Hello Fellow Traders,

Ok folks I’m officially getting tired of the ads for Geiko insurance. But at least I don’t have to immediately change the channel as I do when that super annoying Progressive insurance girl starts screaming about all the ways you can save. Ah the price we pay for watching NFL football.

William Frejlich
312.264.4356
wfrejlich@pricegroup.com

This Week’s Commentary

Metals: As has been the pattern for at least a year now, Europe’s problems in general and Greece specifically are setting the tone for trading action in most commodities sectors. This helps to explain much of the roller coaster action which seems to have no rhyme nor reason. It is also why most traders have been tightening up their profit objectives in a trade as with the current environment, what is here today could very well be gone tomorrow. Metals have pretty much held true to form. Last week gold’s action showed a strong chance that we had seen a double top, silver suffered as an industrial metal, and traders are finally getting the hint that copper is likely about 40 % overpriced now. Much of today’s commentary will keep last week’s words intact and add additional thoughts will be noted. Most markets held true to last week’s ideas and we are pretty much in the same situation this week as last awaiting some resolution out of Europe.
Gold: December gold is showing many signs that the move may be waning or possibly over for the time being. We did see a double top near $1920 and after each rise, the sell off was fast and furious, showing a definite nervousness amongst late longs. In addition even with the specter of a serious chance of a Greek default highlighting yesterday’s news, gold fell nearly $50. A few weeks ago this would have sparked a $50 – $75 rally. We see minor support at $1780 but once beaten, $1720 could come quickly. If that doesn’t hold, $1680 is the next target so I would not pursue the long side until at least that level. This is still the case as gold did trade between $1770 and $1780 each of the past three sessions, held there and is back near $1810 as of this writing. We may see a continued rise to $1850 but not much more. Gold may settle into somewhat of a trading range with a negative bias as both highs and lows become lower than the previous highs and lows.
Silver: December silver has been struggling of late as traders decide whether it is a precious or industrial metal. Even on days when gold rises silver often fails so it appears that it is being viewed as an industrial metal more than precious. Or it could just be that this $43.00-$44.00 area cannot be penetrated. During the past 3 weeks the lows have been higher and the highs have been lower and the short term trend line is down so a break below recent lows is more likely than the other way around. A drop through $39 starts a quick flush to $37.50 and possibly $35.50 if momentum builds and gold alone cannot hold up the metals. The words from last week still apply as December silver reached $39.03 yesterday morning and $39.23 last night and has pushed back above $40 now. If $39 is beaten, last week’s words still apply. I think $41.75 – $42 will now stifle the up side and the range with lower bias probably settles into silver also.
Copper: I would under no circumstances be a buyer of copper. I take that back. If December futures were near 275 or so where they should be I would consider it, but no way at 410. Use a push to 425 to look at a short position or put option for December copper. Our housing market is at least 1 to 2 years from starting to improve and China has slowed considerably so it appears that nostalgia alone is keeping copper near 420. The words from last time still apply. December futures did make it to 423 and have slid back below 400. There is minor congestion from 385-390 but that isn’t expected to hold. I look for at least 370 during the coming weeks and more likely 350. Unless something drastic occurs we may see 310 by year end. I wouldn’t change a word from the past two weeks. December copper made it below 374 each of the past two sessions. Look for the upper trade gap at 393 to be filled this week and consider a short sale if that level stops the rise.

