What will a dollar retracement mean to the commodities market? Crude will close higher but roughly $4 from its highs. Being we did not see more upside today considering outside markets we would continue to fade rallies looking for lower ground. On a breach of $95/barrel we would be adding to open shorts expecting to capitalize on a play to the high $80s ... trade accordingly. Natural gas is lower by 3% as of this post but as long as the recent lows hold we would use setbacks as buying opportunities. Our suggestion to clients is buying February and March on this retracement and adding once we get a close over the 18 day MA.
Equities gapped higher today gaining 3-5%. We do not expect much more than a bounce seeing the S&P trading above 1,210 and the Dow above 11,700 in our opinion is not likely unless the circumstances change. We still see weakness globally and view today’s action just as a relief rally ... trade accordingly.
Gold is higher by 1.6% closing at the 100 day MA. On a settlement above $1,730 in December $1,800 comes in play but until we see that we are still in the bear camp. Silver gained just better than 3.3% but the 40 day MA is still capping any additional upside. We see $33 as a ceiling in December and still view a break of $31/ounce as a sell signal thinking $29/ounce comes into play in early December if not sooner. The U.S. dollar traded lower for the first time in four sessions as the 80.00 level capped rallies two months ago and appears to once again. Other crosses appear to be oversold so aggressive traders can probe longs with stops below the recent lows. The one exception is the yen which we still favor bearish exposure looking for the depreciation to continue. Traders holding bearish December plays should be looking for an exit door closer to 1.2650.
After eight days of attempting to get above the 20 day MA coffee has failed the task and appears to be starting its next leg lower ... trade accordingly. Cocoa hit a new low but we favor catching this falling knife with small size and then adding once we get moving north. We feel the last 30 day slide has over shot to the downside ... trade accordingly. While 30-year bonds and 10-year notes appear to hide the fact we did not see a bigger break on the rally in stocks leads me to believe that we should stay clear until this market moves accordingly. We continue to like bearish exposure in 2013 Euro-dollars. We should see a bounce in Ag from here that goes across the gamut ... corn, soybeans and wheat. At this point we are advising the sidelines thinking we would prefer selling a rally then buying this dip ... stay tuned. Wait for a further break to be buyer of live cattle. Aggressive traders can be positioned short lean hogs with stops above the recent highs. A 61.8% Fibonacci retracement should target 88.60 in February pigs.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.