Increased Volatility

Large swings continue and are likely here to stay so be willing to endure larger swings when trading or be willing not to trade. Those are your options as I see it. We are seeing swings in a number of markets in a few days time which in years past took several weeks or in some instances months so be careful. Crude’s gains today were minimal but today marks the fifth consecutive session where Crude has gained over $10/barrel in that time frame. We expect higher pricing in the medium to longer term but we’re anticipating some back and fill action in the short term. That being said longs should tighten stops and aggressive traders can start scaling into shorts looking for $5-7 break. RBOB continues to gain on heating oil for now expect that to continue. The front month of natural gas was higher by nearly 2% today lifting prices back over the 9 day MA. It would take a trade over $3.85 in November to get us interested in new longs but those long can use a rally to get back some value on previous purchased longs from higher levels.
Indices inched higher today after yesterday solid advance. We expect more upside; a 50% Fibonacci retracement lifts the S&P to 1215 and the Dow to 11570. Gold continues to have trouble breaking out of its recent range but on a trade above the 20 day MA at $1692 look for increased buying which should lifts prices back above $1725. Like gold silver is bumping against upside resistance near its highs the last two weeks. In the coming days we expect prices above $33/ounce and on their way to $35…trade accordingly. The 20 day MA in the dollar which had previously served as support should act as resistance at 78.45. We see prices drifting below 77.00 on this leg. The Loonie remains our favorite long candidate as we see prices above par in the coming weeks.
Cocoa prices lost 2% today unable to hold onto the 2700 level. We still feel bullish exposure is the play here though some wind was taken from our sails today. On a settlement above 2700 prices should find their way north of 2800 soon thereafter. OJ picked up 3% today and on its highs prices were 6% higher. Use further appreciation this week to trade out of remaining November longs. On higher trade in equities and commodities we should see further downside in Treasuries. We are not recommended fresh shorts but rather on a lower trade use that as your window to exit bearish positions. Some of our clients have bearish option trades in 30-yr bonds and are currently carrying a loss.
Grains were up big ahead of tomorrow’s USDA report with corn higher by 6.5%, soybeans just shy of 5% and wheat 8%. We have and continue to suggest long exposure in this complex. Our favored play are bullish plays in March 2012 corn and January 2012 soybeans. When live cattle break the 20 day MA we should see further downside that would enable long entries at lower than current level. That pivot point in December is 120.35 and 122.50 in the February contract.
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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