The Unemployment numbers are out and the rate increased up to 9.7% up from 9.4% last month. The number of people filing for unemployment claims though, was less than expected, mitigating the other overall percentage number. So the S&P is quietly up 2.25 points at 1004 as I write. Ho-Hum. Now everyone will be heading out to the golf course for the long weekend. This could end up being a very quiet day. We will stay will our short futures and short put option position for now.

Sep. 4, 2009
David Hall

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October Natural Gas is down 4.4 cents at $2.465 this morning as I write. This is right on the up trend line coming up from the lows made in 1991, just after this futures contract came into existence. I remember over the past year where members of Congress have blamed speculators for the run up in petroleum prices, which is totally not true. Speculators and hedgers as well may have accelerated the move in the petroleum products, but they weren’t the cause. I believe that you still have to look at China and India, for starters. Their demand for energy has ramped up considerably over the last few years. Congress can’t mess with them, so they have to try to find a culprit and speculators are the easy target. This is like a small town murder, and the police are under severe pressure to arrest someone, so they grab the first person off the street that looks suspicious and arrests him, whether or not he is guilty. In the mean time the real culprit is loose.

Recently Congress has put enough pressure on the CFTC to limit the ability of ETN’s (Exchange Traded Notes), and ETF’s (Exchange Traded Funds), to acquire more futures contracts on Natural Gas, inhibiting their ability to mirror the movement in the underlying commodity, in this case, natural gas. So some ETN’s have chosen to close down. I am note sure about any ETF’s. I believe this is causing those entities to have to liquidate gas contracts as they shut down. The general public invested in these things are now getting hurt as they liquidate their ETN’s. WHO IS MANIPULATING THE MARKET NOW? Congress!!

I believe that free markets will always correct themselves. Changes in supply and demand evolve over time and eventually prices reach high enough levels where buyers finally can’t stand it anymore so the market will fall back in price. On the other hand, when prices get low enough, then many producers in this case will be driven out of business and may not be back any time soon. The eventual result will be supply dropping too low and then prices will rise again. The unintended consequence caused by Congressional manipulators, will be the prices will actually go higher and stay higher because it may take time to get new procucers to get back in the business or get bank credit. So next time natural gas prices hit $15, the cause will be Congress not letting free markets determine the price. This is very sad to watch.

We can look at other times in history where the government interfered with the free markets, and EVERY time there were negative consequences. If I owned an ETF in natural gas, I would hold on for the long run. For the long run, this period could be the best time to accumulate natural gas for the next time prices spike up again, which they eventually will. For now, we are awash in supply. For now we will stand aside until we get a valid buy signal.

Sep. 4, 2009
David Hall

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December Crude Oil is up 7 cents at 69.40 this morning as I write. The enclosed chart shows that yesterday, crude prices tested the major uptrend line coming up from the February lows. This is becoming a pivot point for crude oil. Either prices hold here and begin the next bull leg up, or prices break down from here sharply. This remains to be seen. The directional movement indicators are bearish and the ADX line is rising, which does not bode well for prices. We will remain flat in crude oil for now since I am away. If you are long crude oil I would become very concerned if prices close below the trend line in the $68.00 area.

Aside from Crude Oil, here are some quotes from some other markets today as I need to leave:

December Copper == 282.15 -45 ticks
December Corn==$3.19 3/4 +1/2 cent.
October Natural Gas==$2.654 -6 cents
November Natural Gas==$$3.902 +3.3 cents

I have to leave now.

Sep. 3, 2009
David Hall

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October Natural Gas is down 3 cents at $2.947 this morning as I write. With no threatening heat or hurricane looming, natural gas will most likely continue to erode on price. The enclosed chart shows that the downward price trend continues evolve unabated staying right along with the declining 5 day exponential moving average. Notice on the bottom chart, that the purple ADX line is rising steadily reaching 33.90 today. Now the ADX is high enough to make us start to take notice. Now, let’s watch for a convergence in the red and green lines followed by a roll over in the ADX line for a possible buy signal. For now, stand aside.

Sep. 1, 2009
David Hall

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Overnight, December Corn was up 3 ¾ cents at $3.34 ¼. The crop condition remained at 68% good to excellent from the previous week. The weather is reported as spectacular for growing corn. It is expected that we may have one of the largest corn crops in history if the weather stays like this. The all important crop report comes out tomorrow morning, when the USDA is supposed to make some corrections to last month’s report. Specifically, they will reduce amount of the planted acreage of corn down somewhat from the sudden extra 3 million acres planted that they reported last month. For now, it appears that the only thing that will give corn a strong boost in price would be a threat of an early frost. The directional movement indicators are still bearish. I recommend standing aside in Corn until after tomorrow’s report.

Producers should be short many contracts or own many put options or option spreads in corn for hedging purposes at this time looking for prices to test and probably go below $3.00.

