I think a common mistake investors make is analyzing the potential reward of a particular trade without considering enough what risk needs to be taken to reap that reward. Risk should be a far more important consideration when taking buy/sell signals. Inside day in Crude oil with prices inching slightly higher. We think you could see $84 before you see $89 in November Crude. We’ve expressed an interest to clients in buying a setback so if the market delivers trade accordingly. If not by year’s end perhaps early next year we expect a probe of $100/barrel so buying in the mid to lower $80′s in our eyes remains a viable trade. Looking at the bigger picture natural gas prices have plummeted almost 25% in the last four months and to me remain one of the most undervalued commodities. Do we see a trade back to $13 again in the near future…NOT a chance but a trade back near $4.40 which would be a 50% Fibonacci retracement in the coming months seem achievable. We feel this market will experience a short squeeze that would accentuate a move once it starts…again in my opinion. Aggressive clients have been advised to scale into November and December bullish trades. Stocks appear to be closing near the middle of their trading range virtually unchanged on the session as traders await the FOMC meeting decision tomorrow which is sure to be a market mover. The problem is what they will do and what way the market will move. My suggestion is the sidelines in the indices although we think the Fed will try to talk up the stock market. Our favored play remains selling a 2-4% rally if we get one in the coming sessions. We’re getting the rally that we spoke about yesterday in the metals with gold higher by nearly $30/ounce and silver by 75 cents. Aggressive clients were in and out of silver longs over night and now are positioned long in December ratio spreads in gold with a target of $1840-1845. Some clients remain long the Swiss via options carrying a loss and without a reversal soon we will be forced to cut loses or at least adjust the trade. On our radar again is bullish exposure in the Cable. We are thinking either outright longs in the Pound or spreading the Pound against the Yen…stay tuned as we should have some trade recommendations to follow. A very small victory but cocoa manages a positive close for the first session in eleven as clients continue to be advised to get longs at these deflated levels. We are anticipating a trade back to 3000 in the coming weeks…trade accordingly. OJ appreciated today 3.25% to lift prices near their previous highs. Clients who are long November calls are looking for an exit door on a trade north of $1.75. A new high in Treasuries they become a buy as momentum traders will buy the breakout while a breach of the 20 day MA’s Treasuries become a sell. We would just soon react then predict here as we have been unsuccessful navigating this complex with clients of late. The Fed will determine where from here! Corn is approaching our buy zone as we would have longs on our radar at approximately 15-20 flower levels. The only trade we executed in this complex today was a soybean meal spread trade. We may have got in a bit early but this trade has a 15 year track record of success and the chart of the spread looks like a Picasso. Past performance is not indicative of future results. We love risk/reward trades like this…buy December 2011 and sell July 2012.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
