Commodities & Stocks are Back

We expect to see further appreciation in stocks and select commodities in the immediate future. That being said we see money coming out of safe havens ( dollars and Treasuries) and back to risk assets at least for a few weeks. It is about time some appreciation…Crude is higher as of this post by just better than 5% getting back the two previous day’s losses. Staying long has been a real challenging trade but we may come out of this ok as clients have lifted their hedges and remain long. A settlement above the 9 day MA at $80 in November should accelerate a move north. On that we should see $84/85 into next week. Assuming our assessment is correct in Crude the distillates should see a 15 cent appreciation as well. Use rallies in natural gas to exit longs…this market is a dog! Until we see the down sloping trend line penetrated we do not have interest in having long exposure. That would mean November futures trade over $3.90.
The indices are higher by 2-3% today and as of this post both the Dow and S&P appear to be closing at their 9 day MA’s. It may take a few weeks but we think the trading range continues that lifts the Dow back above 11400 and the S&P to 1200…trade accordingly. Gold passed the test again today with the trend line acting as solid support. We also had a settlement above the 9 day MA for the first time in four weeks. Aggressive traders wade back long lightly but we would feel better on a trade above $1680 in December to confirm the wash out is compete. Lows were rejected in silver overnight as the white metal managed to gain just better than 2% today. On a trade above the 9 day MA at $30.40 we have preliminary signs of a recovery. We are long from higher levels with a number of clients but feel we see $35 in the coming weeks so have held on…trade accordingly.
The dollar finished lower for the second day in a row…a feat that had not been accomplished in three weeks. As goes the dollar we see a pop in other crosses with the commodity currencies benefiting the most (Aussie, Kiwi and Loonie). Our favored play is longs in the Loonie expecting a trade back to par in the coming weeks. Cocoa picked up again today gaining just over 1%. It is an uphill battle as most clients are long from higher levels but 2900-3000 should be obtainable on further dollar deterioration. Treasuries got hit today but echoing recent blogs we suggest using any down action to exit open bearish trades and wish not to establish fresh shorts with clients. We view our exit window in 30-yr bonds at 139-140’00.
Ag’s are cheap and bargain hunters should be buying wheat, corn and soybeans up at these devalued levels. Just in the last month soybeans have faltered nearly 20% and corn was 35% off its highs…we do not think these levels will last. Not to mention FC Stone and Informa have reported potentially smaller crops and lower yields. China should come back from vacation next week as a grain buyer as well. A jump in exports would be supportive. Our favored plays are in corn and soybeans, long futures and selling out of the money calls 1:1. We are still looking for a further dip in live cattle to establish bullish plays in 2012 contracts for clients…trade accordingly.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.