Money flows out of safe havens and back into risk assets. Far from a victory but this could be the beginning of what I’ve been calling for in recent weeks. We’ve had a rough go of it being we’ve been buying on the way down for clients, but if we start to recover from here their positions could be back in the green by next week. We had reached almost our maximum risk tolerance so it is fitting that we get a bounce almost commodity wide. New lows were rejected in Crude but we will need to hold the current levels because there is not much technical support underneath. Clients hold longs in oil from higher levels but have been advised to lift their hedges and to put stops under today’s lows. We will not buy more natural gas until a low is established and if further appreciation is met with selling look to exit open positions.
Stocks pared losses finishing the day strong as in early dealings it appeared we would violate the lows from August 9th which would have been very bad. We should see a trade back to 1200 in the S&P but we will be on the sidelines as we do not like trading this instrument with the wild swings we are seeing. Gold will close down roughly $35/ounce today but I like the late action that we were able to hold the trend line on another test. $1590-1600 must hold in December and if it does the next few days we would say the washout is over and traders can get positioned long once again. Likewise silver will finish lower but well off its lows as of this post futures have rallied back above $30/ounce. Aggressive traders can buy dips as we still think a $34/35 trade will be seen in the coming weeks. A settlement above the 9 day MA at $31.10 would be a first indication that sellers are absent.
The dollar is exhibiting signs of an interim top and we are operating under the influence that we are long overdue for a retracement. That being said buys in the Loonie, Swiss and Pound are on our radar but we have not opened new longs YET. Those that were in call spreads in currencies were advised to buy back their top legs today if in December contracts. We continue to think cocoa is one of the most undervalued commodities around these levels…trade accordingly. If risk assets catch a bid look for Treasuries to come off. We would use a sell off to exit open short positions for clients and are not advising fresh entries as this trade has been too frustrating in recent weeks/months. Those brave enough and looking for a trade that may take a few months to play out are advised to buy new crop corn and soybeans. Our suggestion is long futures and selling out of the money calls 1:1. We are looking for a break in live cattle to gain long exposure and the market has started to cooperate. Live cattle gave up 1.25% today…on another 1.5-2.5% depreciation we will be looking to gain bullish exposure in 2012 contracts…trade accordingly.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.