December Treasury Bonds are down 4/32 this morning at 119:22 as I write. The enclosed chart shows that the T-Bonds have bounced sharply the last couple of days right back into resistance where there are several downward sloping moving averages. Technically the chart shows a battle between the uptrend line coming up from the June lows and the assortment of downward sloping moving averages right in this area. Who will win the battle? The directional moving average is still pointing bearish, but barely. The ADX line is low and going lower suggesting no trend whatsoever. This looks like a market that is in no hurry to go either direction. Look for more choppy trade. With that in mind, I am content to hold on to our covered put write trade for now.

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 22 days left until option expiration.

Oct. 28, 2009
David Hall

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December Crude Oil is down 72 cents at $78.83 this morning as I write. The enclosed chart shows that crude oil is still involve in a strong bull move, but a correction seems to be taking place at the moment. Crude prices rose about $16 per barrel in two weeks and so far the correction has been 2.5% which is no big deal. Crude Oil certainly has more room that it could correct on the downside. The directional movement indicators are bullish and the ADX line is meandering sideways to higher. I am looking for a spot to put on a bullish biased trade out into February or later. In the mean time, I am very content with our existing December positions.

Oct. 28, 2009
David Hall

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December Natural Gas is up 2.3 cents at $5.305 this morning as I write. The enclosed chart shows that after four sharply lower days in a row, natural gas managed a mediocre bounce yesterday that is bouncing a little further today. When markets go to new multi-week highs then abruptly fall to new multi-weekly lows within several days, you can expect to see a market that will get very choppy and begin some sort of sideways consolidation for a while. The indicators have suggested that to me for the past couple of weeks. Even when prices broke out to the upside last week, my indicators weren’t confirming any reason to get excited and with this break down, the indicators are still not impressed. This is just a lot of price volatility that is probably going nowhere but sideways overall. We will be patient for the day when the indicators get more excited. So, for now we will stay with the current 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 26 days. I also continue to recommend buying the December 2012 Natural Gas at $7.25 GTC.

Oct. 28, 2009
David Hall

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The December Dollar Index is up 10.5 ticks at 76.385 this morning as I write. The enclosed chart shows that the dollar has begun a small correction off its lows over the three or four trading days. Despite the sharp corrections occurring in most commodities right now, because, they say, the dollar is rallying; this rally in the dollar is not very impressive at all so far. So, that tells me that commodities such as gold and silver had entirely too many small speculators involved for those prices to continue to rise. So some house cleaning is in order. That means that gold and silver are in the process of scaring the small guys out of the market before they can continue on with their long term up moves. The dollar is in the same position. There are just too many dollar bears out there, so the market needs to correct a little to create some doubt in the minds of those late arriving dollar bears. Business TV channels sure are spending a lot of air time discussing whether the dollar has bottomed or not. The good thing about this is that it creates doubt in the minds of the dollar bears and may cause some short covering. The reality, so far, is that the dollar has hardly lifted very far at all.

The long term trend is still down for the dollar. The directional movement indicators are now right on top of each other threatening to turn bullish and the ADX line is declining. If the directional indicators turn bullish, I will see what all my other indicators are saying, and if they all are lining up bullish, then I will consider going long the dollar despite what I may fundamentally believe. The chart rules. If those other indicators disagree then I will stand aside and continue to look for a place to short the dollar. Stay tuned.

Oct. 28, 2009
David Hall

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December Treasury Bonds are up 10/32 this morning at 119:14 as I write. The enclosed chart shows that the T-Bonds rallied off of the main uptrend line coming up from the June lows yesterday. That intermediate up trend line continues to hold. The directional movement indicators are still bearish but notice that the ADX line has never begun to rise to confirm the trend. This is the reason why I haven’t gotten more aggressive with any more short oriented positions in Bonds. This price bounce is bringing the Bonds back up into a whole host of moving average resistance, so the next few days should be a struggle for Bonds to make much more price advancement. It I am wrong about that and the bonds rally with ease, then that will tell me that bonds are stronger than anyone thinks. That is hard to believe considering the continual massive supply of bonds that will be coming to market in the weeks and months to come to finance our huge and growing budget.

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 23 days left until option expiration.

