Commodity Bulls 12/3/10

Clearly December has brought out the commodity bulls. On a  settlement above $89 in January Crude which should happen today expect a trade back near the highs in the spring about $3-4 from current levels. Continue to buy breaks in February futures and/or options and those already long trail stops. Aggressive traders could be lightly long natural gas with stops below the recent lows. Ideally we get a trade back near $4 before a surge higher but we do not live in a perfect world so time will tell. A terrible jobs number with unemployment reaching a seven month high but yet the indices held their own. We initially expected a steep sell off but based on the market reaction we may see fresh highs. The test next week will be if the Dow and S&P can settle above the early November highs. We suggest the sidelines for now. In the last three sessions the dollar has depreciated 2.5% taking prices to the 20 day MA. On a breach of 79.25 we expect an additional 2.5%…stay tuned. Select clients are long the Euro-currency and British pound; our upside targets are 1.3600 and 1.6100 respectively in the December contract. Currency traders could also gain bullish exposure in the Swissie and Aussie on set backs as we expect higher ground there as well. Aggressive clients were advised to start gaining bearish exposure in live cattle. Our suggested trade recommendation was to short February futures while simultaneously selling out of the money puts at a 1:1 ratio. We’re anticipating a trade 3-4% lower in the coming weeks. We did not make a move on behalf of clients in lean hogs yet but stay tuned. If the 20 day MA continues to support we will be scaling into longs next week. Gold and silver continued their ascent higher and every day that I think they’ve gone too far they rally another 2-3%. I’ve convinced myself that I’m incapable of picking a top. I have however pared my size down or moved to the sidelines with most clients willing to miss a spike higher in the coming sessions as to avoid a wash out correction. Agriculture is a buy on set backs…corn, wheat and soybeans are expected to trade back to levels seen in early November…trade accordingly. Another limit move higher in cotton, that makes it three in a row. Clients exited their longs today so that almost assures we will be limit-up again Monday;-). Sugar gained 3.7% and we should be out of our clients longs early next week reaching their profit objective…stay tuned. We will be exploring longs in coffee and cocoa next week.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

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