Currencies and Financials: We have seen enormous volatility in this group but it has become orderly confusion as most markets held their support and resistance levels.
British Pound: The December Pound nearly 10 cents since late August. There was NEVER any reason for the Pound to be at 16600 anyway and the drop to just over 156 has been welcome. I still expect a rebound back towards 160-161 and would look for bearish strategies if that is seen.
Swiss Franc: Now that the September Swiss has retreated to 12140 from highs near 142 a few weeks ago, it is only highly overbought instead of insanely overbought. The upper breakout was near 12100 and it held this first go around. If we see a pop to 12500 I would be a short seller or at least buy some October puts. However if the 12050-12100 level is defeated down below, first 11700 then 11500 could come quickly. The words from last time came quickly to fruition as the Swiss made one last one day gasp above 12500. Within 4 trading sessions it pushed to 11235. As Europe goes into spin control the words may generate a pop back towards 11750. If so let’s revisit the short side or consider put options at those levels. We came close with last week’s ideas and the Swiss did make it above 11600, fell back towards 11200 and is creeping back to 11300 as of now. Again, 116 is overpriced for the Swiss so let’s watch that area if considering a short sale or chance to purchase a put option.
Japanese Yen: The December Yen has slowly been creeping lower. The breakout point between 12850 and 12900 was tested last week but as the European currencies were crashing, the US Dollar and Yen were the flight to quality buys. The 13050 price level is now showing resistance and as mentioned, a break below 12850 will turn patterns decidedly negative. There is little support before 12550 once 12850 is bested. As with last week, the Yen again held 12850, pushed back to 13100 and is in a holding pattern now. A trade under 12850 starts a drop to 12550 and a rise to 13150 is a favor from the market Gods to sell.
Euro Currency: The December Euro was bludgeoned from above 14550 to 13501 in a mere 9 sessions. Nothing new was brought to the table but apparently traders finally realized what bad shape Europe is in. Futures did hold at 13500 and bounced back over 13700 today as strochastics readings below 6 % showed a very oversold market. We may see a further correction to 13900-14000 but the fact remains, much of Europe is in trouble and as I have stated many times, Germany doesn’t have enough money to bail out the rest of Europe. For now 13500 should be solid support down below as Germany and the European central banks are coming up with a new spin on how this will play out. Last week’s words again rang true as futures did hold 13500, pushed to 13925 and are holding near 13700 now. Another band aid on Greece could generate one last push to 14000- 14100 but as is the case with the US during the past couple of years, if something doesn’t work three, four or five times, yet the ones in power keep trying to shove it down our throats knowing it won’t work, traders catch on and it doesn’t work. So then the powers that be do what they do best when something doesn’t work. They change the name of that which isn’t working. Oh the policy stays the same, just the title changes. And needless to say, traders quickly have caught on to that ruse so it no longer works. Look to short the Euro if we see a push above 14000.
Canadian Dollar: The Canadian Dollar has slowed considerably. It no longer follows crude and gold tick for tick and lately has settled into a very tight range. I would not want to buy near support except to cover a short position but would like a short position near 10250.
US Dollar: The December Dollar has soared from the strong support level at 7350 to the first resistance above 7800 in the past 9 sessions. As Europe’s problems have climbed to the forefront once again the Dollar has gained against most currencies. For now it is possible to see 8000 if 7840 is taken out. This would only occur if the world didn’t buy Europe’s newest spin control but for a while they may. This probably sparks a corrective break down to at least 7640 and maybe 7580 so use those levels if considering a buy of the buck. Last week’s high was 7829 and low was 7658 and we have climbed back to 7745 now. The Dollar has become a flight to quality buy now as traders realize that European currencies are not the place to be long at this time. The big but starts today however as Bernanke and the Fed are holding a two day meeting. If they pull another QE it may then be all over for the Dollar. But hey, maybe since QE 1 and 2 were such colossal successes (take tongue of off cheek now) Bernanke and our government can change the name and call it something else. Yeah, that’s the ticket!!!
Eurodollar: There is little to say here. Most contracts going out to 2013 have settled into a 9940-9950 price, reflecting rates of % or less down the road. This market can and does change quickly. The 9970 level has capped the up side going back 4-6 months so a short sale near 9945-9950 going out to December 2012 or March 2013 should show very nice potential for the relative calm of 9970 capping the upside to date. This will remain the commentary for this market going forward. December Eurodollars for 2012 were below 9800 as recently as late April and once Europe fails this may actually benefit the US and rates look to move higher sooner rather than later. December 2012 Eurodollars can still be shorted at 9953 and March 2013 at 9952.
Ten Year Note: For the second time in a week, the December bonds failed at 142.00. After each trip to 142 futures retreated to13916. I feel this 142 level will not be beaten and once 13916 is beaten down below we could see additional weakness to the breakout point between 13416 and 13500. At each of the last 2 Fed meetings 3 Fed governors dissented as to keeping this low rate policy. Hopefully we don’t have to wait another 14 months to get Bernanke to act in the interests of the American people instead of his politically elitist colleagues. If we see another rise to 142 I would be looking at 3 scenarios. The first is to short December futures, second is to buy put options and the third would be to sell higher calls, perhaps 148 or 150 calls as I see no huge potential for futures to rise much past 145 as an extreme move. Obviously last week’s words mistakenly reflected activity of the US 30 year bond and not the ten year note. The notes and bonds move in tandem to a slightly less degree for the notes but the commentary for the 30 year bond was, and still is, on the money. We have seen 142 tested 3 times since last week with sharps break after each attempt. The above comments still hold true and I would look at those bearish strategies if we approach 142 once again. Unless of course it is due to the Fed meddling again with trying another move which has already failed again and again.
S&P 500: After the huge crash in early August I suggested that we would see consolidation albeit a very volatile consolidation. Since that time we have risen to 1200, flushed to 1110, rose again to 1230 and fell back to 1130.For now the range of 1100 to 1225 give or take a few points appears to be the expectation. Our markets are not nearly as spooked now by Europe’s problems and it actually seems now as if US equities may gain as Europe falters. It may finally be the catalyst to begin raising interest rates in the US which would be very bullish for the market at this time. Since last week we have seen a low at 1136 and a high at 1215 so the range remains intact. What hurts Europe ultimately hurts the US so I would prefer to be a seller near the resistance than a buyer near support as there is no quick fix for either the US or European economies.
Dow: Obviously the Dow will trade the way of the S&P. December futures have alternated between 10600 down below and 11700 up above. This may continue for the short term. As long as 10600-10700 holds as support, we may test the highs at 11700 and maybe even push to 12000.

