Commodity Update: Gold Headed To $2000?

I expected a bounce in Crude oil to the trend line on Monday…see yesterday’s post. The market delivered the next day, gaining nearly 3.25% yesterday. I think we get more upside and I’ve advised clients to scale into longs. My favored play yesterday was long futures in February while simultaneously selling out of the money calls 1:1. RBOB closed at 2 week highs above its 18 day MA adding 2.69% yesterday. Further upside is expected and I would not rule out 10-15 cents further appreciation on this leg. Trade accordingly. Heating oil added 2.33% making its way over its 8 day MA. From here my target is $3.10-3.12 in December and then I’ll re-evaluate. Natural gas is bouncing off its 50% Fib level with a higher low and higher high yesterday closing up 1.77%. A settlement above $3.62 confirms more upside. At this juncture I like probing bullish plays with stops just under the recent lows.

Stock Indices: The S&P gained almost 1% yesterday trading at its 50 day MA on its highs. A bounce from here may in fact play out, so back off selling to see if we can get an opportunity to establish bearish plays north of 1450 in the S&P. Bullish action in the Dow yesterday with a settlement of 1.13% higher trading to 2 week highs. The 50 day MA comes in at 13275 and above that level I see resistance at 13300 in December futures. I’m operating under the assumption we get a selling opportunity from higher levels. Stay tuned.

Metals: I was looking for a bounce in gold off the trend line and 100 day MA outlined in recent comments and yesterday we got it. December futures higher by 1.89%, well above $1700/ounce. This could be the beginning of the leg to $2000 but it is too early to tell. At a minimum my feeling is we get a trade to the 50 day MA roughly $25 above yesterday’s close. That is enough for a great trade jumping in and out in bullish February option spreads for my followers. Silver and yesterday’s chart of the day experienced similar upside appreciating nearly 3% yesterday. The fact that we closed above $32/ounce in December should lead to follow-through in the coming sessions in my opinion. My target here for traders is also the 50 day MA; currently $33.20. Likewise similar strategy with back ratio spreads in March contracts to play this volatile appreciation I see coming. Stay tuned as we may need to be nimble in the coming days.

Softs: If anyone is keeping score, day 6 in the cocoa appreciation. Could it be the rising chocolate demand for Halloween candy? I seriously doubt it. My thinking is the inverse relationship to the dollar could play out and get cocoa to 1 month highs when the dollar backs off short term. Those long, trail stops just under the 100 day MA; currently 2405 in December. A bullish engulfing candle in sugar yesterday with a close 1.35% higher and trading to 1 week highs. I suggest gaining long exposure, targeting 21 cents in March futures. 70 cents remains a magnet in cotton with prices not wandering far from that level. I’m open to selling a bounce but we would need to see a minimum appreciation of 7-10% to be on my radar. I have reversed my direction in OJ. I had thought we'd get a sub $1 trade but I no longer feel that way as I’ve started to price out bullish plays in January contracts for clients. Stay tuned for ideas in the days to come. 6 days in row coffee prices have lost ground but I’ve yet to see a reduction in latte prices at Starbucks. The path of least resistance remains down but I currently have no client exposure.

Treasuries: 30-yr bonds tested their 20 day MA yesterday but did close under their 9 day MA. With further confirmation in the coming days I will be looking to price out bearish plays. A lower high and lower low in 10-yr notes also had the bulls on their heels. A close in December futures at their MA as I am waiting for confirmation of more selling in the coming days. These levels continue to be the pivot points on these 2 instruments.

Livestock: An inside day yesterday in live cattle with a marginal positive close just above the 9 day MA. Expect the cattle market to look for guidance from the stock market and a bid higher could get December futures back near $1.27. I will not take the trade but that is my opinion short term. Look at the daily chart in feeder cattle the last 3 days. All negative closes but what I draw is a close well off the lows. With prices close to oversold I think we get a bounce moving forward. Lean hogs gained for the first time in 4 sessions but notice the 9 day MA capped additional upside. I’m remaining in bearish trades with clients for now. Remember I have advised hedging off outright short futures with the sale of puts.

Grains: I remain bearish in corn thinking prices grind lower. I will change my mind if and when we get a settlement above the 50 day MA in December; currently at $7.51. Inside day in January soybeans as $15 has acted as stiff support this week. I think we should move lower but outside markets could help with bullish action so do not rule out a 25-40 cent move in either direction. No fresh positions in either direction for now. Wheat was the standout in Ag, gaining 1.27% yesterday, closing at 1 week highs. It could go either way but forced into the trade I’d be willing to nibble at longs with clients, with stops under the 20 day MA; in December at $8.67.

Currencies: Inside day yesterday in the dollar index with a marginal loss. Prices are nearing overbought levels and if we do not see prices get above 81 very soon in the December contract I will be calling an interim top. The only other FX trade that jumps out at me is the Loonie, which was higher by 0.52% yesterday trading up to its 20 day MA. I think we get a bounce in metals and energies and therefore I like bullish exposure here. 1.02/1.0250 is my target in December futures. Trade accordingly.

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