Holiday Volatility

This week we have the Thanksgiving holiday here in the States. Most US traders take most if not all of the week off. What that means is a significant fall in liquidity. Lower liquidity usually means more volatility so while it is a Holiday, it is not time to lose focus and turn a blind eye towards the markets. In fact, weeks like this often provide better than usual trading opportunities.

Keep in mind that we just had the G20 meeting, which by most accounts turned out to be a “dog pile” on US treasury secretary Paulson. The other finance ministers berated him about the disorderly free fall of the Dollar that he has allowed. Our sources tell us that most of the other ministers left the G20 meeting deciding that they would have to take matters into their own hands since the US is either unwilling or unable to do the right thing. We continue to look for a bounce in the Dollar in the near term as Europe, Canada, and Australia make the necessary adjustments to deal with a Dollar that in the long run is expected to continue to free fall.

Energy Complex (NYMEX)

Crude Oil: Crude oil has established a range between 90 and 95. Near term we see the market staying in this range with a slight downside bias. We could see the price dip below 90 but would expect the large funds to step in and defend their positions if the market tested 88. Looking ahead we do still expect to see $100 and higher most likely in Q1 of 2008.

Natural gas:
Natural gas is now trying to push outside of its upper range. We expect this market to be able to push through this time and would target a move to 10.00 before the year is out.


Stocks continue to see wild volatility as the market continues to try and sort out all the sub prime news. In our opinion risks still out weigh rewards in either direction and we therefore are standing aside at this time. We continue to say that the highs for the year are in.


U.S Bonds:
Bonds are still acting as the “safe haven” while the stock market has this wild volatility. If you ask a bond trader if they expect the FOMC to cut rates again this year almost all of them say no. So if that is the case then one must expect bonds to fall as the Dec. 11 meeting gets closer. We are still targeting a move below 113.


Gold, Silver, Copper:
Gold did fall as we forecasted last week and near term we have reach our first objective at 775. We could see a bit of a bounce this week but frankly if we do we will use them to reestablish a short position as we still see gold falling as the Dollar finds more of a bid. Silver too will follow suit and we are still targeting a move to about 13.00 before any real turn around.

Our buy recommendation on Copper last week turned out to be perfectly timed and we are still maintaining our longs and adding to them on dips.

Grain Complex

Corn, Soybeans, Wheat:
The downtrend in wheat continues although the pace has slowed considerably. Shorts should tighten their stops as the risk of a short squeeze rises daily. We are still targeting a move to 7.00. We are building a short position in Corn above 375 with a target near 325 before the year is out.

Beans continue to rally and we are still riding it up with a target of 11.00 near term. Overall though we are looking for exits on our existing trades more than we are looking for new entries with corn being the only exception.

Softs (NYBOT)

O.J, Cocoa, Coffee, Sugar, & Cotton:
OJ is still trending lower and we are still in our put spreads targeting a move to at least 1.30 by months end. OJ should continue to trend lower until we find support which we believe lies near 1.25. Cocoa is moving sideways as we expected and near term we see a small bias to the upside but the magnitude of the movement is limited at best in the near term.

We still see coffee consolidating between 1.20 and 125 in the near term. Sugar has drifted lower as we expected and is now near the bottom of its range. We are still not trading this market as we see the potential of any move as limited but near term we would now change our bias to the upside. Cotton formed a coil that led to a downside breakout rather than upside. We have been standing aside this market for this very reason. Longer term we become happy buyers below 60.


Lean Hogs, Live/Feeder Cattle, Bellies:
We are still targeting a move to 98.00 before the month is out in Live cattle. Feeder Cattle fell just slightly short of our target at 110 but we see this market pushing through that level also by months end. Hogs on the other hand seem to be retesting their lows. We are still long via options and will hold them unless the market closes below 50. Bellies are still bouncing and we expect this market to rally up to 95.00 before months end.

Derek Frey

Odom & Frey Futures & Forex

toll free: 866.636.6378

international 904-247-0232

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