Energies: As with most commodities, particularly so during the past month, the energy group has settled into a relatively tight range as it follows the whims of whichever country needs a bail out this week.
Heating Oil: October heating oil has tried to stay over support at 293 for the past week. It made a one day push to 305 and then retreated back to 293. If 293 is beaten, I look for 284 shortly after.
Unleaded (RBOB) Gas: October no lead fell to 268, bounced back to 284 and has fallen to 268 once again. Look for 262 this week and possibly 250 once 262 is taken out.
Crude Oil: November crude has shown a $6 range with $91 capping upside and $85 holding below. We might make it to $93 if $91 is beaten but more likely $85 will not hold and we will see first $83, then probably $80 if $83 fails to hold. There is not any problem with short term supply relative to demand so hype alone seems to be keeping crude oil this high.
Natural Gas: October natural gas continues to show strong support near 380-385 but stalls near 404-406. I believe it is more likely to see an upper breakout and a push past 406 could very well spark a speedy advance to at least 425 and possibly 440. Last week’s words came close as futures pushed to 410 late last week but quickly retreated to, and stopped at 379. I look for a pop back to 402-404 this week from the current 382.

Grains: Fans of the old Batman show can appreciate the words used to describe grain action during the past two weeks. BANG , #^%$(*&, ZOWIE, *&(^%&^%, POW !!!! The good news is that all have become oversold after yesterday’s “blow off” action and look to at least correct a bit higher this week.
Corn: December corn futures were ransacked to the tune of a flush from $7.80 to $6.75 since late August. We have seen a correction to 7.04 overnight and it is possible to see 7.25 if 7.05 can be bested. Corn is really fighting on two fronts however. The first is the usual sell pressure we see at harvest and the never ending European saga which has served to usurp true supply demand factors as most commodities have weakened whenever yet another European country needs a fresh bail out. Down below, a drop to support near 6.65 may offer a buying chance.
Soybeans: During the aforementioned corn slam November beans took it on the chin from 14.65 to yesterdays low just above 13.25. It appears beans are fairly priced above 13.50 and a correction to 13.70 may offer a short sale opportunity. I might take a flyer on a buy near 12.80 but would not risk much as that would be a triple bottom area going back to March.
Soy Meal: As with beans, December meal is also overbought with a 94% Stochastics after the rise from 342 on August 9 to a new contract high at 387 yesterday. You can use the same strategy which I discussed with beans and if you wish to buy, I would wait for a correction to the possible swing support at 362. These numbers proved worthy as well from last time as December meal saw a high just over 390 and a low this morning at 361.30. A bounce to 375 may provide another short sale chance. If 362 can be beaten first 356, then 348 would be the next lower targets. December meal did make it to 346 yesterday and has crawled back to 351. Patterns show a chance to rebound to 364 where I would consider a sell. Down below I would wait for at least 332 to consider a buy.
Bean Oil: Bean oil has obviously come along on the soybean train to the tune of a rise from 5310 on August 10 to yesterday’s high at 5862. We are also quite overcooked here and I would wait until at least 5580 if considering a buy or look at 5900 if thinking of initiating a short. Shortly after these words from last time the December oil hit 5922 and bottomed near 5700 this morning. Use a correction to 5800-5820 to initiate another short sale. A break of 5680 probably spurs further down side to 5525. The words from last time still apply as well as December oil made it to 5540 after peaking near 5900. A slight rise to 5730 from the current 5590 may give sellers a shot but I would wait for 5320 if I was a buyer.
Wheat: A potentially larger crop from Australia has slowed the rally prospects for wheat. Use a slide back to the old lows near 6.50 from July from the current 6.70 if considering a buy of December wheat. First 7.10, then 7.30 would be the upper targets from here.

