Fundamentals

You would think that the possibility of the second largest U.S. Corn harvest on record would put bearish traders in the driver's seat. However, Corn futures continue to trade above the recent lows, despite the upcoming harvest and potential hedge selling by commercial traders. Among the reasons for Corn's resilience is the concern that the late maturity of this year's could dampen yields, especially if a frost or freeze occurs. As of last week, only 37% of the U.S. Corn crop was considered mature, which is well below the 5-year average of just over 70% at this time of year. This has also impacted the speed of the harvest, with only 6% of U.S. Corn now in the bins, down from the 5-year average of nearly 20%. However, the crop currently in the ground is overall in very good condition, with 66% percent of the crop now rated good to excellent. It appears that Corn producers are now in a race against time to see if the weather will cooperate and keep damaging cold weather away from the northern Corn Belt long enough to reap the benefit of potentially strong yields.

Yesterday, the USDA released its quarterly grain stocks report which showed that the U.S. continues to hold ample Corn stocks. The report estimated fourth quarter grain stocks of 1.674 billion bushels. This was 50 million bushels above last year's totals, but below average analysts' estimates of 1.72 billion bushels. Traders will continue to focus on both food and fuel demands for Corn, with ethanol production increasing the demands for Corn for fuel production. Domestic Corn usage for livestock feed could continue to decline, as livestock herds have been cut due to poor profit margins. With these two fundamental factors offsetting each other, U.S. Corn exports need to remain robust to support Corn prices into 2010 -- especially if the projected 13 billion bushel crop actually comes to fruition.

Trading Ideas

Given the potentially mixed fundamentals in the Corn market, it will be difficult for either bulls or bears to gain control of the market. This raises the possibility that Corn futures may be moving to a consolidation phase until one side can gain the upper hand. One trading strategy that may possibly be beneficial if Corn moves into a consolidation phase is selling strangles in Corn options. An example of such a trade would be to sell the November Corn 380 calls and sell the November Corn 300 puts. With December Corn trading at 341.25 as of this writing, this strangle could be sold for 3.625 cents, or $181.25 before commissions. The credit received is the maximum profit on this trade and would be realized if December Corn is trading below 380.00 and above 300.00 at the option expiration on October 23rd. Given the potential risk o short option trades, traders may possibly want to consider closing out the trade early if December Corn trades above 380 or below 300 before the options expire.

Technicals

Looking at the daily chart for December Corn, we notice prices holding above the 20-day moving average. This is normally considered a bullish signal by short-term momentum traders. However, since the August 3rd highs, we have been making lower highs in December Corn, and we are still well below the 100-day moving average which is hovering near the 370.00 area. The 14-day RSI is moderately supportive, with a current reading of 57.54. 347.75 is the next resistance point for December Corn, with near-term support found at 310.00.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Copper futures have corrected since flirting with the $3 mark several times over the past two months. Traders have had plenty of time to reflect on the current market fundamentals, which have softened in recent months. China has made good on their promise to reign-in commodity buying, which has caused imports of the industrial metal to fall. LME stockpiles have risen for 11 consecutive weeks, and current inventory levels are nearly 33% higher than they were in mid-July. Yesterday's Chinese factory index data, while an improvement over August's figures, did fall short of analyst expectations. The Dollar Index was at a pivotal support area heading into the G-20 summit last week and seemed ripe for a meltdown, but the US currency found some stability during the past week after global leaders turned their attention to their own debt burdens and growth prospects. Copper bulls were disappointed by the metal's failure to break the $3 level, despite several attempts, which has caused them to step back and re-assess the previously mentioned fundamental factors.

The Copper outlook is not all doom and gloom, however. The recent correction has been a reflection of the mindset among not only Copper traders, but commodity traders as a whole that prices may be overheating. It is healthier for the market to pull back and attract buying interest rather than to keep pushing ahead of market fundamentals, only to implode down the road when high prices inhibit economic growth. While yesterday's Chinese factory index did fall short of expectations, manufacturing data from both China and Japan hint that demand for the red metal may increase down the road. Workers in BHP Billiton's Spence mine in Chile have threatened to strike, which could cause supply fears to creep into the market. The contradictory fundamental data suggests that traders may remain skittish and could result in sideways to lower trading for the remainder of the year.

Trading Ideas

The mixed fundamental and technical outlooks for the Copper market suggest that traders may possibly want to be cautious moving forward. The already volatile Copper market has seen large-range days with little overall direction, making it difficult for traders to formulate opinions with any sense of conviction. For this reason, traders may choose not to focus on long-term trade ideas, but rather look to go short the futures contract on rallies.

