Energy: I expected a bounce in crude oil to the trend line… see yesterday's post. The market delivered the next day, gaining nearly 3.25% today. I think we get more upside, as I've advised clients to scale into longs. My favored play today was long futures in February while simultaneously selling out of the money calls 1:1. RBOB closed at two week highs above its 18 day MA, adding 2.69% today. Further upside is expected, and I would not rule out 10-15 cents further appreciation on this leg… trade accordingly. Heating oil added 2.33%, making its way over its 8 day MA. From here, my target is $3.10-3.12 in December, and then I'll reevaluate. Natural gas is bouncing off its 50% Fib level with a higher low and higher high today, closing up 1.77%. A settlement above $3.62 confirms more upside. At this juncture, I like probing bullish plays with stops just under the recent lows.
Stock Indices: The S&P gained almost 1% today, trading at its 50 day MA on its highs. A bounce from here may, in fact, play out, so back off selling to see if we can get an opportunity to establish bearish plays north of 1450 in the S&P. Bullish action in the Dow today, with a settlement of 1.13% higher, trading to two week highs. The 50 day MA comes in at 13275 and above that level, I see resistance at 13300 in December futures. I'm operating under the influence that we get a selling opportunity from higher levels… stay tuned.
Metals: I was looking for a bounce in gold off the trend line and 100 day MA (outlined in recent comments), and today we got it, December futures higher by 1.89%... well above $1700/ounce. This could be the beginning of the leg to $2000, but it is too early to tell. At a minimum, my feeling is we get a trade to the 50 day MA, roughly $25 above today's close. That is enough for a great trade, jumping in and out in bullish February option spreads for my followers. Silver (today's chart of the day) experienced similar upside, appreciating nearly 3% today. The fact that we closed above $32/ounce in December should lead to follow through in the coming sessions, in my opinion. My target here for traders is also the 50 day MA -- currently $33.20. Likewise, similar strategy with back ratio spreads in March contracts to play this volatile appreciation I see coming. Stay tuned, as we may need to be nimble in the coming days.
Softs: If anyone is keeping score, day 6 in the cocoa appreciation. Could it be the rising chocolate demand for Halloween candy? I seriously doubt it. My thinking is the inverse relationship to the dollar could play out and get cocoa to one month highs if the dollar backs off short term. Those long, trail stops just under the 100 day MA -- currently 2405 in December. A bullish engulfing candle in sugar today, with a close 1.35% higher and trading to 1 week highs. I suggest gaining long exposure, targeting 21 cents in March futures. 70 cents remains a magnet in cotton, with prices not wandering far from that level. I'm open to selling a bounce, but we would need to see a minimum appreciation of 7-10% to be on my radar. I have reversed my direction in OJ. I had thought we get a sub $1 trade, but I no longer feel that way, as I've started to price out bullish plays in January contracts for clients. Stay tuned for ideas in the days to come. Six days in a row, coffee prices have lost ground, but I've yet to see a reduction in latte prices at Starbucks. The path of least resistance remains down, but I currently have no client exposure.
Treasuries: 30-year bonds tested their 20 day MA today, but did close under their 9 day MA. With further confirmation in the coming days, I will be looking to price out bearish plays. A lower high and lower low in 10-year notes also had the bulls on their heels. A close in December futures at their MA, as I am waiting for confirmation of more selling in the coming days. These levels continue to be the pivot points on these two instruments.
Livestock: Inside day in live cattle, with a marginal positive close just above the 9 day MA. Expect the cattle market to look for guidance from the stock market, and a bid higher could get December futures back near $1.27. I will not take the trade, but that is my opinion short term. Look at the daily chart in feeder cattle the last 3 days… all negative closes, but what I draw is a close well off the lows. With prices close to oversold, I think we get a bounce moving forward. Lean hogs gained for the first time in four sessions, but notice the 9 day MA capped additional upside. I'm remaining in bearish trades with clients for now. Remember, I have advised hedging off outright short futures with the sale of puts.
Grains: I remain bearish in corn, thinking prices grind lower. I will change my mind if and when we get a settlement above the 50 day MA in December -- currently at $7.51. Inside day in January soybeans, as $15 has acted as stiff support this week. I think we should move lower, but outside markets could help with bullish action, so do not rule out a 25-40 cent move in either direction. No fresh positions in either direction for now. Wheat was the standout in Ag, gaining 1.27% today and closing at one week highs. It could go either way, but forced into the trade, I'd be willing to nibble at longs with clients with stops under the 20 day MA -- in December at $8.67.
Currencies: Inside day in the dollar index with a marginal loss. Prices are nearing overbought levels and if we do not see prices get above 81 very soon in the December contract, I will be calling an interim top. The only other FX trade that jumps out at me is the loonie, which was higher by 0.52% today, trading up to its 20 day MA. I think we get a bounce in metals and energies and therefore, I like bullish exposure here. 1.02/1.0250 is my target in December futures… trade accordingly.
Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.