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10/30/09 – December Corn

admin — Mon, 16 Nov 2009 17:21:00 +0000

Overnight, December Corn was down 4 ¾ cents at $3.74 ¾. The enclosed chart shows that December Corn had a strong ten cent rally off the correction lows yesterday. The correction lows came very close to both the 40 and 90 day exponential moving averages that come in around the $3.62 area. Just as in the case with many other commodities, it seems that the direction of the dollar is what controls the movement of these commodities regardless of their own fundamentals. Corn, for example, has many worried that the crop is in much worse shape than most realize, yet prices have corrected down by 12% over the past week because of a slightly strengthening dollar. The dollar fell sharply yesterday, so most commodities including corn rallied. The truth about the corn market won’t be known until farmers can get into their fields and resume harvest again. But with all the recent rains, it may still be a week or two before we hear anything. The rumor is that the un-harvested corn crop has some major problems. We will soon find out. The directional movement indicators are still bullish but the ADX line is meandering lower. The break out of the base that was built between July and September suggests that prices could eventually reach the $4.50 area. We certainly shouldn’t see the lows again since everyone agrees that there has been some widespread damage to the crop that will cause yields to decline from what was expected back in September. For now, I am content to hold on to our existing positions. I may want to add to our new March positions if the corn market shows some more strength. Stay tuned.

Followers of this letter should be long 3 December Corn ($4.30 strike) calls from 4 1/8 cents and short 3 December Corn ($4.50 strike) call options from 2 3/8 cents. There are 21 days left until the December options expiration.

Also, you 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 112 days left until March options expire.

Producers should have up to 75% of their crops hedged with put option strategies or 50% hedged and have sold a portion of their crop already. If prices spike past $4.00, consider selling more of your crops along the way as prices trade higher hopefully towards my target of $4.50. I wouldn’t hold out for $4.50 because prices may never get there. Instead, steadily scale out of your corn holdings.

For those of you who need to look at hedging next year’s crop, you may want to consider locking in some prices for next year’s corn crop as December 2010 prices reach into the $4.50 to $4.60 area. Right now, December 2010 Corn is trading around $4.30.

Oct. 30, 2009
David Hall

10/30/09 – December Mini S&P Index

admin — Mon, 16 Nov 2009 17:19:38 +0000

The December Mini S&P is down 4.5 points this morning at 1057.00 as I write. The enclosed chart shows that the uptrend that began from the lows in March is still intact. I have drawn an intermediate trend line coming up from the mid August lows through the early September and early October lows. That line comes in right below the lows of the last couple of days near the 1040.00 area. I would expect that there are a lot of sell stops below that level that could send prices down towards the 1000.00 area. But the line held yesterday and the market rallied sharply. So, the question is the same as in many commodities this morning; Is this the beginning of the resumption of the major trends? Who knows. If it is, then fine. If not, great, then I want to see some more testing of yesterday’s lows and then another reversal. If I see that, then I want to get a lot more aggressive on the long side. For now, I recommend standing aside in the S&P. We recently took a nice profit out of the S&P and we will enjoy that for awhile longer. The larger than expected GDP number yesterday was largely responsible for the rally. Let’s see if the market can follow through on that news today. The corrective action over these last several days of October look very similar to the corrective action at the end of both August and September, prior to prices rallying to new highs. I want to see today’s action and into Monday before doing anything yet. The directional movement indicators are bearish and the ADX line is still dropping. I need to see that cross back to the bull side before I do any new bullish trades.

Oct. 30, 2009
David Hall

10/30/09 – December Crude Oil

admin — Mon, 16 Nov 2009 17:18:58 +0000

December Crude Oil is down 85 cents at $79.02 per barrel this morning as I write. The enclosed chart shows that despite the recent price set back, crude oil remains in a major uptrend. The weekly charts suggest that crude oil could reach $120 per barrel within a year from now, based on some measurements. The directional movement indicators are bullish and the ADX line is now beginning to meander sideways. Just as in the case of many other commodities, yesterday crude oil prices rebounded sharply as the dollar weakened sharply. The question is whether this reversal was the beginning of the next bull market leg up, or just a bounce before more correction sets in. Who knows, but I would keep an eye on what the dollar does in the near term for clues. If we get more corrective price action over the next several days, then I will be watching for a place to put on some bullish biased February or later trades. I recommend staying with our existing positions.

