Managing Expectations

When constructing a trade make sure you understand the risks and have realistic expectations. The volatility is here to stay so traders need to make sure they are flexible and mange the trade once you’re in the market. This is not your father’s commodity market! Surprisingly…at least to me Crude oil is approaching $90/barrel, a level not see in about five weeks. We have advised clients to scale into shorts of late being prices are at the upper end of a trading range we’ve seen in the last eleven weeks. We’re approaching our threshold of pain to admit we’re wrong so stay tuned. In two short days natural gas is 25 cents lower back near the contract lows. Picking a bottom here is not advised and we would not be getting long until the down sloping trend line is penetrated; in December just above $4. Stocks erased yesterday’s losses closing up 2-3% today. We caution being long at these levels and are more eager to establish shorts for clients if we get a push higher; a 61.8% Fibonacci retracement lifts the S&P to 1245 and the Dow to 11820.

Today’s close in metals should look a lot better than the open for metal bulls as gold prices as of this post are $33 from their lows. Follow through over $1700/ounce is needed for confirmation and then next stop should be $1730. Silver managed to fight all the way back to close positive trading back over $32/ounce after approaching $30/ounce in early dealings. Those brave traders that have stayed long may get some redemption as we’re getting more buy signals as our target remains $35/ounce in December. A settlement over $33 is needed…which is a level that silver has been unable to tackle since the massive correction in late September. Again today the dollar failed to remain above the 34 day MA reversing mid day. The next few days will be critical to see on what side of 77.50 prices will fall…stay tuned. Aggressive traders can continue to scale into bearish exposure in the Yen as we love the risk/reward dynamic at these levels. Our target remains 1.2750 in December contact.

A new low was rejected in cocoa futures today…if we hold onto these levels tomorrow we may be re-establishing longs in March cocoa for clients…stay tuned. Aggressive traders can start scaling into bearish plays in sugar… a possible play is short futures and selling out of the money puts 1:1. OJ traders that are long and in a profit should move to the sidelines. On further upside in stocks we may get a window to lift 30-yr bond shorts closer to 136’16-137’00…jump at that opportunity. Continue to buy dips in corn and soybeans that hold the 9 day MA…you will notice today that both corn and soybeans tested their MA’s today. We have missed some upside for clients in live cattle of late but we’re still confident we get a break and are able to buy 2012 contracts from lower levels. Our thinking now is pay close attention as contacts approach their 20 day MA’s.

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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