European Vacation

European Vacation – May be one of my favorite Chevy Chase movies but in this case describes where the policy makers heads are at. Seriously when will governments get out of the way and let systems fail and stop kicking the can down the road. On what planet should a 50% write-down be viewed as a a positive? Crude is higher by almost 4% as of this post but a triple top is in the making at least that is my interpretation. We have been selling this rally for aggressive clients thinking we are headed lower into next week. Our first target in December remains $86.50. Natural gas being cheap is not enough to get long…I find myself saying this everyday to clients. Either the fundamentals need to shift or we need a close above $4 as I’ve said in previous posts for me to be interested in bullish exposure. We’ve advised hedgers in heating oil and RBOB to back off establishing new hedges as we feel prices have gotten ahead of themselves.
A 3-6% rally off the European non-solution to me is far overdone perhaps a contributing factor is market manipulation as hedge fund redemptions will likely be rampant the next few days. As scary as it is aggressive clients are fading these rallies in equities and energies. Gold has completed a 50% Fibonacci retracement and on its way to $1775 all but erasing the entire loss this market had experienced the last two months. The 40 day MA at $1717 should now support. Silver ran into some mild resistance just above $35/ounce; the 38.2% Fibonacci retracement level. We may take a breath but moving forward next upside target is $36.50/37.00. We had all but written off clients Swiss franc call options but they have managed to fight back from the dead and on further appreciation they may eke out a profit…stay tuned.
Any shorts should have been stopped out on the breakouts today as the dollar collapsed. The Yen was higher but by the smallest margin as clients remain in their bearish trades targeting a trade back near 1.2750. Continue to scale into bearish trades in sugar. Treasures collapsed as the safe money is leaving debt instruments and entering risk assets. 10-yr notes and 30-yr bonds are at two month lows and appear to be heading lower…trade accordingly. The 200 day MA is still acting as stiff resistance for additional upside in corn. If that continues remain short, on a further appreciation cut your losses on any shorts. Finally soybeans are back above the 50 day MA. We have light bullish exposure and are targeting a trade back to $12.85 and potentially $13.15 in January. Day there of the live cattle correction but we’re expecting more with a downside target of 1.19 in December and 1.2150 in February…trade accordingly. Tighten up stops in lean hog shorts or lighten up on options as we may be getting close to a value zone.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.