Technicals

The December Copper chart shows the market breaking near-term support near 2.7000, only to bounce back. If prices do fall below this support area once again, support can be found between 2.55 and 2.45. The December contract would have to close above the 3.00 level with conviction to signal an upside breakout. Prices did also drift below the 50-day moving average, which can be seen as negative in the near-term. It appears as though the 20-day moving average is going to cross below the 50-day moving average, which can be seen as negative over the intermediate future. The choppy price action recently has caused the oscillators to remain fairly neutral.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

The September non-farm payrolls report was a bit of a disappointment for those who believed that the economy was on an upswing, as the Labor department reported that 263,000 jobs were lost last month. This was well above average analysts' estimates of between 175,000 and 200,000 jobs lost. The unemployment rate also ticked up by 0.1% to 9.8%. The largest job losses were seen in construction, manufacturing, and retail trade. Not even the government was hiring, as this sector was reported to have shed 53,000 jobs. Not all of the report was gloom and doom, as the August employment figure was revised for the better, with "only" 201,000 jobs lost vs. the originally reported 216,000. Since the "official" start of the recession in December of 2007, it is estimated that over 7 million jobs have been lost. The U.S. has not seen this many jobs lost since the 1930's. Today's report sent a moderate bid through the treasury complex, just after the report was released, causing yields on 10-year treasuries to fall to their lowest levels in nearly 5 months. However, with the December 10-year futures moving towards resistance at the 120-00 level, selling pressure emerged as traders long Note futures booked profits. A continued weak U.S. Dollar also may have sparked some selling in treasuries, as fears of rising inflation in the futures makes current yields on treasuries much less attractive for long-term investors. Though Fed officials continue to believe that the worst of the economic decline is behind us, there are few signs that the recovery will be quick, and the jobless rate could continue to climb before we finally see a bottom in the jobs market. This may force the Federal Reserve to continue its current policy of keeping interest rates low for some time, which could help to keep a bid in the treasury market.

Trading Ideas

Traders in 10-year note futures are caught between bullish fundamentals, which could send prices higher and strong technical resistance which may call for lower prices. Given this conundrum, some traders may wish to explore positions that will benefit from a large move higher or lower. One such trading strategy would be buying straddles in 10-year note options. For those who do not know, a long straddle consists of the purchase of a call option as well as a put option in the same contract month and the same strike price. An example of this trade would be buying the December 119.50 straddle. With the TYZ9 contract trading at 119-14.5 as of this writing, the straddle could be purchased for 2-40 points, or $2,625 before commissions. The premium paid would be the maximum loss on the trade, with the position showing a profit at expiration if the December 10-year notes are trading above 122-04 or below 116-28.

Technicals

Looking at the daily chart for December 10-year notes, we notice bulls currently have the upper hand, as prices are above both the 20 and 100-day moving averages. The 14-day RSI is also strong, with a current reading of 68.07. However the 120-00 area looks to be strong psychological resistance. The Commitment of Traders report shows both large and small speculators are holding a net-short position in 10-year note futures, which could cause a short-covering rally if we can see a weekly close above the 120-00 area. Support is seen at the 20-day moving average, currently near the 117-20 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Gold futures have moved solidly above the $1,000 mark once again on Dollar weakness, but investors are beginning to question whether prices will be willing to advance beyond highs made in September. The economic outlook is beginning to look a bit hazier once again, making Gold attractive as an alternative investment. Investment in the SPDR Gold Trust keeps pouring in from speculators who are concerned that stock valuations have risen too sharply, too quickly. Inflation pressure may be heating up once again due to stimulus spending and a weakening Dollar, further adding to Gold's cause.

The stock market has not had a meaningful correction to this point, and it is difficult to tell if and when it will correct. If the stock market faces pressure, the Dollar may find some support and, in turn, Gold prices could correct. The US Dollar is going to have a major impact on whether Gold can sustain rallies beyond the $1,000 level. If forex traders are unable to push the Dollar lower, it could force Gold rallies to stall out. Another bearish force that may inhibit further advances could be the lack of value at current price levels

Trading Ideas

The fundamental outlook for Gold remains bullish, but questions about the sustainability of current price levels remain. The technical outlook is even more questionable, not giving a definitive direction to the market. This suggests some traders may possibly wish to take on a cautious bullish approach to the December Gold contract, such as a bull call spread. Some traders may want to consider purchasing the November Gold 1030 Call (GCX91030C) and selling the November 1050 Call (GCX91050C) for a debit of 5.00, or $500. The trade risks the initial investment and has a maximum profit of 15.00, or $1500, if the December Gold contract closes above 1050.00 at expiration.