Followers of this letter should have the following positions:

Long one December Crude Oil from $72.30

Short one December Crude Oil ($73.00 strike) call option from $4.25

Long one December Crude Oil ($82.00 strike) call option from $2.49

Short 2 December Crude Oil ($87.00 strike) call options from $1.32 each.

Long one December Crude Oil ($62.00 strike) put option from $2.11

Short 2 December Crude Oil ($58.00 strike) put options from $1.23 each.

There are 18 days left until option expiration.

Oct. 30, 2009
David Hall

10/30/09 – December Natural Gas

admin — Mon, 16 Nov 2009 17:17:47 +0000

December Natural Gas is up 4.3 cents at $5.105 this morning as I write. The enclosed chart shows that in the spirit of Halloween, this market has been truly scary lately. Just eight trading days ago, natural gas was breaking out to the upside over the highs of the last three months. Then only the next day, natural gas completely reversed and dropped sharply for five out of six days to break to new monthly lows. Somebody out there certainly got hurt in that debacle. There are a few reasons why prices of natural gas rallies as far as they did. Namely, coal prices had risen to price levels where it made sense for power plants etc. to switch to natural gas. Secondly, prices had recently seen historically low price levels and finally the continual rally in stocks is giving hope that industrial demand will soon pick up, along with the beginning of winter cold temperatures right around the corner. The problem with all of this is the fact that natural gas prices could get to price levels very quickly to force the utilities to switch back to coal, the stock market is now is some sort of correction so industrial demand may not be ready to boom just yet, and winter time hasn’t arrive yet, and also, some weather forecasters are now predicting a warmer than normal winter season. The only reality for natural gas that we do know is that inventory levels are at their highest in history right now. So, it is no surprise that natural gas prices go a little ahead of themselves recently, an no surprise that prices have fallen back sharply. I would expect natural gas prices to begin stabilizing and evolving into a wide trading range as winter begins. We are going to need some cold temperatures this winter to reduce the excess supplies, or else we will enter Spring time with too much inventory right when the producers being building supplies once again.

The directional movement indicators are bearish and the ADX line is meandering sideways to higher. Many of my other indicators suggest that natural gas is still building a major long term bottom. With that in mind, I don’t recommend anything new in natural gas for now, aside from our attempt to buy December 2012 contracts, and to hold on to our existing positions.

Followers of this letter should be long one December Natural Gas from $5.721 and short one December Natural Gas ($5.50 strike) call option from 60 cents, and long one December Natural Gas ($5.30 strike) put option from 40.2 cents and short one December Natural Gas ($4.80 strike) put option from 19.2 cents. Option expiration is in 24 days. I also continue to recommend buying the December 2012 Natural Gas at $7.25 GTC.

Oct. 30, 2009
David Hall

10/30/09 – December Gold

admin — Mon, 16 Nov 2009 17:16:04 +0000

December Gold is down $3.60 per ounce at $1043.50 this morning as I write. The enclosed chart shows that the long term trend for gold is up. The directional movement indicators are still bullish but the ADX line is declining. After falling a little over 4% from the highs, the gold market had a very sharp rally day yesterday. Is this the beginning of the next bull market leg up? I believe that the dollar will be the key to that answer. I am happy that we had the rally since we are bullishly oriented in our positions, but I am not going to get too excited at this point unless there is some strong follow through to yesterday’s rally. So far today, that is not the case. I would expect to see more back and forth re-testing of this week’s lows in the days to come before gold is ready to take off again. You never know with major trends; they can reinvigorate themselves at any time. That is why I don’t like to play the corrections, but rather look to add to positions in the direction of the major trend.

Followers of this letter should have the following positions:

Long 1 December Gold futures contract at $1018.00.

Short 1 December Gold ($970 strike) call option at $58.00 per ounce. (December gold options expire in 24 days on November 23rd).

Long 1 December Gold ($1100 strike) call option at $16.30 per ounce.

Short 2 December Gold ($1180 strike) call options at $8.40 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. (February Gold options expire in 88 days).

Short 4 February Gold ($950 strike) put options at $6.80 each.

Long 1 February Gold ($1100 strike) call option at $32.60.

Short 1 February Gold ($1130 strike) call option at $24.60.

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.

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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.

