Hello Fellow Traders,
The occupy Wall Street movement has really caught fire. I have heard rumors that toddlers all over the country have started their own protest, “Occupy Sesame Street”. It seems that they are all up in arms because Cookie Monster has been eating 99 % of the cookies there.

William Frejlich
312.264.4356
wfrejlich@pricegroup.com

This Week’s Commentary

Metals: The entire commodities sector has been blown about by the whims and fancies of what the latest news out of Europe might be. Europe’s problems are obviously affecting the US equities markets which in turn spill over on an almost even ratio to each group here. After the bludgeoning a few weeks ago, metals have settled into what appears to be wide trading ranges. For now it appears the fear and panic is gone which has fueled a comeback but with Europe by no means out of the woods, I don’t expect to see anywhere near the highs seen during late August into September.

Gold: December gold made it down to $1535 a couple of weeks ago. It quickly rebounded to $1680 and may make it into the resistance level from $1710-$1720 from the current $1660. The nearly $400 drop in less than 3 weeks took a lot of the “safe haven hedge” buying out of the picture. The US dollar has slid lower as France and Germany vowed to keep supporting the European banks and this has kept gold from a harsher break. For now a range between $1600 and $1720 appears to be forming. A continuation of the stock market correction higher is needed to push gold over $1720 while renewed problems in Europe breaks it below the $1600 support.

Silver: Most commentary today will be centered on the need for relative calm in Europe so some may seem repetitious. In that vein December silver probably trades a range from $33.50 on top to $28.50 down below. As with gold if equities rise sharply silver may push through 33.50 up to 37.00 but I would not look for 33.50 to be beaten and if so the top probably would be closer to $35.

Copper: I had commented for months that the true value of copper was near 27500 and it was outlandish to even consider a buy at 45000 where it traded as recently as August and still at 422 in September. The latest break brought it close to 30000 as December copper traded to 29940 on October 3. As with gold and silver we should see a wide range here also with 30000 as the support and 35000 as resistance. If stocks rise we may make it to 370 but I expect 35000 to hold and down below a break of 30000 starts a run to the aforementioned 27500.

Currencies and Financials: As with metals and pretty much all futures I look for wide trading ranges until there is resolution one way or the other in Europe.

British Pound: The December Pound looks to remain between 15350 on the bottom and 15750 on top. Europe’s band aids have stopped the bleeding but have not healed the wounds so if there is a chance of a move out of the range I expect it to be lower. I would use a rise to 15750 to contemplate a short future or possibly to write a higher call option.

Swiss Franc: The range for the December Swiss should settle in at 10800 down under while 11400 should cap the top. I would consider a short near 11400 or sell a higher call option at that point. If 11400 is bested, 11750 is a possibility while the more likely scenario to occur first, a drop through 10800 could start an immediate flush to 10400.

Japanese Yen: The December Yen has tested 13150 during each of the past four sessions. After each time it was rebuffed so that level continues to be the place to sell. There remains much talk that the Japanese central bank may come in any day now selling Yen to drive it lower intending to prop up the export business. If that were to occur at these extremely lofty levels above 13100, it might generate a 400-500 point drop in perhaps 1 or 2 trading sessions. Meanwhile, if short, remain so and protect yourself above 13200. Nothing much has changed since last week’s words except that the top is now below 13100 and 12950 is capping the bottom. This one is stubbornly hanging above 13000 but I expect the bottom to fall out within 1-2 weeks so be patient with our short position and I feel you will be rewarded.

Euro Currency: The December Euro looks to settle into a top area near 13800 and the bottom near 13200. I don’t expect big moves higher or lower so you could actually trade both long and short here, buying near 13200 and shorting near 13800 and looking for 200-300 points after entry.

Canadian Dollar: The December Canadian Dollar has joined its currency brethren now and it is primarily because gold and crude oil are also in a steady trading zone. On top I’d be a seller near 9850 and cover that just above 9400. I don’t like buying here if we go to 9400 except to cover the short position.

