Persistent Volatility 12/8/10 – Commodity Wrap


Dec 8th (MB Wealth) – As the year winds down expect the volatility to remain constant as commodity investors square their books and start closing out their positions. We’re operating under the influence that an interim top was reached in Crude yesterday and we have more work to go on the downside before we see fresh highs.

Our downside target in the January contract is $85. Today’s action in natural gas is why this market is nicknamed the “widow maker.” A bullish engulfing candle with prices closing above the 100 day MA for the first time in six months. We suggested abandoning longs yesterday but after today’s action we’ve changed our minds. Buy dips or 50 cent call spreads in February.

A suggestion by a prospective client that I happen to like is buying February futures and selling April futures. Flip a coin on the indices; we’re still suggesting the sidelines until a direction is determined.

The US dollar does not seem to be able to gain any traction…if this continues and prices start to fail buy dips in the Swissie, Euro, and Pound. We advised clients to book a small profit on their shorts in live cattle today. Why because there is a USDA report on Friday and we did not want to carry a loss into the report. Day two of the correction in metals with gold down nearly $30 as of this post and silver retreating by almost 5%.

The saying goes that metals take the escalator up and the elevator down. We still feel there is more downside and to reaffirm our objective $1330 in February gold and $27 in March silver. Clients will be looking to trade out of their shorts in silver on similar performance tomorrow. The trend line that has held since late July in corn came into play today and held firm. If we see March trade above the recent highs ($5.76) we could see a run at $5.90.

If so trail stops and lighten up ahead of the USDA report out before Friday’s open. The 50 day MA held in March sugar today. It will likely take a trade near 30 cents/lb. to hit our clients profit objective. Those willing to trade illiquid instruments should start scaling into longs in lumber as a solid base has formed in recent weeks…just my opinion.

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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