Hello Fellow Traders,

The markets have been so volatile lately I am contemplating a trip to Vegas for some calm and civilized gambling.

William Frejlich
312.264.4356
wfrejlich@pricegroup.com

This Week’s Commentary

Metals: The continuous and seemingly unsolvable problems in Europe continue to affect all commodities. The metals have met or exceeded all of my YEARLY downside objectives. I just didn’t expect them to be made in weeks or even days for that matter.
Gold: December gold reached $1760 during the wee hours of trading last Friday morning. By the wee hours Monday morning it had fallen to $1535. This may or may not have completed a nearly $400 break since the September 6 high above $1923. So much for that safe haven hedge. Obviously much of the crash was due to the ongoing problems in Europe but as always, moves based primarily on speculation and not true supply demand factors have a way of evening up over time. When we see the metals dealers schlepping metals as they were all summer, that is usually a harbinger of lower prices to come. If we see any sort of confidence from the European sector a pop back to at least $1710-$1720 may be seen but do not look for $$1923 again any time soon. In fact I believe we see just as good a chance for gold to fall to $1500 or lower before it makes it over $1720 again.
Silver: December silver took it on the chin also, falling from highs near $43.50 on September 6 to an overnight low Monday morning at $26.15. My objectives by year end were from $27 to $30 so we have already exceeded those levels. I do think we could push back to $33 and possibly $35.50 but as with gold, there is probably a better shot to see $25 before $35.
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 ½ 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.
These words from 3 weeks ago, two weeks ago and last week pretty much rang true. I expected 310 by year end and we did see 30715 overnight Sunday into Monday morning. We could see a bounce back to 350 and as an extreme 370 but those would be, in my opinion a nice short selling chance. Down below that 275 level from the first sentence is a very real possibility in the weeks to come.

Currencies and Financials: Most of the European currencies continue to take a beating while the US Dollar and the Japanese Yen are the flight to quality dynamic duo.
British Pound: The December Pound is somewhat oversold after the flush to 15300 last week. Patterns show the chance for a correction back to the breakout point lower at 15750. Use a rise to that level to initiate a short or possible put option purchase.
Swiss Franc: Since the absurdity that was the December Swiss at 14200 futures have come all the way back to the upper breakout point between 108 – 110 with Monday morning’s low at 10958. As with most currencies that aren’t the Dollar or Yen, the Swiss is overbought now and I look for a correction back to the 114-115 area. If so we will once again explore a short position or purchase a put option.
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.
Euro Currency: The December Euro continues to find it hard to rise because of the ongoing troubles in Greece. I believe that a default is more than priced into the market already and would not be surprised to see a huge jump once the uncertainty is contained. Uncertainty plays havoc with markets as the reality is almost never as bad as the speculation. For now look for support to remain near 13400 and a rise to 13775 – 13800 is necessary to stabilize this market.
Canadian Dollar: The December Canadian Dollar was pulverized from 10100 down to 9600 last week as gold and silver were crushed. Crude oil fell from $91 to below $80 and it appears commodities will have to earn their high prices now and not be able to tag along on the back of gold and crude so we may be seeing a market here which we can sell into rallies. The first notion of that would be if we see a correction to 9960 from the current 9655.
US Dollar: It became apparent a few weeks ago that the failure of socialism in Europe and subsequent market uncertainty which that inevitability sparked downgraded the flight to quality status of the Swiss and Euro currencies. The US Dollar became the new darling as money exited the European currencies at a phenomenal pace. Initially here, after rising from 7350 to nearly 8000 in just a few weeks I look for that 8000 to be pretty tough to beat the first time or two. If the European problems persist with no solid resolution we may see 8200 quickly once 8000 is beaten. However, as I mentioned earlier if Greece is allowed to default I think the Dollar would dump hard after an initial reaction higher as the reason the buck has soared from 7350 to 8000 is 100 % Greece related. In fact, we might even see 7640 down to 7500 in short order once there is a solution one way or the other overseas.
Eurodollar: Continue to short December 2012 Eurodollar futures or perhaps March 2013 futures at 9950. Or purchase Dec. 2012 9850 puts for 8 ($200) points or 9875 puts for 10 points ($250).
Ten Year Note: The 30 year bonds and 10 year notes joined the US $ and Yen as the flight to quality darlings. The December notes made it to 13200 as Bernanke once again kept his record perfect. Every move he has made since becoming Fed Chairman has been a failure of monumental proportions and his latest “twist” the 50 year old strategy made famous during the Kennedy administration did little to bolster confidence. If we see another push to 13200-13300 from the current 13014, it may present a nice short future situation or at least we should explore put options.
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. I can’t add much to last week’s words as futures peaked at 1215 last Tuesday, flushed to 1102 by last Friday, corrected to 1150 overnight Sunday and are biding time at 1137 as of this writing. If we do see a break of the range it is likely to be below 1100. Further weakness to 1160-1150 would be the expectation.
Dow: Obviously the Dow and S&P will go hand in hand. The December Dow futures have seen a range form 11500-10500 give or take a few points and those were last week’s highs on Tuesday and lows last Friday. As with the S&P, if a breakout occurs I look for it to be lower, taking the Dow to At least 10000 and perhaps 9750 on our poor economy alone, Europe notwithstanding.
Energies: Most commodities have suffered as the European crisis lingers on. The energy group is no exception. Markets such as metals, European currencies and energies have quite naturally suffered the highest percentage breaks as they gained the most during their unwarranted highly speculative moves.
Heating Oil: November heating oil was trounced along with the others here falling from 310 to 276 during the past two weeks. I see some support at 272 short term. I would use a rise back to at least 288 and potentially 293 to consider a short. There is no reason to be long any energies now except the natural gas as it is not far from lifetime lows and never saw the mostly speculative rise seen by the others here.
Unleaded (RBOB) Gas: November gas broke over 40 cents during the past two weeks alone. There is some support at 24500 for now but I expect a correction back to at least 260 and possibly 264 where I would give serious consideration to a short sale.
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. Last week’s words came true as the November crude was stymied at 90.50 and made it all the way to $77 overnight Sunday into Monday. The support remains at $75, then $65 so use a correction to at least $83 and perhaps $85 to consider a short.
Natural Gas: As with the October futures before it, November natural gas pushed to the key 375 area. It did hold this time around and we are seeing a rise to 385 as of this writing. If stocks break, we might see another test of 375 but if not a run to at least 400 up to 405 is possible this week.