Technicals

The December Gold chart shows a confirmation of an M-top with the recent decline below the $1,000 level. The chart was flagging, indicating prices could move lower. However, the recent spike in prices makes the pattern invalid. Prices have now solidly closed above the 20-day moving average, indicating that a near-term low may be in place. In order for Gold prices to maintain their upward momentum, the December contract must close above the September 16th high close of 1020.20. Failure to do so could spur profit-taking and possibly trigger bearish action on the chart.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Dollar index futures look poised to resume their downtrend, after the Group of Seven (G7) meeting this past weekend in Istanbul failed to formally address any plans to halt the U.S. Dollar's decline. This came as a bit of a surprise to some traders, who thought leaders from the European Union and or Japan would strongly voice their concerns that recovery efforts in Europe and Japan were being hampered as a rising Euro and Yen continued to hurt exports. However, officials were more vehement to address Chinese currency concerns, as the call continues to go out for China to allow the Yuan to appreciate in value. Though intervention in the FX market weakening one's own currency is possible, there have been few signs that European and Japanese central banks are ready to make such a move, despite some calls from manufactures to do so. Speculators are already onboard the bearish Dollar bandwagon, according to the most recent Commitment of Traders report. As of September 29th, large and small speculators are holding a net long Euro/Dollar position of nearly 66,000 contracts, as well as a net short position of 9,790 contracts in the Dollar index. This relatively large one-sided position against the greenback has some traders looking for a strong correction in the Dollar, as speculators rush for the exits should we start to see some Dollar positive news hit the markets. However, with the U.S. Government's seeming approval of a weakening Dollar to aid U.S. exporters, it appears that only a change in policy by foreign Central Banks to intervene in the FX markets to buy U.S. Dollars will catch the attention of speculators and potentially put at least a temporary halt to the Dollar's decline.

Trading Ideas

Given that the current trend in the Dollar Index is bearish, but with the potential that we could see a short-covering rally by year's end, some traders may wish to explore strategies that not only take advantage of the near-term weakness, but also hedge against a potential change in trend. One such strategy would be buying a calendar spread in Dollar Index options. An example of this trade would be buying the December 78 calls and selling the November 78 calls. With the December Dollar index futures trading at 76.91 as of this writing, the calendar spread could be purchased for about 35 points, or $350 per spread plus commissions. The premium paid is the maximum risk on the trade. The position would benefit from increasing time decay in the November options -- especially if the Dollar index futures price holds relatively steady as expiration of the November contract approaches during the first week of November.

Technicals

Looking at the daily chart for the December Dollar Index, we notice the market struggled to hold above the 20-day moving average after this past weekend's G7 meeting did little to alter the Dollar's bearish bias, but bearish fundamentals ultimately prevailed. More importantly, we would need to see a nearly 200-point rally in the DX in order to approach the 100-day moving average that many technical traders use as a gauge to assess whether a market is in a bullish or bearish mode. The 14-day RSI could barely move above the 50-level on the recent minor upswing before turning lower on Friday's sell-off. The recent lows made on September 23rd at 76.045 remain key support for the December contract. Last week's high of 77.735 made on September 29th looks to be the next resistance point.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Euro currency futures have struggled to get back to highs made in mid-September, as traders are concerned that the currency may have appreciated too quickly. The move may also be attributed to short-covering of US Dollar positions by FX traders. The pullback is not, however, likely related to market fundamentals, which suggest that the pan-European currency may continue to strengthen by default because of the huge amount of American consumer and government debt. The lack of consumer spending continues to be a major concern for the Federal Reserve and will likely force the central bank to keep interest rates low for the foreseeable future.

The European Central Bank is not expected to raise interest rates today, but the official policy statement may give clues as to when the central bank may raise rates in the future. Recent statements by policymakers have focused on downside risk and have downplayed "green shoots." Like the US, European economic data has shown growth prospects, but data remains below what would be seen as growth. The EU has warned 9 member states that have exceeded their budget deficit target of 3% by a wide margin. So far, 20 if the 27 nations that comprise the EU have exceeded the 3 % target. This is a sign that the union may become more rigid in regard to the amount of government debt issued by member nations, thus reducing supply and giving the currency an advantage over the greenback in this regard.

Trading Ideas

The fundamental outlook remains positive for the Euro over the long-term. In the short-term, however, forex traders may focus on their inability to push the Dollar even lower, which could trigger further short-covering in the US currency. The technical outlook in the near-term may favor the bear camp. Therefore, some traders may wish to stay on the sidelines and see how the currency behaves in the near-term. Or, some traders may wish to be short the futures contract on a solid close below the 1.45 level, with a downside target of 1.42 and a protective stop of 1.48. The trade has a roughly 1:1 risk/reward ration, whereupon the profit and risk targets are around $3,750.

