February Gold is down $11.30 per ounce this morning at $1177.30 after being down as much as $52 per ounce overnight on the news that Dubai wants to delay payments to 70 international banks for the next six months.  The amount involved supposed is about $60 billion dollars.  That means that almost all of the banks involved have less than $2 billion in exposure to Dubai.  In the big scheme of things, this is an insignificant amount.  We will see if there is more to this story other than one brother, Abu Dhabi trying to teach another brother a lesson, Dubai.  Abu Dhabi could easily pay off this debt for Dubai.  I believe that this is the reason why gold has come almost all the way back.

The included chart shows the strong rally in gold on Wednesday and on some electronic trade Thursday, and then it shows the sharp break last night into today on the Dubai news.  As the market gets a handle on what it thinks is the amount of money involved, we are seeing huge price recoveries from last night.  The major trend for gold is still up.  I am still looking for $1350 by sometime in the first quarter of next year based on the bullish inverted head and shoulders pattern that developed in gold over the past year.

On Wednesday, I chose to recommend liquidating for a profit the February $1100/$1130 call spread.  I also recommended liquidating the February $1175/$1225 ratio call spread because I didn’t want to risk a spike up to the upper strike price following Wednesday’s close.  I have seen charts like this before, and the gold chart is entering a phase where $50 and $100 spikes up AND down will become more common and when you have a close with momentum towards your upper strike price in a ratio call spread, you don’t wait around and risk the next day’s open if you want to last in this game for long.  So we took some loss on that portion of the gold trade.  We have many other positions that should take advantage of further gold rallies.

 Here were the results from Friday for some of my clients:

 We liquidated the February Gold ($1100 strike) call at $96.60 per ounce for a total gross gain of $6400 from our entry price of $32.60 per ounce.

We liquidated the February Gold ($1130 strike) call at $74.60 per ounce for a total gross loss of $5000 from our entry price of $24.60 per ounce.

 So the total gross gain on the February Gold $1100/$1130 call spread was $1400.

 We liquidated the February Gold ($1175 strike) call option at $51.90 per ounce for a total gross gain of $2970 from our entry price of $22.20 per ounce.

We liquidated the 2 February Gold ($1225 strike) call options at $31.20 each for a total gross loss of $3740 from our entry price of $12.50 per ounce.

 So the total gross loss on the February Gold $1175/$1225 ratio call spread was $770.

 We have a very strong position left for our remaining February gold positions, which includes the February Gold $1140/$1180 call spread and the outright February Gold $1270 call, if you have followed all of my recommendations.  So, if February gold wants to head for the moon as some analysts suggest, then this position will do very well.  Don’t forget, we have a lot of April positions as well.

 Don’t forget that we are still trying to buy back the four short February Gold ($935 strike) put options for $1.00 per ounce each.

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Long 2 February Gold ($960 strike) put options at $10.40 each.

Short 4 February Gold ($935 strike) put options at $6.20 each.

Long 2 February Gold ($970 strike) put options at $10.60 each.                 

Long 1 February Gold ($1140 strike) call option at $23.90.

Short 1 February Gold ($1180 strike) call option at $16.90.

Long 1 February gold ($1270 strike) call option at an average cost basis of $5.00 per ounce.

(February Gold options expire in 60 days).

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Long 1 April Gold ($1210 strike) call option at $33.00.

Short 2 April Gold ($1300 strike) call option at $17.50 each.

Long 1 April Gold ($1275 strike) call option at $17.80 per ounce.                 

Short 2 April Gold ($1400 strike) call options at $9.90 per ounce each

Long 1 April Gold ($1375 strike) call option at $11.80.

Short 2 April Gold ($1500 strike) call option at $6.90 each.

(April Gold options expire in 118 days).

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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The March Euro is down 188 ticks from Wednesday’s close at 1.4940 this morning as I write.  The huge spike down is a result of yesterday’s announcement by Dubai that they want to delay making payments on about $60 billion owed to 70 international banks.  This sudden announcement has given rise to a lot of panic trading as investors fear the repercussions at the banks that are involved.  I see that most, if not all of the individual banks involved have less than $2 billion in exposure to Dubai.  That seems a trivial amount considering what those same banks have written off and gone through over the past year.  But on a day when volume is always light, prices can swing all over the place.  My experience is to take advantage and liquidate the positions that are making any wind fall profits but refrain from putting on too many new positions until the smoke clears from this news.  We don’t know what other news, if any, is lurching behind the door.

