Risk OFF 11/9/11

Out of stocks and commodities and back into dollars and Treasuries…will it last? A true tug of war in Crude today as outside market influence should have dragged oil lower today but EIA data and continued unrest in the Middle East has a fear premium being built in. Some clients have opted to cut loses on shorts and we suggest tightening stops or lightening up because though we feel price are overdue for a $5-8 correction we could see $101/102 before that correction takes place. What I’m saying is those willing to stay in bearish trades may need to endure more pain but ultimately we do see a tare back near $87/88. Those in December contracts may need to roll into January if they like me think a correction is coming. I know I sound like a broken record but wait for signs of a bottom in natural gas. Yes $3.65 is cheap but no one expected $2.70 in 2008..the bottom has yet to be determined. A near 50 point drop in the S&P and 400 point decline the Dow…could this finally be the beginning of the drop we’ve been expecting? Our clients ES put options are back in play and being prices closed under the 20 day MA for the first time in one month we should get some follow through the next few sessions. Our target remains 1185 in the S&P…trade accordingly. Gold traded lower for only the second day in the last six sessions giving up 1.35%. If money continues to flow into the dollar and Treasuries (safe havens) expect gold to retrace further. The 100 day MA in December comes in at $1687…do not rule out a swift move back to this MA. Silver gave up 3% today failing to get above the 50 day MA the last two sessions. ON further weakness we feel a probe of $32 is likely…trade accordingly. The greenback broke out to the upside today with all other crosses falling as casualties. Expect continued weakness as serious chart damage was down on all majors. Aggressive traders can initiate bearish trades. We still are looking for a break lower in the Yen as well…see previous posts. Aggressive traders can fade rallies in coffee. We would like to see confirmation of lower ground in sugar so on a new low ( a trade below 25 cents) traders can re-establish bearish plays in March sugar. With further weakness in equities and more hiccups out of  Europe expect money to flow into Treasuries and lift prices. It is feasible to see new contract highs in 10-yr notes and 30-yr bonds if sh%4 really hits the fan. The sentiment is starting to get more bearish in agriculture as aggressive traders can gain bearish exposure. The riskiest bet is in soybean but potentiality the most reward. The better play weighing the risk in my opinion  is bearish trades in corn with stops above the recent highs. We would wait for live cattle prices to back off more and then when we find a value zone likely 2-4% lower re-establish longs. Lean hogs are holding at there 61.8% Fibonacci retracemtn level and are extremely oversold we like scaling into longs. Our favored play is long futures and a combination of options. Either purchasing 1 put or selling 1 call against 1 futures.

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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