Oct. 28, 2009
David Hall

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December Crude Oil is up 20 cents at $78.88 per barrel this morning as I write. The enclosed chart shows that December Crude Oil suffered a sharp setback yesterday as the dollar rallied. Keep in mind that crude oil has just completed at $16 per barrel non-stop run to the upside over the last two weeks. So, a sharp correction should be expected. But, that rally of the last two weeks is a precursor for more rallies to come, in my view. The weekly chart shows an enormous break out suggesting prices could reach up into the $120 per barrel area within the next year. The daily chart shows that some sort of correction is underway. The directional movement indicators are still bullish and the ADX line has only flattened out from its rise. With only a few weeks left until expiration, I put out a special report yesterday to liquidate the December $74.50/$80.00 call spread before the market took all the profit built up away. The result of the liquidation was an overall gross gain of $850 which to me was disappointing since we were on the verge of a much larger gain if prices could have held out a few days longer. I am glad that I took profits on the naked short $68.50 put last week, which was part of this overall trade in the first place. I am looking for a place to add to our long bias trades out into February or March.

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 21 days left until option expiration.

Oct. 27, 2009
David Hall

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December Natural Gas is up 1.9 cents at $5.231 this morning as I write. The enclosed chart shows that December Natural Gas fell sharply again yesterday for the fourth day in a row. As a matter of fact, just 5 trading days ago, natural gas had broken out over the price highs of the past three months only to about face and fall sharply and, as of yesterday, take out the price lows of the past month. Talk about whipsaws! The directional movement indicators are bearish but the ADX line is meandering sideways at a low level, suggesting that there may not be a lot of downside momentum left to take natural gas a lot further down, right away.

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 27 days. I also continue to recommend buying the December 2012 Natural Gas at $7.25 GTC.

I recommend staying with this position for now.

Oct. 27, 2009
David Hall

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December Treasury Bonds are down 1/32 at 118:01 this morning as I write. The enclosed chart shows that the December T-Bonds fell through some near term support levels yesterday, finishing right on the intermediate support at the trend line coming up from the June lows at 118:00. The excuse is because of an ever increasing supply of bonds to be auctioned this week. This is also the final week of the $300 billion Fed, bond buy-back program. If they are the ones that had held the market up during this buy-back program, then what will the bonds do after this week? The directional movement indicators are bearish but curiously, the ADX line is still meandering at a low level and is, so far, reluctant to turn upwards. I am content to let the existing positions that we have on, stay for now.

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 25 days left until option expiration.

Oct. 27, 2009
David Hall

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December Crude Oil is up 36 cents per barrel at $80.86 this morning as I write. The enclosed chart shows that December Crude Oil continues to trend higher. The weekly charts suggest that over the next year a move up to $120 is very possible. That may be hard to believe but that is what the measurement of the weekly chart shows. The directional movement indicators are bullish, but narrowing, and the ADX line is still rising with plenty of room to go before it gets overbought.

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 ($74.50 strike) call option from $4.18

Short one December Crude Oil ($80.00 strike) call option from $2.08

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 22 days left until option expiration.

The key right now is to watch to progress of the $74.50/$80.00 call spread. We entered that trade at a cost of $2.10 per barrel and it is now around $3.70. The maximum the spread can get to is $5.50. If we could speed up the 22 days, we would already be at our maximum gain. I see that overnight, December Crude made an attempt to begin correction to the downside but prices have retraced back into the high range. I believe that last night’s lows are important to hold. That price level is in the $79.50 area. So I may want to liquidate the spread if prices begin to drop and test those lows again.

It would really be nice if prices head up towards the $87.00 area, so that the $82/$87 spread wakes up. Stay tuned.

Oct. 26, 2009
David Hall

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December Natural Gas is down 27.5 cents at $5.209 this morning as I write. The enclosed chart shows that December Natural Gas has completely broken down below the consolidation trend line and the price lows over the past month. This does not bode well for the trend. The directional movement indicators have crossed to the bear side but the ADX line is still just meandering at a low level. An assortment of different indicators are mostly bearish, but a few are still neutral to bullish.

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 28 days. I also continue to recommend buying the December 2012 Natural Gas at $7.25 GTC.

Since my covered call write trade has good protection down towards the $4.80 area, and all my indicators are not lining up on the bearish side, I will hold on to this trade for now. If prices fall to the area of $4.80 well before expiration in 28 days then I may have to liquidate the position. In the mean time, every day that time goes by, our trade is helped a little bit. I am looking for that 60 cent option premium that we took in for the $5.50 call to erode further, thus helping our overall trade.

Oct. 26, 2009
David Hall

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