 On Wednesday, we were successful in buying one March Euro (1.5750 strike) call option at 134 ticks or $1675 gross, and selling 2 March Euro (1.6100 strike) calls at 75 ticks each or $937.50 each.  The overall total gross credit received to do this trade was $200.  So, if in 98 days when these options expire, if the March Euro never makes it to 1.5750 then the options will expire worthless and we will keep the $200 they paid us up front.  The maximum gain would be if, at expiration, the March Euro closes at 1.6100, then the gross gain could be as much as $4375.  The risk on this trade as is the case on any ratio call spread is if the March Euro, in this case, rallies to a through the 1.6100 area too soon.  In that case the risk could be unlimited unless we liquidate the position.  My strategy would be to liquidate the trade if the euro traded up to the area of 1.6100 too soon without a lot of time value lost.  The best way for us to profit on this trade is if the euro trends up toward 1.6100 over the next 98 days.  So, this downward price action today does not hurt this trade at all and just uses up time value which will help this position in the long run.

 Followers of this letter should also be long one December Euro (158.00 strike) call option from 32 ticks and short 2 December Euro (160.00 strike) call options from 20 ticks each for a combined credit of 8 ticks or $100 gross.  Option expiration is in 7 days.

 Followers should also be long one March Euro (1.3850 strike) put from 121 ticks and short 2 March Euro (1.3400 strike) put options from 67 ticks each for an overall credit of 13 ticks or $162.50 gross.

You should also be long one March Euro (1.5750 strike) call option at 134 ticks and short 2 March Euro (1.6100 strike) calls at 75 ticks each or $937.50 each. 

 March Euro options expire in 98 days.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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As a result of the Dubai news yesterday, today the March Dollar Index is up 94.5 ticks from Wednesday’s close at 75.605 as I write.  The included chart shows that during electronic trade yesterday, the dollar rallied sharply on the news the Dubai wants to delay payments on more than $60 billion owed to 70 international banks over the next six months.  So markets are nervous in the low volume holiday trade both here and in the Middle East where they are celebrating some religious holidays.

So, what does the chart say?  So far, the chart shows that the overall trend of the dollar is still down.  This overnight price spike in the dollar is already selling off. No significant previous highs were taken out.   I recommend standing aside in the dollar index until the smoke clears.  Light volume days are great for taking profits on crazy market swings but may not be good days to enter anything new.  We have no idea on how this Dubai news will evolve or if the $60 billion figure is accurate either.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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Dubai seems to be the word of the day.  See my UAE comment from earlier today.  March Treasury Bonds are up 23/32 from Wednesday’s close as I write this morning.  Overnight, March Bonds hit a high of 123:00 on a spike resulting from the news that Dubai, one of the seven members of the UAE, wants to suspend payments on $60 billion owed to 70 international banks for the next six months.  In my opinion, $60 billion is a drop in the bucket in the scheme of things these days in world finance.  But with the Thanksgiving holiday in the US and religious holidays in the Middle East, many markets were closed yesterday when the announcement was made.  So, low volume is leading to a lot of volatility.  My experience with these scenarios is to take advantage of windfall profits and take them and be very careful beginning anything new until the smoke clears a little.  This announcement was apparently totally unexpected around the world and caught a lot of investors off guard.

It is so ironic that this announcement comes about one month before the tallest building in the world open for business in Dubai.  This kind of reminds me of the mid to late 1980’s in Houston when several tall building were completed only to be virtually empty when the economy here went bad, and you could literally see through the glass windowed buildings.  It wasn’t but a few years later and Houston was bustling again, so I see this issue in Dubai as a short term problem.  Abu Dhabi, the capitol city of the UAE, could easily solve this problem is they wanted to.  The UAE has the 6^th largest oil reserves in the world.  If $60 billion is the total amount involved, as reported, then I don’t think that this is a big deal.  What I do think, is that many markets including stocks and gold have risen a long way over the past six months, so this could be an excuse to finally get a much needed correction for these markets.