Technicals

The December Euro chart shows prices struggling to maintain the upward momentum. Prices did come down to test the 1.45 level and were able to hold the initial test. Going forward, the 1.45 mark may be seen as a pivotal level for the currency, as a violation of this rate would confirm a double-top on the daily chart. The recent closes above the 20-day moving average suggest that a near-term low may be in place. It is interesting to note that the 20-day momentum indicator is showing bearish divergence from both price and RSI, suggesting the Euro may find itself under pressure in upcoming sessions.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Fall weather has rolled into the central U.S. this week, with weather forecasters calling for freezing temperatures in parts of the upper Midwest this coming weekend. Although the coldest temperatures are expected in the Dakotas and Minnesota, there is a chance that the front could spread into parts of Iowa and Illinois. Freezing weather is not what grain producers needed to see, as both the Corn and Soybean crops are behind average maturity levels for this time of year. Although yields would be affected for both Corn and Soybeans if a freeze hits, Soybean crops may fare better, as their development is a bit further along. This has kept any rally attempts for Soybeans in check, as traders anticipate a record or near-record U.S. Soybean crop in spite of potential weather woes and continued weakness in the U.S. Dollar. The USDA will release its October Crop Production report this morning, with traders and analysts looking for Soybean production to be nearly 3.28 billion bushels, which is almost 35 million bushels above last month's estimate. Average yields are expected to be near 43.5 bushel per acre, though this may be optimistic if freezing weather strikes a larger than expected area of the Midwest this weekend. 2009/10 Soybean carry-out totals are also expected to increase by nearly 50 million bushels due to record production. However, it may be financials and not Mother Nature that determine the direction of Soybean futures prices as 2010 approaches, as the falling value of the U.S. Dollar makes U.S. exports more attractive -- especially vs. Brazil, who is a major U.S. competitor in the Soybean export market. The Brazilian Real is near its highest levels of the year vs. the Dollar, and this surge in its currency could definitely hurt Brazilian bean exports, especially to buyers in the Far East. The weak greenback also enhances the appeal of "commodities" as an alternate investment idea, especially for those looking for a hedge against rising inflation.

Trading Ideas

Neither bulls nor bears are dominating the fundamentals in the Soybean market lately, as one has to weigh a potential record Soybean crop vs. increased investor interest in commodities as an inflation hedge. Given these mixed signals, some traders may wish to explore trading strategies that might possibly benefit from a large move in either direction. One such strategy would be the purchase of a strangle in Soybean options. An example of this trade would be buying the January Soybean 1000 call and also an 860 put. With January Soybeans trading at 940.00 as of this writing, the strangle could be purchased for 44 cents, or $2200 per strangle, not including commissions. The premium paid would be the maximum risk on the trade. The trade would be profitable at expiration in December if January Soybeans are trading above 1044.00 or below 816.00.

Technicals

Looking at the daily chart for January Soybeans, we notice prices have moved above the downtrend line formed from the recent highs made on August 13th. This up-move also pushed prices through the 20-day moving average, which is viewed as a bullish signal by short-term momentum traders. Even though the short-term trend has turned up, the longer-term trend remains in control of Soybean bears, with the 100-day moving average still nearly 40 cents higher than current prices. The 14-day RSI has turned up and is now firmly in neutral territory with a current reading of 51.51. Support in January beans is seen at this past Monday's lows of 885.50, with resistance found at the 980.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Orange Juice futures have surged the past two sessions, on a sharp downward revision of the Florida crop size by the USDA. The 136 million box estimate fell well short of consensus projections of 151.2 million boxes, driving feverish buying and causing a mass exodus of shorts. The orange crop has been plagued by persistent dry weather and unseasonably cold weather for much of the year, both of which have squeezed supplies. On top of the freezes and drought conditions, orange trees have also been hit by a disease known as greening, which has caused farmers to begin pulling trees, leading to the possibility of further production shortfalls in the future. Up to this point, stocks have not been dropping as quickly as many had expected, leading traders to believe the US could wind up with a rather sizable surplus. The pendulum has now completely swung in the other direction, and we may now be talking about deficits.

Trading Ideas

Given the bullish fundamental and technical developments, some traders may be tempted to enter the long side of the market. However, because of the sharp move in the market the past two sessions, some traders may possibly wish to consider taking a cautious approach and enter the options market instead. For example, rather than diving into a long futures position, some traders may wish to enter into a bull call spread, buying the December Orange Juice 115 Calls (OJZ9115C) and selling the December Orange Juice 125 Calls (OJZ9125C) for a debit of 3.25, or $487.50. The spread risks the initial premium paid and has a maximum profit of 6.75, or $1012.50.

