Moves that in years past took weeks and sometimes months are now happening in days and sometimes hours so be extremely careful. I have heard of traders being carried out in body bags in this type of environment. This could be the “new normal.”
Lower highs and lower lows that has been the story in Crude oil the last four sessions. We have advised clients to buy setbacks in oil but the liquidation needs to abate early next week or Crude will make new lows. As it stands now we’re suggesting holding onto recent purchases but we will let go early next week if we do not see signs of stabilization. A strong seasonal tendency and a few weeks of hurricane season has us holding onto clients longs in natural gas but with no signs of life next week cut losses until this market finds a bottom.
Stocks will end the week virtually exactly where they started but that is with a 75 point range in the S&P and over 700 points in the Dow so far from uneventful. We maintain a 1100-1200 range forecast and have no current interest with clients. There was certainly damage done in the gold market but the fact that we held onto the trend line and failed to make new lows today the selling could be over for now. Prices will need to hold $1590-1600 next week to see things start to stabilize. Silver gave up 2.25% today closing the week out below $30 for the first time since mid-February. December will need to hold $29 if we have a chance of trading north from here. Our expectation remains $35-36/ounce we just are not clear if we go lower first. In full disclosure most of our clients started gaining long exposure via future and options at $33-34.
The dollar was the lone positive in the FX market today but we do not expect this appreciation to last. Month end, quarter end, forced liquidation and redemption likely cause the flight to quality and we feel it is complete. We are buying commodities thinking as the dollar rolls over they will again start to appreciate. Until the dollar tops we would refrain from getting aggressive as a buyer anywhere in the currency market but with the Loonie at the lowest price in one year be ready to pounce.
Cocoa gave up 3% today as it appears we are still in the process of building a base. Start small and look to add to the trade when prices get through 2800 in March.
Treasuries are back above their respective 20 day MA’s and may have a tough time breaking down with the equity market falling apart…stay tuned.
Today’s USDA report was far from bullish as I and many had anticipated. Corn traded down the daily trading limit as soybeans gave up 4.15% and wheat lost nearly 7%. We have been suggesting scaling into longs for clients and are currently holding losing positions in January soybeans via options and December and March corn via futures and options. We should see a lot of buying at these deflated prices but it takes some guts holding onto losers in this environment.
In corn we will need to be back above the 200 day MA in the next few weeks or we will use rallies to cut losses with clients longs. As for soybeans we just stared buying and have some time and seasonal tendencies on our side so we feel fine with these trades. Continue to buy dips in lean hogs as we may be headed for new contract highs. Current cash prices do not justify the price in the futures in live cattle so we’re still expecting a trade lower. We may not fill the gap from Monday but on December we still think fresh entries should wait for a trade closer to $1.21.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
