MB Wealth Commentary

Energies For the last 6 weeks Crude oil has been sideways trading in a $10 range and we don’t see this changing in the near future. Traders need to be nimble and pick their spots carefully. We prefer buying dips closer to the bottom of the range. Presently clients hold December $75/.80 call spreads. On the November contract the next leg should be determined on a trade above $73 or below $69. Heating oil and RBOB continue to play follow the leader and we have no trade rec’s at this time. Natural gas has come alive and those that stayed with their November and December positions should have made some money on the recent 30% explosion in prices. We’ve advised clients to book partial profits on their positions. We will be looking to get long December or January contracts on a setback of 40-70 cents. We see no reason why the January contract will not see $6/btu in coming weeks.
Livestock Live cattle prices broke lower last week trading to their lowest levels of 09′. This should be viewed as a buying opportunity as we suggest traders to get long December futures with at the money put protection, buy call spreads in February live cattle or price out calendar spreads. See our special cattle report published last week. At this point we would suggest liquidating all profitable longs in lean hogs. We are expecting a setback if prices penetrate the 20 day moving average; in December at 49.85. We will be recommending longs on a further setback thinking we should find next support at 45/46 cents.
Stocks: Last Thursdays’ highs in the Dow and S&P look like a sign of exhaustion and unless new highs are made this week we would expect a correction to follow. For the Dow that level is just below 9800 and on the S&P at 1072. As we’ve hinted at in the past we are anticipating a move back to the 50 day moving averages, 9200 and 995. Investors who are unwilling to liquidate some of their stock holdings may consider buying ES puts as a way to hedge; November 975 puts $800, December 950 puts $950, December 1050/1000 bear put spreads $900 (as of Monday morning).
Bonds: The story this week in the Treasury complex may be the flow of money. What does that mean? If equities and commodities sell off we would expect money to flow into US dollars and to Treasuries, that being said we may see a temporary bounce. Some clients are currently holding December call spreads and carrying a small loss. If our assessment is correct look for a trade up to 122’00 in coming weeks in the December 30-yr bond contract. Traders not willing to take a directional move may consider NOB spreads with their bias towards their position in bonds, (i.e. long bonds/short notes). Continue to fade rallies in long dated Euro-dollars via futures and options. Look for the FOMC to leave rates alone this week but we feel the key is on how they view the latest market recovery and if they hint at when rates will start moving higher.
Currencies The US dollar appears to have put in an interim base last week as a rounded bottom is being formed. This will not be a “V” rally but we do expect a bounce from here as long as last week’s lows hold. Traders should pay attention if a rally pursues how prices react to the 20 day moving average; 77.80 on the December contract. We would suggest exiting all longs on int’l currencies and aggressive traders can get short with stoops above the recent highs. We have clients positioned short December Euro-currency and will be looking to add to that position and get clients who don’t have exposure some light exposure. We expect a trade down to 1.4250 in the coming weeks.
Grains Freeze or no freeze that was the driving force last week in the grain complex. With crops going in late there is little margin for error so on an early frost with potential crop damage grains could find support. We are still suggesting long exposure in corn and wheat as long as the fresh lows hold. Additionally we suggested a trade idea in wheat last week; buying December KCBOT futures against December CBOT wheat. This trade was put on between 13 and 13’4 cents premium to KCBOT. We are risking 5 cents looking to make 10 cents for clients. When we are convinced a low has been made in agriculture we will also be suggesting accumulating March oat calls. Stay tuned.
Softs This sector is ignored by a majority of commodity traders but if you look at several of our most successful trades for clients of late they have been in markets like sugar, coffee, and OJ so we suggest becoming more familiar with this sector. As we’ve pointed out in recent weeks if and when the US dollar gains traction look for cocoa to turn south. If you saw the volatile action last week, this market is not for the faint of heart. We are suggesting options as opposed to futures for that reason. Contact us for pricing. We still like being long sugar and have clients currently positioned in March 10′ contracts. We are currently pricing out bearish plays in cotton, stay tuned.
Metals Gold and silver have been making headlines of late moving to near record highs in gold and 12 month highs in silver. It may be justified being we’ve seen a 10% appreciation in gold and 30% appreciation in silver from high to low in the last 30 days. We were able to take advantage of those moves for clients but we’ve suggested exiting for the time being expecting a violent wash out. On a trade back under $950 in December gold and $15 in December silver we will be getting clients long again.
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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