But, what does the chart say?

 The included chart shows that this rally in the bonds just approached the highs made in late September just above 123:00.  The visual trend is up but now spiking.  The directional movement indicators are bullish and the ADX line is beginning to rise.  So, the charts suggest that there could be more rally ahead for the bonds, but you have to be careful about chasing a price spike.  Aren’t we glad that we liquidated the covered put write spread the other day.  Had we not, we would be in a severe loss at this time, but the technical’s told me to get out days ago.

Followers should also be long one March Bond (114:00 strike) put from 2 12/64 and short 2 March Bond (110:00 strike) put options from 1 9/64 each for an overall credit of 6/64 or $93.75 gross.

You should also be long one March Bond (108:00 strike) put option from 52/64 and short 2 March Bond (105:00 strike) put options from 29/64 each or an overall credit of 6/64 or $93.75 gross.

March options expire in 84 days.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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Considering what is moving the markets today, I thought that it would be a good time to review a little history of the UAE (United Arab Emirates).   According to Wikipedia, the UAE is made up of a federation of seven emirates. 

 Abu Dhabi – The Capitol and second largest city.

1. Dubai – The largest city where all the huge buildings and beautifully shaped artificial islands were formed where hotels and resorts are being built.
2. Sharjah
3. Ajman
4. Umm al-Quwain.
5. Ras al-Khaimah.
6. Fujairah.

 These sheikhdoms in the Persian Gulf are known at “Trucial states”.  The Trucial coast of the Persian Gulf is the area between Saudi Arabia and Oman, which is directly across the Arabian Gulf from Iran.

 These seven sheiks control their particular small territories.  The ruling family over the UAE is the Al-Nahyan family who were descendants of the Bani Yas Tribe.  So, these sheiks are all related to each other.

 Between the 17^th and 19^th century, this area was a major shipping route.  There was a lot of indirect influence by the Ottoman Empire and many different pirates that attacked the shippers and affected international trade, so the nine emirates that also included Bahrain and Qatar enlisted the United Kingdom to provide military protection in the Perpetual Maritime Truce of 1853. 

In the early 1960’s, crude oil was discovered in the area and there was a call by all the sheiks for unification.  They suddenly came into great wealth.  In the late 1960’s into 1971 they formed a union called the United Arab Emirates, but because all couldn’t agree to the agreement, Bahrain and Qatar chose to become independent and separate from the UAE.  The whole region became independent of the UK protection in 1971.

 So, today, the above listed seven sheikdoms make up what is known to us at the United Arab Emirates.  The UAE has the world’s 6^th largest oil reserve.  They are a member of the Arab Leaque, the UN, OPEC and the WTO (World Trade Organization).

 Over the past many years, as you know, Dubai has been on a building binge.  They have built what looks like a modern day Manhattan including the tallest building in the world that ironically will open in January 2010.  30% of the local economy is now real estate driven and all built on debt.  There are 70 banks around the world that have loans out to Dubai, of which the Royal Bank of Scotland is the largest creditor.

In the last couple of days it has become known the Dubai has about $60 billion dollars.  Prior to now, sister city Abu Dhabi has been helped meet Dubai’s debt issues, buy apparently now are saying that they will no longer help.  Dubai is asking creditors for a six month moratorium on debt payments.  $60 billion doesn’t seem to me to be a big deal when it comes to Middle East money, so this may only be a short term problem, but no one really knows what those sheiks will do and what systemic effects to the world’s banks will be.  Again, considering what the world’s banks went through over the past year, $60 billion doesn’t seem to be that big of a deal.  Or is this just the tip of the Middle East iceberg?    So far, this event has caught everyone around the world off guard and is creating some major market jolts this morning.

 If you are interested in the UAE and its history, just put UAE in your search widow and click enter.  You will be referred to many sites like Wikipedia for information.  The internet is a wonderful thing to get information and education.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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We were able to liquidate the February Gold $1175/$1225 ratio call spread at about $11 per ounce.  That will result in a loss that I will outline in Friday’s comment.  But at least that potential risk is off the table in case gold blasts off some more over the next several days.  And don’t forget that we locked in a profit on the February $1100/$1130 call spread today as well.  I don’t mind gold rallying, I just don’t want it to get ahead of itself too fast, because that affects our ratio spreads.  Our regular vertical call spreads, like the February $1140/$1180, 1*1 spread,  work just fine under this same scenario.  So we try to eliminate the unlimited risk piece and keep the limited risk trade that is making money.

