Investor appetite for risk has increased as money is flowing back into securities and commodities. Crude has advanced $7.50 off its lows from Tuesday so clearly there is buying interest but we would like to see the ascent slow or even a re-test of the 9 day MA to feel confident a further move is sustainable. That level comes in at $80.50 in November. If we get a slight retracement we would continue to buy dips with an upside target of $84/85 into next week. Heating oil and RBOB have likely survived there worse and should be heading north once again. Hedgers should have some coverage in both distillates to protect from upward price surges. We feel there is more of a risk of higher prices than lower in the immediate future. One of my clients brought to my attention a new double long natural gas etf (BOIL) was launched today but it appeared to have little effect on the underlying commodity itself. We are optimistic longer term in natural gas but as we said yesterday before gaining fresh exposure we would like to see a settlement above the down sloping trend line that has capped all rallies since June.
Indices penetrated the trend line that has existed since the first week of September settling just above the 20 day MA. We see more upside, a trading range will likely continue until we get new developments domestically and abroad. The idea of kicking the can down the road has stocks investors confused and the markets sideways…trade accordingly. A trade through $1600 tomorrow should get gold back above $1700 in the next few sessions. We’ve suggested for clients to purchase February 2012 bull calls spreads thinking we see a re-visit of the record highs within that time frame.
Silver picked up nearly 6% today and appears on the verge of breaking out the upside. We see $33.50 followed by $35/ounce in the near future and have been suggesting long exposure for aggressive clients. There are various options and future strategies to get bullish so do not hesitate to reach out for suggestions depending on your capital size and risk tolerance. Day three of the dollar retracement losing .45% as of this post. Our target remains the 20 day MA and then we will re-evaluate how the market reacts at that level; in December at 78.40.
With commodities strengthening the commodity currencies should benefit the most in the short term. Our favored play is bullish exposure in the Loonie looking for par. A bullish engulfing candle and spike in volume may have signaled a bottom in cocoa….stay tuned. We like long exposure in March with the 50 day MA as your target. On a 5-8% appreciation in OJ look to exit remaining longs…at a profit or loss.
Treasuries are down today ahead of tomorrow’s jobs number with 30-yr bonds closing at the 20 day MA and 10-yr notes just under that pivot point. Further weakness will be used to exit clients open shorts in 30-yr bonds. The only viable play we see in this complex is playing the short end of the curve through long dated bearish exposure in 2012 and 2013 Euro-dollars. Wheat was slightly lower in today’s’ trade while corn and soybeans were unchanged after giving back their gains overnight. Back off any wheat purchases but continue to scale into longs in corn and soybeans. Our suggested play is long futures and selling out of the money calls 1:1. Our target in March corn is $6.60 and our target in January soybeans is $12.75. Clients are still waiting for a break to get long 2012 live cattle contracts. We will likely start gaining bullish exposure in February for clients 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.