Technicals

Friday's explosive move higher in the January Orange Juice contract resulted in the confirmation of a double bottom formation on the daily chart. The measure of the pattern suggests that the January contract may test the 125.00 area. The RSI indicator has quickly moved above the 70% overbought area, but it is unknown whether this will have any effect on prices in upcoming sessions, given the fundamental news and technical breakout. The fist significant area of resistance the market may run into is near the 117.00 level. This would be a logical area for short-term traders to take profits, which could result in some consolidation or a small correction.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Cocoa futures have been in a bull market for most of 2009, as solid demand -- especially in Europe -- and another disappointing Cocoa harvest in the Ivory Coast have had traders in a bullish mood. However, volatility has increased the past several sessions, which may force weak longs out of the market. On Friday, a report from the European Cocoa Association (ECA) showing European Cocoa grind was up over 16% in the third quarter sent Cocoa prices sharply higher. However, the ECA later retracted the report, saying a statistical error may have skewed the data and that the organization would be issuing a revised report on October 13th. This news sent prices plummeting off the highs, triggering sell stops along the way. Overshadowed by the erroneous data in the ECA report was the increase in U.S. Cocoa bean exports which were up 55% from year ago levels. News continues to circulate from the Ivory Coast, the world's largest Cocoa producer, that this year's production will continue to lag earlier expectations, despite relatively good weather conditions. Bean quality has also been a disappointment this season, with buyers blaming high prices for fertilizers for forcing many producers to forgo its usage, which has affected both crop size and quality. There is better news out of Nigeria, where traders are looking at a sizable harvest from the 2009-10 main crop, which is expected to start in earnest in November.

Both large and small speculators are holding net-long positions in Cocoa futures, according to the most recent Commitment of Traders report. As of October 6th, non-commercial traders where holding a combined net-long position of 30,320 contracts, up 1,238 for the week. Though not a record long position, Friday's reversal on the daily charts may trigger some long liquidation, as sell stops are high below recent support points. Though the fundamentals appear to continue to favor the bulls, traders should prepare for increased volatility in the Cocoa market near these lofty price levels.

Trading Ideas

More conservative traders who wish to hold a bullish position in Cocoa but hope to withstand the increased volatility seen the last several sessions may possibly want to investigate option strategies in Cocoa. One such strategy would be buying bull call spreads in Cocoa options at least 3 months out. An example would be buying the March Cocoa 3200 calls and selling the March Cocoa 3600 calls. With March Cocoa trading at 3102 as of this writing, the spread could be bought for 150 points, or $1,500 per spread, not including commissions. The premium paid would be the maximum risk on the trade, with a potential profit of $4,000 minus the premium paid, should March Cocoa be trading above 3600 at option expiration in February.

Technicals

Looking at the daily chart for December Cocoa, we notice that Friday's price reversal after making 15-month highs sparked some serious long liquidation on Monday. Prices fell below the 20-day moving average, which is viewed as a "sell" signal by many short-term momentum trading systems. However, last week's lows of 2967 have not been taken out and may act as a short-term support point should the sell-off continue. Longer-term support is seen at the 100-day moving average, currently near the 2840 area. Friday's highs at 3329 should act as near-term resistance in the December contract, with longer term resistance found at 3400.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Corn futures are higher for the seventh time in eight sessions, on concerns that frost across much of the Midwest may contribute to lower than expected production. Extended periods of frost could potentially have a negative impact on immature Corn stalks going into the harvest. Traders, however, may question whether this recent rally has been a result of short-covering, and if the inclement weather will be able to reduce the crop size by a large enough figure to really have an impact on prices over the long haul. It certainly appears as though the bull camp wants to take the football and run with it at this point. The 75 cent rebound from recent lows has resulted in heavy farmer selling, increasing the current supply of Corn on the market. Yet, it is unknown if physical buyers will be able to keep pace in the near-term, which could result in prices correcting. Like the broad commodity market, Corn has benefited from a much weaker US Dollar. The Dollar Index is quickly approaching the pivotal support area at 76.00. This can be seen as a "make or break" level for the DXZ9, where the greenback could weaken considerably if this level is violated.

Trading Ideas

Longs have found validation from both fundamentals and technicals, but the market may be a bit overheated. This suggests that some traders may wish to sit this one out for the time being, and see how the December Corn contract behaves once prices approach the 400 level. Some more aggressive traders may possibly wish to consider selling the December Corn contract at 400, with a protective stop at 430 and a downside objective of 360. The trade risks roughly $1,500 for a potential profit of $2,000.