US Dollar: I wish I could deviate from today’s pattern but a reserved calm has come over both futures and equities and they just cautiously move up and down awaiting the next shoe to fall. On top, the level between 8000 and 8050 proved too much and I expect 7740 to hold the down side here. I would rather buy near 7740 for the buck than sell higher however because a test of 8050 means Europe is in to about round 14 of their battle to avoid severe hardships to their economies.

Eurodollar: Continue to short December 2012 Eurodollar futures or perhaps March 2013 futures.. Or purchase Dec. 2012 9850 puts for 8 ($200) points or 9875 puts for 12 points ($250). We have already dropped 34 points from 9957 to 9923 and I expect to see 9800 at the least by the middle of next year. If I am wrong it is because it may do it by early 2012.
Ten Year Note: Europe goes up. Notes and bonds come down. Europe comes down, notes and bonds go up. I always like to keep things simple.  A buy at 12716 from the current 12800 may pay off as that was the breakout point to the upside and should provide support.

S&P 500: The December S&P came down to its August lows when it flushed to 1068 last week. It has moved back to 1190 now and so it needs to close above 1190 for some additional upside to 1210-1215. Use those numbers for now and don’t fear a sell or purchase of a put option if we see 1210.

Dow: The December Dow futures have seen a range from 10400 with last week’s break to 11650 from a few weeks ago. Today we are back near 11400 and seem to be taking aim at recent highs. If Europe remains calm for a bit I think we could easily see 11650 but not much more so, as with the S&P, I would not fear a sell at those levels.

Energies: As equities have moved higher after new lows for the move just last week, so to have the energies along with most other commodities. The rise will last until the next shock wave out of Europe.

Heating Oil: November heating oil saw a low at 270 last week and has moved up to the lower breakout point at 294. If 294 is taken out we may see 302 where I would like the short side. If 294 fails, sell a break under 288 and look for 272 down below.

Unleaded (RBOB) Gas: November gas did hold near the 245 support and has quickly rose back to resistance at 275. The lower breakout was at 276 so we are very close to a short sale here. Let’s watch this one for a day or two and if 276 cannot be beaten, I would consider a short sale or think of buying a put.

Crude Oil: November crude dropped to the support at $75 and has recovered back to $86 along with most other futures rising. We are likely to see $88 and it is painfully obvious that fundamentally futures are too high and other factors are in control. We may look at a short if $88 cannot be penetrated.

Natural Gas:

Grains: The combo of harvest pressure when grains tend to sell off with fresh product coming to market, and the ongoing worldwide economic problems sparked severe punishment for this group during the past two weeks. Unlike energies and metals which are mostly speculatively driven despite not so bullish fundamentals, there truly are tight supplies for the entire sector. This group would be helped the most by a calming atmosphere coming out of Europe. Last week’s words rang true as most grains have soared back from last week’s long time lows and are into their resistance area coming into tomorrow’s USDA crop production report.

Corn: A week ago yesterday the December corn, along with most commodities reached lows not seen for many months when it pushed to 5.72. But that was last week. December is currently the limit up of 40 cents today at 6.45 coming into tomorrow’s report. Additionally, Russia announced today that they are currently halting exports, which can be another bullish sign, at least for the short term. Unless we see a bullish acreage report tomorrow I would look for 6.75 to be tough to beat on top.

Soybeans: November beans were beaten to a pulp (no pun intended) as they were socked from 14.68 to 11.50 between early September and early October. The contract has pushed to 12.40 since last Monday and if 12.50 is beaten a run to at least 12.90 and possibly 13.10 is a good possibility.

Soy Meal: December meal bounced off of 300 twice last week and as with most futures, it has rebounded very nicely. The breakout point lower was at 330 so that will be the first target on top. If the USDA numbers are friendly for beans and 330 is bested, a run to at least 342 and possibly 352 is possible.

Bean Oil: The oil chart is very similar to meal. Futures were slammed down to 4900 from the peak near 6000 in mid September. The lower breakout point was between 5300 and 5325 so we look to test that from the current 5220 unless we see bearish numbers tomorrow. Support now comes in at 5000.

