Commodity Strategist Nov 2, 2011

Today we find the “risk-on” trade being put on tentatively, and we say tentatively given the volumes are starting to dry up in anticipation of this afternoon’s FOMC meeting announcement and press conference – and the wildcard of headline risk in front of Greek Prime Minister Papandreou’s meeting with German Chancellor Merkel and French President Sarkozy. This all puts a great deal of headline risk into today’s trade – not to mention Friday’s always comically followed US Employment Situation Report. Therefore, let us state up front that we shall not be traders today, but watchers given we have a long S&P 500 and Crude Oil futures position on at present. This is sufficient at present; we’ll understand more about the FOMC and their  plans for the future of QE-3 and the impact upon commodity prices by tomorrow. Having said this, let’s dive right in to the Fed meeting conclusion and press conference this afternoon at 12:30pm EST and 2:15pm EST respectively. The consensus tells us to expect “no change”; but certainly this allows the Fed a “surprise announcement” if they so choose to do so…i.e. meaning a move to institute QE-3. However, they are likely only to lay the groundwork for further QE, which in practice may allow the asset markets a “head start” in ramping up such as they did in late-August 2010 when Dr. Bernanke talked about QE-2. Therefore, today we’ll simply be watching whether the FOMC does lay the groundwork for QE-3, and we will monitor closely the path of the USD versus the EUR given this cross rate shall show whether market participants believe Europe is solving its problems versus the negative USD impact of further money printing. Outside of this, we’ll simply watch and wait and do so with our stop losses on our current positions.

1. LONG: DEC Natural Gas (NG) — 2 CONTRACTS: We recommended a long position on 10/17 at 3.83. The recent decline is rather substantial, but a bottom in the throes of being formed we believe, and that belief stems from the fact that both our 14-day and 40-day models have turned higher. The stop loss stands at 3.70.

2. LONG: S&P 500 Futures Minis (ES) — 5 CONTRACTS: The 380-dma was tested yesterday at 1208 and has held. We recommended a long position on 11/1 at 1222; and we’ll allow our stop to remain at 1208...which is the lows from yesterday’s trade. Our upside target at a minimum is the recent highs at 1296.

3. LONG: Crude Oil Futures (CL) — 5 CONTRACTS: We recommended long positions on 11/1 at $90.50. Yesterday’s weakness saw the crude oil futures sharply lower into previous high support at $89-to-$91; a zone from which they have bounced. Today, we find prices trading between $93-$94, which means we have a lead in our trade. Therefore, we’ll place the stop loss at $91.50 to capture a bit of profit if in fact prices reverse and turnlower.