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 no 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.
Corn: Less than a month ago on August 29, December corn peaked at $7.79. It’s been pretty much all downhill from there despite the supply picture not seeing a great deal of change. The breakout point to the upside occurred last march at the 6.20 level. Dec. corn made it to 6.30 overnight and I expect 6.20 to hold for now. Stochastics are a paltry 6.10 % so we see an oversold market with strong fundamentals selling near 6 month lows. If Europe survives or at the very least, confidence returns for a while I would really like the long side. In fact, to use one of my old expressions, corn is like a beach ball underwater now as are beans and wheat. A buy near 6.25 looks promising.
Soybeans: During the aforementioned corn slam November beans were battered from $14.65 to the overnight low at $12.25. Even without any helpful news from Europe a move to 12.80 is highly probable as a correction and possibly 13.10 if 12.80 fails to resist.
Soy Meal: August 31, December meal hits 390. September 26, December meal hits 324. Enough said as a market with relatively tight supplies and strong demand falls primarily due to outside markets. I think 346 is a given as a correction and potentially 352 if 346 doesn’t stop the advance.
Bean Oil: In two weeks between September 13 and this morning, December bean oil was bludgeoned from 5900 to 5100. We are extremely oversold now and anything less than a correction to 5400 to 5500 would surprise me. So bottom pickers take a shot at a long here near 5200 and wait for at least 5400- 5500 to take the profit.
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: 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 easily flushed to first 2680, then 2600 after it broke below 2800. As with pretty much all futures now cocoa is overdone down here at 2670. I look for additional upside to first 2780 and maybe 2860 if other outside markets are not a hindrance. If long protect yourself below 2600.
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.
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.
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.
Coffee: December coffee was another of the markets flying high primarily on speculation and not any real or even perceived shortages. That is likely why it plummeted from 292 to 231 in less than 3 weeks. There is a chart gap at 252 which may be filled and if so, 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.

Livestock: Cattle are testing recent highs while hogs seemed to have made a short term top.
Live Cattle: October futures held support at 11550 and were starting to climb into resistance at 119 last week. Last Friday’s cattle on feed showed less cattle than expected added to the feed lots and higher marketing’s indicating a stronger demand. This rejuvenated the upside and pushed the closer months to their 300 point limit higher today. October futures may push to 12050-12100. If beaten 12250 is possible but I think 12100 may stifle the top the first time around.
Feeder Cattle: The story is the same here. October feeders came back to 13370 last week from 13950 the week before. The cattle on feed numbers pushed futures limit up of 300 and we may see a bit more strength to 14000. We would need extremely strong demand and less pressure from Europe and the US stock market for much more on top right now.
Lean Hogs: October hogs are showing a double top at 8980. It is said that the demand from Asia has slowed due to more production from Japan and Australia so I do expect a drop to 8675 this week and possibly 8550 if 8675 does not hold.

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

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