Technicals

The December Corn chart shows the market quickly heading toward the 400 mark, which is the next area of significant resistance, after breaking through minor resistance at 369. The combination of overbought conditions on the RSI and the major technical and psychological resistance at 400 could result in heavy profit-taking from longs. The Corn market has not seen a meaningful correction since the rally picked up steam in mid-September, suggesting the market may be ripe for some consolidation or, possibly, a small correction.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Gold bulls have certainly enjoyed the upper hand lately, as the yellow metal has surged to all-time highs this week. Gold is attracting interest from investors who are concerned about inflation, especially given the weakness in the U.S. Dollar. This weakness has sparked discussions that an alternative to the U.S. Dollar as the "reserve" currency is needed. Although a shifting to a new "reserve" currency is highly unlikely in the near-term, some investors are turning to Gold as an alternative to holding all of one's wealth in any one currency. Trend-following traders are embracing the long side in Gold futures, as prices have steadily climbed higher, with only" minor" corrections so far this year. Hedge selling by Gold producers has also been curtailed, and several major mining concerns have abandoned their hedge-selling programs, as the sharp rise in Gold prices has made this a costly endeavor. Some investors prefer to invest in Gold producers who do not "hedge" production, which makes these companies more of a "pure play" on the price of Gold. The popularity of numerous Gold ETF's available has made Gold investing even easier for the average individual. The record high prices for Gold have come at the cost of its demand for use in jewelry, especially in India, who is the world's largest buyer of physical Gold. It is estimated that India will import "only" 35 tons of Gold in October, which if true, will be nearly 20 tons less than a year ago.

If the old adage that "history repeats itself" is true, then Gold prices have the potential to become much more volatile in the coming weeks. Looking back at the last big move in Gold and Silver prices in late 1979 and the first quarter of 1980, as well as the big bull market in Platinum in 2008, we notice that prices had moved "parabolic" in the waning days of these historic bull markets before the highs were in place. Though Gold prices have moved sharply higher the past several sessions, the recent moves have been nothing like those of the past bull markets in the precious metals sector. Although "this time may be different", traders should be on alert for a possible capitulation by "Gold bears" before we see the highs in place for the current bull market in Gold, as well as increased price volatility as we trade in unchartered price territory.

Trading Ideas

With Gold prices holding near all-time highs, it should come as no surprise that Gold option volatility has risen, which makes purchasing individual options more expensive. One way to help mitigate the increased cost is by utilizing option spreads. Some traders who believe that Gold prices are headed even higher but who want to define their risk on a trade may wish to investigate bull call spreads in Gold futures. An example of this type of trade would be buying a February 2010 Gold 1075 call and selling a February 2010 Gold 1175 call. With February Gold trading at 1063.60 as of this writing, the spread could be purchased for 27.00 points, or $2700 per spread before commissions. The premium paid is the maximum loss on the trade, with a potential profit of $10,000 per spread minus the premium paid if February Gold is trading above 1175.00 at the option expiration in January.

Technicals

Looking at the daily chart for the most active December Gold futures, we notice prices accelerated to the upside once the recent highs of 1025.80 made on September 17th, were taken out on October 6th. Since that time, Gold prices have spiked nearly $50 per ounce, helped in part by the continued slide in the U.S. Dollar and the Dollar Index futures contract hovering near its lows for the year. Needless to say, Gold prices are well above both the 20 and 100-day moving averages, and momentum remains strong. The 14-day RSI is just reaching overbought levels with a current reading of 70.90, but is still below the extreme reading in the mid-to upper 80's that signals a market in the midst of capitulating buying by those caught short the market. Since we are in unchartered price territory for Gold, resistance areas are tougher to gauge. As a rule of thumb, round numbers are viewed as potential technical points, so many traders are looking towards the $1100.00 area as a potential resistance target. Support for December Gold is seen at the previous near-term high of 1025.80 which is also near the current level of the 20-day moving average.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Bond futures continue to slide as a result of the weakening US Dollar and positive economic data. Analysts and government officials alike have been warning investors not to read too much into the positive economic data of late, but that has not stopped the increased appetite for risk. Commodity and stock prices have been surging lately, decreasing investor demand for treasuries. Gold has been much more attractive to investors because of rising commodity prices, as it is often considered a defensive instrument and a hedge against inflation. Both Gold and Bonds have been rallying since August, so something had to give, as both markets tend not to move in the same direction. It now appears that the Bond market is the market that may finally break. Treasury auctions continue to rise in size, which has created a large supply of Bonds on the market. The weakening US Dollar has caused foreign investment in US Bonds to drop, as investors choose to buy domestic government debt instead of US treasuries. Further advances in equities suggest that inflation may be heating up and that the trend of lower debt prices from the past two weeks may continue.

Trading Ideas

December Bonds have faced near-term pressure due to both technicals and fundamentals; however the market may be due for a small corrective bounce in the near-term. For this reason, some traders may wish to consider taking advantage of a small up-move. Traders may possibly wish to buy the December Bond futures at 118-16, with a protective stop at 117-16 and an upside target of 120-16. The trade risks roughly $1,000 for a potential profit of $2,000.