Softs: Most in this group have fallen to potential buy areas. The wild card once again will be whether or not the continuing problems overseas spill into commodities and to what degree that may affect them.
Cocoa: December cocoa failed at 3250 as it had no business at that level anyway and it has now tested 2860 both yesterday and today. We likely will see additional weakness as the 2860 area probably won’t hold. Stops generally build up below a market in this situation and a drop below 2860 may spark a rapid descent to at least 2800 and possibly 2720. This one came pretty close as futures made it to 2690 yesterday morning. So far we have recovered to 2753 and I look for a rise to 2800 this week and possibly 2860 if momentum builds.
Sugar: October sugar failed twice just below 3200. It did test support at 2850 and bounced back but the rally attempts are dwindling. Be patient and wait for at least 2720 if thinking of a buy. If you were patient you came close this morning as futures made it to 2725. If 2720 does not repel the break further weakness to 2650 is possible. On top look for 2820 this week and maybe 2940 if we see no outside market interference.
Cotton: As recently as this past March the May and July cotton futures traded above 22500. This year brought some of the worst drought conditions to Texas in history. This was followed by monsoons and flooding and it is highly likely we will see a significantly reduced crop this year. With March and May 2012 cotton trading near 10800 this may be one of the better buys on the board. I will be exploring some futures and options strategies this week and will be entering the long side soon. We still look good to buy here. December cotton came to just below the 10400 support overnight, making it to 10386 then swiftly rising to 10730. Let’s take a look at a buy of futures if we test 10400 again or at least look at a buy of March call options.
Orange Juice: November juice crashed from 192 to 15250 in just days earlier this month. Support is solid at 153 and if we pull back to 153-155 from the current 157 I will be looking at a long future or possibly a call option. Futures held at 15600 after these words and made it to the resistance above 170. For now, unless we see any late season hurricane activity which may affect Florida, a range between 160 and 175 may take hold. This one followed technical patterns perfectly, first stopping at 171 then dropping to 161. This tight range isn’t enough for the risk of either a buy or sell so let’s wait for significantly higher to sell or lower to buy.
Coffee: December coffee filled the gap at 288 and stopped just over 290. Futures held 275 for a time but reached the more important 268 support each of the past two days. We may see a test of 275 but I would not look for much more on top any time soon. We did not see any more on top and in fact coffee crashed to nearly 255. Let’s wait for another shot at 250 – 252 before considering a buy and a push to 275 may offer another short selling chance.
Rice: December rice continues to advance on lower world supplies. After reaching 1855 last week futures were due for a break, particularly with other agricultural markets faltering. For now the November rice may test 1800 and support is very strong between 1760 and 1770 so if we see a correction to 1770 I would consider a buy. For a couple of trading sessions rice did hold that 1760 area but once beaten downside came quickly. Futures fell to 1683 and the next support is at 1670 down to 1650.

Livestock: This group has come on strong the past two weeks. We must be careful here as falling stock markets usually result in lower livestock prices also. We have rebounded to just below resistance areas and we may be looking at some short positions but not quite yet. Each in the group came almost exactly to resistance areas and broke down. Now we must analyze if the pull back is a correction, or the rally last week was a topping formation.
Live Cattle: October futures tested 11350 four times during the past few weeks. Once it became obvious this 11350 was holding shorts threw in the towel and began to cover. This started the rise and once 11550 was beaten first 11800 then 12000 came easily. Resistance between 12100 and 12200 may slow the top side here so consider a bout of profit taking if long. If equities firm and 122 doesn’t hold the old contract highs above 125 are a possibility. This one came close as cattle made it to 12135 last Thursday and slumped to 11715 by yesterday morning. First support was 11700 and the 50 % correction level was 11737 so we may begin to rise back towards 12000 this week.
Feeder Cattle: The story is the same here. October feeders tested 13200 multiple times and actually tested 13100 as a blow off bottom and have been moving slowly higher since. Resistance is strong from 13900 to 14000 and since these are historically high prices I would consider taking profit if long at those numbers. Futures flew to 13950 last week and retreated to 13577 this morning before charging back to 13760 now. The 50 % correction area was 13575 so this looks like a correction before another test of 14000 provided of course Greece doesn’t default overnight.
Lean Hogs: October hogs have slid from a high at 9400 in late July to some strong congestion and support at 8550. The daily chart shows that this 8550-8500 area as very critical. A break below 8500 may start a quick flush to 8200 and if we hold 8500-8550, we could see a quick comeback to at least 8900. The words from last time came close as futures did make it to 8307 once 8500 was taken out. We flew out of that area and have risen to 8785 today. I look for a bit more up, perhaps to 8900-9000 before expecting any significant pull back. October hogs did make it to 8960 last week then fell to yesterday. We have moved back over 8900 today and I would see if we fail at 9000 then consider another short position.

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