Aug. 11, 2009
David Hall

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Earlier today we sold the October Gold ($980 strike) call option at $13.00 and higher for some clients. Now take a look at the enclosed chart. You will notice that gold took a price drop since earlier this morning and the red and green directional lines are converging rapidly. They are still bullish, but I want to take even more protection now. I recommend using that premium that we sold this morning and use it to buy the October Gold ($930 strike) put option at $17.00. Here is what our position will look like once filled:

Long one October Gold from $961.70, long one October ($930 strike) put option from $17.00, short one October ($960 strike) call option from $28.00 and short one October ($980 strike) call option from $13.00. If we hold this position until expiration in 46 days, here is what the results would be at different price levels assuming we make no new changes:

At $930 or lower — a loss of $770.
At $940 ————–a gain of $230
At $950————–a gain of $1230
At $960————–a gain of $2230
At $970————–a gain of $2230
At $980—————a gain of $2230
At $990————–a gain of $1230
At $1000————-a gain of $230
At $1010————-a loss of $770
At $1020————-a loss of $1770.

So you can see that the trade that I have on now limits the downside risk if gold sells off. From about $940 to about $1000 there is a gain, and then if prices go over $1000, losses start to mount. The strategy I mentioned earlier today was to buy back the $980 short call if prices go over $980, so we aren’t planning on taking that unlimited risk if prices get over $1000 because we begin to exit the extra risk once prices hit over $980.

Keep in mind that it is very probable that this position will be adjusted in the days and weeks to come.

Aug. 10, 2009
David Hall

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Overnight, December Corn was down ¼ cent at $3.26 ¼. The recent selloff lows was $3.14 ¾ made on July 22nd. The weather is perfect for growing at this time, and now if the dollar is beginning to rise, I would expect corn to break the July 22nd lows and push towards the $3.00 area. The directional movement indicators are bearish. I am looking for a price bounce to sell short corn in the next few days. Stay tuned.

Producers should be fully short futures contracts and put option strategies in corn at this time. Stay that way for now. The $2.90 to $3.00 area is the next good support level for corn. Below that, look for a downside test in the $2.50 area. Who knows. Just stay short until things change.

Aug. 10, 2009
David Hall

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The September Mini S&P is 3.75 points at 1002.75 this morning as I write. The price trend for the stock market still looks bullish despite this set back this morning. The directional movement indicators are still bullish. The green directional line has begun to converge but not the red line yet. The purple ADX line continues to rise, at 41.08 on the index this morning. I am looking for when both the red and green lines are converging, then followed by the ADX line rolling over, before I get any kind of sell signal. For now, I am flat in the S&P futures.

If you are long in the stock market itself, then stay long, but consider taking some profits off the table, and/or writing some call options against some of your stock position for partial protection.

Aug. 10, 2009
David Hall

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September Crude Oil is down 68 cents at $70.25 this morning as I write. The employment report on Friday was seen as a bullish item by the stock market, so the market rallied, but this time without crude oil. So there seems to be some sort of divergence between crude oil and the stock market for now. Maybe people are beginning to pay attention to the huge oversupply of crude oil and the strengthening dollar. The price action in crude looks like prices are beginning to bend over for some sort of near term price break. Aggressive followers of this letter should be long the September Crude Oil ($60.00 strike) put option and short 2 September Crude Oil ($55.00 strike) put options from a credit of 30 cents. There are 8 days left until option expiration.

Aug. 10, 2009
David Hall

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October Gold is down $3.50 per ounce this morning at $954.60 as I write. The directional movement indicators are still bullish but converging somewhat. The overall price trend is up, and on the enclosed chart, I have drawn some key trend lines. It appears from the lines drawn that gold is in some sort of sideways consolidation bounded by about $980 to about $920, so prices are mid range for now. The weekly chart on gold still shows that the bullish upside down head and shoulders pattern is still developing.

A break out in price over $1008 would be extremely bullish, but so far, the $980 to $1000 resistance levels have been too strong. There are clearly some big sellers up there as prices get close, so until those sellers get out of the way, prices will have trouble getting through $990. I don’t know who the sellers are nor when they will be satisfied. Nobody does. My worry this morning is the strength in the dollar last Thursday and Friday. If, as I believe, the dollar gains strength in the near term, then gold and other commodities may struggle. My gold indicators are still bullish, but the resistance above is holding prices back so far.

Followers of this letter should be long October Gold from $961.70 and short the October ($960 strike) call option from $28.00. In the last few minutes, Gold has taken a $10 tumble. I recommend selling another call option. I recommend selling the October ($980 strike) call option at the market. This will be a naked short call at the $980 level. Given that that is where some of the major resistance is, I feel that is a safe strike price level. If prices come back and trade over $980 at some point in the future, then we will liquidate that short call. Until then we will let it erode with time.

Aug. 10, 2009
David Hall

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