Technicals

The daily December Bond chart shows prices falling below both the 20-day and 50-day moving averages in recent sessions. Furthermore, prices were not able to hold support at 121-11 and 120-00. The next critical support area for the December contract comes in near 117-16, which may determine the intermediate direction of the market -- especially because this level coincides with the 100-day moving average. The stochastics have now reached oversold levels, and the momentum indicator is showing bullish divergence from both price and RSI, suggesting the market may find some near-term support.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

Although Live Cattle futures prices have been choppy lately, there is little doubt that the longer-term trend has favored the bears, as prices have been in a steady decline since key support at 87.15 in the December futures was taken out in the final days of August. However, optimism that the worst of the economic malaise is now behind us, and Cattle prices have staged a bit of a rally the past few sessions, with traders starting to anticipate an improvement in consumer sentiment. This may, in turn, lead to an increase in demand for more costly food items such as beef. However, any shift in consumer demand may take some time, and current supplies of fed Cattle remain ample. Friday's release of the monthly Cattle on Feed report (COF) was viewed as uneventful, with total Cattle on feed as of October 1st estimated at 10.474 million head, or 101% of last year's total. Placements in September totaled 2.388 million head, or 105% of last year's total. Cattle marketed in September totaled 1.746 million head, which is 96% of last year's total. The totals all were within the average range of pre-report estimates by analysts and traders. Cattle sales have been light the past week, with most transactions occurring between $78 and $82 per hundredweight, as activity was muted ahead of Friday's COF report.

Trading Ideas

Although current Cattle fundamentals favor the bear camp, there is still growing optimism that signs of an economic recovery will eventually spur beef demand and, in turn, increase Cattle prices. These conflicting views may lead to a period of price consolidation until either bulls or bears regain the upper hand. One option strategy that would benefit from a sideways market would be selling strangles. A short strangle involves the selling of a call option and a put option at different strikes but for the same trading month. An example of this trade would be selling a December Cattle 88 call and a December Cattle 82 put. With December Cattle trading at 85.175 as of this writing, this trade could be done for a 1.25 point credit, or $500 per strangle, not including commissions. These strikes were selected because the call strike is above near-term resistance at 86.50, and the put strike is below near-term support at 83.40. Given the potential unlimited risk involved in selling strangles, those who choose to trade using this type of strategy should monitor their position extremely carefully. More risk averse traders may choose to close out the position before expiration should December Cattle trade above 88.00 or below 82.00 before the options expire on December 4th.

Technicals

Looking at the daily chart for December Cattle, we notice the recent move up off the contract lows pulled prices above the 20-day moving average, which is considered a short-term positive for Cattle prices. However, momentum traders have had difficulty keeping the rally going, which may be a sign that the rally was due to short-covering buying rather than new longs entering the market. This could be especially true given the COF report on Friday, which spurs some position squaring by traders ahead of a major report release. The 100-day moving average is currently found near the 87.80 area, and it would take a weekly close above this indicator to put the bulls firmly in control. The 14-day RSI is in neutral territory, with a current reading of 47.70. The October 1st highs of 86.50 remain near-term resistance in the December contract, with support found at the contract low of 83.40.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Gold futures continue to push higher on a weaker Dollar and demand as an alternative investment. The recent surge in the Dow over the 10,000 mark has hurt the greenback, as investors are choosing riskier assets instead of the Dollar and treasuries. The surge in equity prices also gives Gold a boost as an alternative investment. Stock market valuations are extremely high compared to actual growth projections, suggesting the market may be ripe for a sharp move once it does correct. It is impossible to pick tops in equity prices, so weary traders seem to be positioning themselves in Gold rather than bonds. Central bank policy in the West continues to favor stimulating growth rather than taming inflation, making precious metals all the more appealing. Meanwhile, China and Russia seem to be stockpiling Gold, bolstering the physical market. While physical buying by investors and governments had been very stout, jewelry demand around the globe remains weak -- most notably in India, where high prices may result in disappointing wedding season results. Likewise, industrial and dental demand has been well short of what the Gold market is accustomed to seeing. If anything, the lack of Gold demand outside of investment may be the Achilles heel for prices. The upcoming Christmas shopping season may offer traders further clues as to how strong physical demand will be going forward.

Trading Ideas

Both the fundamentals and technicals seem to possibly favor the long side for Gold. However, the markets may be in corrective mode, given the sharp rise in equities and drop in the Dollar. For this reason, some Gold traders may perhaps wish to bide their time and wait for an entry point if trading futures or possibly enter into an option position. Traders wishing to be long the market may want to consider entering into a bull call spread, buying the December Gold 1075 call (GCZ91075C) and selling the December 1100 call (GCZ91100C) for a debit of 8.00, or $800. The spread risks the initial investment for a potential profit of 17.00, or $1700, if the December futures contract closes above 1100.00 at expiration.