Oct. 30, 2009
David Hall

10/30/09 – December Euro

admin — Mon, 16 Nov 2009 17:14:42 +0000

The December Euro is down 32 ticks at 1.4812 this morning as I write. The enclosed chart shows that the long term up trend in the Euro is still intact. Over the past several days, the Euro has corrected right back to the 40 day exponential moving average before bouncing sharply yesterday. Just as in the case with the dollar index, the question now is whether yesterday’s price action was the beginning of the resumption of the long term trend. We shall see. I don’t recommend any new trades in the Euro at this time, but stay with the current trade position.

Followers of this letter should 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 35 days.

It is nice to know that if the Euro doesn’t reach our upside targets on the spread listed above, we will still make a gross profit of $100 on the trade, so any downward correction does not hurt us financially at all.

Oct. 30, 2009
David Hall

10/30/09 – December Dollar Index

admin — Mon, 16 Nov 2009 17:13:39 +0000

The December Dollar Index is up 12.5 ticks at 76.19 this morning as I write. The enclosed chart shows that the long term trend of the dollar is still down. After only about a 2 1/2 % correction off the lows, the dollar dropped sharply yesterday quickly giving up half of the gains since those lows. The high prices this week hit right into the declining 40 day exponential moving average before breaking yesterday. So, is the dollar ready to resume the downtrend or is this a pullback before another rally attempt occurs? The directional movement indicators are right on top of each other, so I am not getting any clues there. As a matter of fact, the indicators suggest that the dollar may be entering into a period of sideways choppy action for a while, all in the context of a long term major down trend. I recommend standing aside in the dollar for now.

Oct. 30, 2009
David Hall

10/30/09 – December Treasury Bonds

admin — Mon, 16 Nov 2009 17:12:49 +0000

December Treasury Bonds are up 15/32 at 119:05 this morning as I write. The enclosed chart shows that the intermediate term uptrend since the June lows is still intact. That uptrend line was tested earlier this week in the 118:00 area. That is the good news for bonds. The bad news is that today is when the Treasuries $300 billion buyback program of treasury securities ends that began several months ago, so that artificial support for bonds and notes is going away after today. Also, the directional movement indicators are bearish but the ADX line is meandering at a low level, sideways. My expectation is that until the bonds break and close below the 118:00 area, I believe that prices will chop around this area for awhile. The covered put write trade that I have on currently is the perfect position to have in this scenario. The indicators suggest a sluggish pattern for the bonds as well.

Followers of this letter should be short one December T-bond from 119:16 and short one December T-bond (119:00 strike) put option from 1 46/64. Followers should also be long one December T-bond (115:00 strike) put option from 50/64 and short 2 December T-Bond (113:00 strike) put options from 27/64 each for an overall credit of 4/64 or $62.50 gross. There are 21 days left until option expiration.

Oct. 30, 2009
David Hall

10/29/09 – December Crude Oil

admin — Mon, 16 Nov 2009 17:10:42 +0000

December Crude Oil is up $1.11 per barrel this morning at $$78.56 as I write. The enclosed chart shows that crude oil has corrected 6% off its highs from last week. The directional movement indicators are bullish and the ADX line is stalled sideways. The long term trend for crude oil is very bullish based on the weekly price break out a few weeks ago, suggesting a target of $120 within a year. Although, crude oil is enjoying a nice bounce today, I would expect more downward price testing over the next week. During that period over the next week, I want to look for areas in which to put on a bullish biased trade out to at least February. For now I recommend maintaining the current positions in crude oil.

Oct. 29, 2009
David Hall

10/29/09 – December Dollar Index

admin — Mon, 16 Nov 2009 17:09:44 +0000

The December Dollar Index is down 4.5 ticks at 76.54 this morning as I write. The enclosed chart shows that the dollar has corrected only 2.2% off the lows from a week ago. The chart also shows that the dollar has rallied back to the 40 day exponential moving average, which has held it back for several months. So, if the dollar can close and follow through above the 40 day average at 76.73, then that would be impressive. The directional movement indicators have barely crossed to the bull side while the ADX line is still dropping. More than half of my other indicators are still bearish so I am not going to take a long position in the dollar at this time since the directional indicator turned bullish. My indicators still suggest that this is just a short covering rally before prices fall again. If the indicators change then I will change. For now, the sidelines is where I want to be.

Oct. 29, 2009
David Hall