Downside Risks 11/3/11

We are not convinced the markets are correct in the recent appreciation and see downside risk in the immediate future in stocks as well as most commodities. For eight sessions now Crude oil has remained stuck in a $4 trading range with prices higher today approaching the upper band. We continue to like scaling into shorts looking for a breakdown. Consider yourself warned though that a breach of $95 to the upside we would likely cut losses and let go of these trades. Natural gas is still trying find a value zone as prices continue to dance around their lows. We have yet to see a catalyst to gain bullish exposure but the longer we stay range bound the larger the potential breakout. View natural gas as a coiled spring…we just need to have a reason to buy which we think would be on a settlement above $4…stay tuned. Stock indices found support once again at their 20 day MA; holding that level now for the last three sessions. We do not trust the appreciation d and have remained in our clients bearish ES put options. A close below this week's lows should drag the S&P back near 1180…our downside target. Continued problems out of Europe and strength and strength in outside markets helped lift gold to six week highs. Next resistance is seen at $1775 followed by $1800 in December . We are on the sidelines waiting for a retracement but we certainly could be wrong as the technicals appear supportive. Silver appreciated 1.8% closing just above $34.50/ounce. We favor a move lower but on a trade above the 50 day MA at $35.50 we would admit we're wrong and start pricing out bullish plays for clients. The forex market got a surprise today with the ECB cutting 25 basis points to 1.25%. Oddly enough European currencies caught a bid while the dollar ended lower in today's sessions. Our clients only open positions in this sector are put options in the Yen as we think we could challenge 1.2600 in the coming days. Book profits on any remaining shorts in sugar as we look to have a triple bottom in the making. Look for NFP tomorrow to set the tone in the Treasury market. Clients are on the sidelines. With the exception of oats and rice all the grain markets were higher today. We favor buying at lower levels and have advise clients to exit their corn and soybeans if they were speculative plays. Live cattle have appreciated 4% in the last three days and are on their way in my opinion to new contract highs. Aggressive traders could buy dips. Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.