Technicals

The December Gold chart shows prices consolidating after the recent breakout. Given the overbought conditions on the RSI indicator, it would not be surprising to see prices come down to test newly established support near the 1025.00 level. If the market does not break below the 1050 mark, prices may test the 1125.00 level. Momentum seems to be flattening out, suggesting prices may consolidate further before finding a short-term direction.

Rob Kurzatkowski, Senior Commodity Analyst

Fundamentals

The old saying "every dog has its day" could certainly apply to the Natural Gas futures market as the December futures contract has risen to highs not seen since June, despite a record amount of Gas in storage. It is still too early to tell to what extent the recent rally may be due to speculative short-covering. The most recent Commitment of Traders report shows large non-commercial traders were holding a net-short position of 64,050 contracts as of October 13th. This was a decline of 1,902 contracts for the week and does not take into account the activity that occurred during the nearly 0.750 point rally since the report was released. Also adding a bit of bullish fuel to the recent rally are predictions that a weak El Nino weather pattern may result in a colder than normal winter. If true, it may cause utilities Gas usage for heating demand to increase, helping to cut into the current burdensome supplies. Traders are also beginning to anticipate an uptick in industrial demand now that there are signs that the worst of the recession is behind us and an improvement in industrial production may not be far off. However, until we start to see fresh buying entering the market, any major rally attempts could be met with eager sellers -- especially with futures trading above cash prices. Traders should monitor government data to gauge the extent of any economic recovery, as Natural Gas futures have been acting as a barometer to economic conditions here in the U.S.

Trading Ideas

Natural Gas options have always intrigued both option buyers and sellers, as the potential for large price moves gives encouragement to option buyers, and the rather steep "premium" that Natural Gas options tend to command make it a tempting play for short option sellers. Given the conflicting fundamentals in the Natural Gas market, some traders may wish to explore positions that involve both buying and selling options on Natural Gas futures. For traders who may believe that the record supplies will eventually cause a sell-off in the Natural Gas market, exploring bear debit put spreads may, perhaps, be in order. An example of this trade would be buying the December 5.80 put and selling a December 5.30 put. With December Natural Gas trading at 5.896 as of this writing, the spread could be purchased for about 0.200, or $2000 per spread exclusive of commissions. The premium paid is the maximum risk on the trade, with a potential profit of $5000 per spread minus the premium paid should December Natural Gas be trading below 5.300 at expiration in November.

Technicals

Looking at the daily chart for December Natural Gas, we notice prices broke above the highs of the month-long consolidation pattern at the 5.300 level. This now sets-up a test of psychological resistance at the 6.000 level. Above 6.000, we see chart resistance at the June 16th high at 6.170. Despite moving to nearly 4-month highs, the 14-day RSI has not made a new high for the move, and may be signaling a potential bearish divergence. Support for the December futures is seen at last week's lows of 5.280, with major support at 5.200.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Copper futures climbed above the key $3.00 mark on positive GDP news from China. The figure came in within expectations at 8.9 percent, which is the highest rate of growth in a year from the emerging giant. In addition to positive sentiment from the figure, Chinese officials had noted that inflationary expectations continue to climb on a monthly basis, which offered a lift to the overall commodity markets. Traders now have to question whether this rate of growth can continue, as the Chinese government has stimulus packages to get to this point. Copper analysts may be cautiously optimistic that prices can maintain current levels, especially if the US Dollar continues to weaken. Inventory levels are still relatively high, which may put some downward pressure on prices. Also, it looks as though China will have to go it alone on this one, as US housing starts and building permits failed to inspire traders and are showing signs that the recovery in the US housing market may be long and painful.

Trading Ideas

Given the high volatility of the Copper market, some traders may be better-suited staying on the sidelines if they do not have the capital or risk tolerance to hold positions. Or, as an alternative, some traders may choose to use Copper as an economic gauge for China and the global economy as a whole. Those who wish to trader Copper may want to first see how the market behaves near the 2.95 level. If the market is able to firmly establish support at this level, some traders may wish to enter into a long position with a protective stop at 2.89 and an upside objective of 3.15. The trade risks roughly $1,500 for a potential profit of $5,000.

Technicals

The December Copper chart shows prices breaking-out above recent highs near the $3.00 level. Ideally, traders would like to see several closes above this key level in order to confirm a breakout. The recent surge from 2.70 to this point may trigger some profit-taking, which suggests prices may come back down to test the 2.95 level in the near-term. Failure to hold 2.95 could result in the recent rally fizzling out, and Copper may find itself range-bound once again. A successful retest of 2.95 could result in the rally having some staying power.

Rob Kurzatkowski, Senior Commodity Analyst