Wheat: There is little, no, make that NO reason for wheat to be trading below corn. December wheat was slammed from 8.00 in late August to the overnight low at 6.25. I look for an immediate rise to 6.90 and more likely 7.30 as more and more producers are now using wheat as feed since it is below corn in price. I put the December spread on recently, buying wheat and selling corn when wheat was 18 cents below corn. Wheat moved to 2 cents over corn last Friday and the current pattern looks like wheat will see a minimum of 30 cents and more likely 50-60 cents over corn during the weeks to come.

Softs: OK I am starting to bore myself now but the fact is that the markets were crushed when Greece seemed on the verge of collapse and most have come back nicely as Europe used a stronger butterfly bandage this time meaning it will hold a little longer before it pops off.

Cocoa: December cocoa dropped to 2540 last week making a 3 year low. It has rebounded to 2700 and slid back to 2600. Let’s watch that 2540 area because if it does not hold 2400 would be the next target. I would like the long side there and would love the short side if cocoa can pop back to the 2780 lower breakout level.

Sugar: March sugar is showing signs of a double bottom at 2400. This is significant in that this was a congestion area going all the way back to June before the March sugar rose above 3000 by mid July. A buy at 2425, risking below 2360 might pay off nicely. The words from last time paid off as March sugar exploded up to 2670 after bouncing off of 2400 and 2401. I would use a rise to 2720 to profit if long. If Europe is reeling again I would be a short seller near 2720 as well.

Cotton: Despite probably the most bullish fundamentals on the board after first drought, then monsoons in the SW cotton belt, December cotton has wiggled down to 9900 after a high above 11500. (and that was cheap considering the March 2011 and May 2011 cotton futures made it over 22500) March futures are at 9645 and I will be sending a trade tip by tomorrow morning as a combination to buy March futures and some corresponding option strategies. This worked out well also as March cotton bottomed at 9550 and have recovered to 10100 now. There is minor resistance at 10400 but the stronger resistance is at 11000.

Orange Juice: November juice has fallen hard along with most commodities during the past two weeks. Once 161 was beaten, juice swiftly fell to 150. This level must hold or we face additional weakness to 14000. At 140 however I would have to take a hard look at a long term buy. November juice held at 14900 and has swiftly advanced to 16600. There is little to support much more on top so I would consider a sell at 170-171. Down below 159-160 should hold as support.

Coffee: December coffee was one of the few markets which did not fly back along with everything else last week. Futures did hit 220, bounced to 236 and fell back to 221 today. Use another rise to 235 to look at the short side.

Rice: November rice was not immune and crashed from 1850 to 1603 in less than 2 weeks. If we see additional weakness down to 1550-1570, I’d be a buyer. Ask and you shall receive. November rice reached 1551 yesterday and 1555 today and has already climbed sharply higher all the way to 1597. 1550 is now support and I look for additional strength to at least 1670 this week.

Livestock: This group somewhat broke tradition and actually managed to climb a bit while most other sectors were being pummeled.

Live Cattle: December cattle advanced from 11550 to 12375 in a mere 6 sessions, aided by a surprise bullish cattle on feed report. The 12000 level is supportive and if it continues to hold, futures may test 12500 from the current 12175. If 12000 is broken however 11800 offers some help but 11550 would be a decent possibility.

Feeder Cattle: The contract high for November feeders is 14600 and they have pushed hard back to 14375. That 14600 level is fairly outrageous historically speaking and would take much demand to hold. Let’s see if that is tested and if it cannot push through 14600 I would like the short side. Support is now at 14000.

Lean Hogs: In just 9 sessions December hogs rose from 8180 to 8980 and have slid back to 8695. The half way point back would be 8580 and the breakout point was 8550. I like the long side at 8550 and will be watching for a bit more down to look at along futures or a call option for December hogs.

Questions? Ask William Frejlich today at 312-264-4356

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