Money is fleeing risk assets, i.e. commodities and stocks and finding its way to Treasuries and the US dollar. Our take is some type of intervention or plan will halt further appreciation in Treasuries and the dollar and prevent a complete price collapse in the stock and commodity markets…stay tuned. Oil is approaching its lows hit in August down by 2.6% as of this post. We have advised clients to buy trades below $80 so they have started to scale into longs in recent session but if we see a new settlement low we may advise them to cut losses on longs…stay tuned. We have opted for no new fresh entries in natural gas for clients and will be using any jump in price as exit opportunities for open longs. Prices appear to be cheap but they keep getting cheaper.
Stocks start the week with a bang 3-6%. December S&P futures will close below 1100 for the first time this year as slow manufacturing and the mess in Europe has BEARS in the driver’s seat. We see no ending in sight in the stock market as we expect new lows to follow…trade accordingly. Gold pushed higher by 2% today trading up to the 9 day MA. On a settlement above $1665 in December expect $1700 followed by $1740. The fact that gold was able to gain in the face of a rising dollar bodes well for continued upside. Silver closed well off its highs but still was able to appreciate .85% today. We think this consolidation is the market catching a breath before an upside assault as we are looking for December futures to find their way back above $35/ounce in the coming weeks. Copper traded below $3.00 for the first time in fifteen months. Though it would be catching a falling knife much like oil below $80 we feel aggressive traders could scale into longs in copper below $3.00.
As of this post the dollar index is higher by 1.25% lifting price to fresh 2011 highs. We do not expect a trade above 80.00 to be sustainable but recognize if the dollar move north continues we are losing on most of our commodity longs because the inverse relationship. Until the dollar stops appreciating all the other crosses with the exception of the Yen are in sell mode. Cocoa is one of the most heavily correlated commodities with the dollar so if the dollar continues north cocoa could have trouble appreciating. We are long cocoa with most clients via March options and are currently under water. Outside of the greenback Treasuries also served as a flight to quality today with 10-yr notes and 30-yr bonds up appreciably approaching their contract highs. This trade makes little sense to me but the market is always right and looks to be headed for higher ground…trade accordingly.
Mixed bag in grains with corn unchanged, soybeans slightly lower and wheat moderately higher. We’ve suggested scaling into longs in corn and soybeans to clients as the recent route we feel has over shot to the downside. We suspect corn prices under $6/bushel to be very temporary. As for soybeans after a 20% reduction in prices in the last month expect countries who buy US soybeans to step up their purchases. Live cattle prices continue to surge higher as they’ve appreciated now for seven straight sessions. We do expect record highs and a correction may not be as deep as previously forecast. New entries may need to pay up but still should wait for a 2.5-4% correction.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.