I will be writing to you on Friday.

 HAPPY THANKSGIVING!!!!!

 David Hall

The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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Gold is in blast off mode, and the included chart looks like gold is closer to the beginning of a mini blow-rally versus at the end.  Therefore, our February $1175/$1225 ratio call spread could be in jeopardy in the short run.  I recommend attempting to liquidate that spread at a cost of around $9.00 per ounce.  That will result in a small loss, but I would rather do that than risk a sharply higher open on Friday or Monday that could make that loss bigger.  Remember that we already took profits earlier today on the $1100/$1130 call spread and we still have the $1140/$1180 call spread working.  So let’s try to take this risk off the table right now.  The risk of any ratio call spreads is if the underlying market rallies towards the upper strike price too fast without much time value erosion.  Gold is doing that right now, on this particular spread.  Eventually, I fully expect gold to have a nasty $100 + pull back, but that may not come until gold rallies $100 first.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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March Corn is up 12 ¾ cents at $4.04 ¾ this morning as I write on a weaker dollar.  The included chart shows that yesterday, March Corn fell sharply into the 40 day moving average and has now reversed off of that level.  The directional movement indicators are right on top of each other poised to turn bearish.  That may change if today’s rally can hold by the close.  The ADX line is still falling suggesting no real trend for the near term.  It is clear on the chart that very good support for prices has consistently come in around the 40 and 90 day moving averages over the past month.  As a matter of fact, over the past month, when prices tested those two averages, prices rebounded sharply off of those lows.  The problem for the bulls is that every time prices get a little above the $4.00 area, corn seems to hit a brick wall.  I read that it is the futures funds that are the buyers near the low prices and farmers who are the sellers near the highs.  Without more evidence as to the condition of the remaining corn crops, farmers are getting nervous and are choosing to sell some of their harvested crops.  To me the trend in corn still strong to the upside until the 40 and 90 day exponential moving averages are broken on a closing basis.  The longer that corn trades in this $3.70 to $4.25 range, the bigger the break out will be when it comes.  I recommend staying with our current option positions.

 Followers of this letter should be short 1 March Corn ($3.20 strike) put option from 6 ½ cents, and long one March Corn ($4.30 strike) call option from 17 ¼ cents and short 2 March Corn ($4.90 strike) call options at 7 3/8 cents each.  There are 86 days left until March options expire.

 With all the price tests above $4.00 recently,  I would hope that the producers have already liquidated most if not all of their corn that needs to be sold.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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The December Mini S&P Index is up 6.25 points at 1109.25 this morning as I write.  The included chart shows that the uptrend since March is still in play.  Prices are testing their recent highs.  The directional movement indicators are bullish and the ADX line is still fluttering sideways to higher.  I am currently flat in the S&P futures and we will stay that way for now.  If you are long stocks, stay long, but if you are nervous, you can always either buy put options on stocks that you own, write calls against stocks that you own or simply take some profits off the table.  The trend is still up until proven otherwise.

David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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March Crude Oil is down 23 cents at $77.95 per barrel this morning as I write.  The included chart shows that crude oil was higher, earlier this morning on the back of the weak dollar, but has since given back all its gains and then some.  If crude oil can’t rally when the dollar is making new lows and gold is soaring, then this market has a problem.  Or you could say that crude oil has a mind of its own.  As discussed yesterday, March Crude Oil still shows an overall long term bull market in progress that is progressively making higher highs and higher lows.  The problem for investors is that the swings between the weekly highs and lows is fairly large, about $12 to $13 per barrel, so the timing on entry points is very important.

 Followers of this letter should have the following positions:

 Followers should also be long one March Crude Oil ($62.00 strike) put option from $1.51.

Short 2 March Crude Oil ($57.00 strike) put options from 83 cents each.

 March Crude Oil options expire in 85 days.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.

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