake. If stocks continue to rally and the dollar trades lower we would use outside markets for guidance in this complex. Also a settlement below the 20 day MA in 10-yr notes or 30-yr bonds would help get shorts back on our radar.
Gold came within $8 of the 200-day MA overnight but managed to pare losses closing back above the trend line that has held since February. The next hurdle will be a settlement back above the 100 day MA at $1635 and then we would view the correction/shakeout as compete. Aggressive traders should buy this dip. Silver held $26/ounce, a critical level that held back in February when we started the last move that lifted silver to near $50/ounce within four months time. Past performance is not indicative of future results but just like silver under $30 was a buy earlier this year, we view it once again as a buying opportunity. We feel both gold and silver over shot to the downside as the PM’s were thrown out with the bath water. A settlement back over $33/ounce and longs likely have survived the silver shakeout. We’re advising our clientele to get long very lightly as for the volatility with an upside target of $36/ounce. In both gold and silver start small and add to a winning position.
New highs were rejected in the dollar as well as dollar bulls are claiming victory. This market is humbling wait and see…we think the dollar appreciation is over for now and we trade south from here. Buy the Pound, Swiss or Loonie.
Cocoa traded positive only for the second session in the last fifteen but we like it. Establish longs as a near 20% depreciation is not justified, all things considered, not to mention the seasonal tendency and greenback correlation. Clients will need a hell of lot of help to be profitable in their OJ as frozen concentrate was hit with everything else. But sometimes miracles do happen so cross your fingers. Let coffee rally more before selling…the 2% appreciation today is not nearly enough in our opinion. Corn continues to dance the 200 day MA but as long as that level hold we like having bullish exposure in either December 20111 or March 2012 contracts. Possibly using a combination of futures and options is the best play? We also view wheat as a buy at these depressed levels…trade accordingly. A bullish cattle on feed report caught a number of traders off guard in cattle as the sentiment has clearly shifted to bullish. Cover bearish trades on any pullbacks as we view dips as buying opportunities. Clients will be getting long 2012 contracts anticipating to ride cattle to new record highs in our opinion.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.