The first thing I learned about the financial and commodity markets is not to fall in love with high-flying assets, although doing so lately has worked. Likewise, writing off markets most traders have grown to hate is generally a bad move in the long run. The explanation is simple, most active speculators are wrong more than they are right; human behavior and opinions change, even the “facts” can change as they did with the peak oil theory. Thus, if the masses are convinced a commodity will do one thing it generally does the opposite; if beating the markets were easy, everyone would do it.

DeCarley Trading

Crude Oil and Natural Gas: Be greedy when others are fearful?

This week President Trump signed a phase one deal with China that includes an agreement for the purchase of US agricultural products at a level that exceeds pre-trade war levels. Specifically, the Chinese have agreed to purchase $32 billion worth of agricultural commodities over the next two years. Why then, are grain prices softening on the news?

Don’t Sleep on the Grains.

Whether we like it or not, currency valuations are a primary driver of stock and commodity prices. While we like to talk about supply gluts, demand destruction, and the Chinese trade deal, the reality is a change in currency valuation could render any of those factors somewhat inconsequential. We’ve seen this occur time and time again throughout the years, but it is a fact that is easily forgotten. Particularly in today’s environment of historically low levels of volatility in the euro, yen and US dollar.

Eventually, currencies will matter for crude oil and other commodities.

Options on futures are expensive, learn to sell premium to pay for long option (directional) plays. Options are priced to lose, so it generally makes sense to avoid paying up too much for an option, or an option strategy such as a vertical spread. Yet, selling naked options to help finance long option places can get hairy if market volatility explodes. Some traders opt for ratio spreads which can generally give traders the ability to profit in most market scenarios but wreaks havoc on a trading account if the directional play is "too right". Perhaps one way to combat the disadvantage of trading ratio spreads while maintaining most of the benefits is an option ladder. This is basically the practice of staggering the short option strike prices of a ratio spread. Another way to look at is, is the sale of an additional option with a distant strike to cover the cost of a vertical debit spread. For instance, a trader could buy a near-the-money call option, sell an out-of-the-money call option, then sell a further out-of-the-money call option. Depending on how the trade is structured, this could result in a "free" trade, a cheap trade, or even a small credit. Join us to discuss the risks and rewards as well as the advantages and disadvantages of trading option ladder spreads. • Options are priced to lose, making a long option only strategy flawed without perfect timing and price prediction. • Selling options to finance long option trades can be beneficial if the trade is structured correctly in regard to risk and reward. • Understand the peril of traditional ratio spread trading. • Modifying ratio spreads to create a ladder strategy with less relative risk. • Create close-to-the-money options on futures strategies without spending a fortune in option premium.

Learn how to pay for vertical spreads using an option ladder strategy.

The liquification of the exportation of US natural gas resources is a work in progress; in the meantime, however, the domestic natural gas glut continues. Further, news of a gas pipeline from Russian to China is being viewed by traders as future demand destruction for US fracked gas. Of course, the weak fundamental landscape is being, arguably irrationally, exaggerated by thin holiday trading volume; nevertheless, the long liquidation could continue in the short run.

Will natural gas futures see $2.00

Earlier in 2019 many analysts were calling for small-cap stocks to outperform large-caps due to perceived undervaluation; instead, we’ve seen the sector continue to stall. If we are to believe conventional wisdom suggesting small-cap stocks are the market leader, this should be reason for concern for the major broad market indices.

Are small-cap stocks telling us something?

Almost without fail, either stocks, commodities, bonds, or all of the above experience unusually treacherous conditions through November and December of any given year. Accordingly, it is my opinion that investors and traders should deleverage, manage risk, and enjoy the holiday season with friends and family; doing otherwise could lead to a portfolio full of coal.

Don't let holiday markets wreak havoc on your trading account.

The CME Group offers a suite of weekly options in markets ranging from stock indices, crude oil, gold, and grains. Short-term traders can utilize these products to create directional trading opportunities in which the trader maintains lasting power with a moderate amount of capital and even less risk. For instance, a trader wanting to gain bullish exposure in the S&P 500, crude oil, or even gold for the next trading session could buy a call option expiring in two days for little out of pocket expense, no risk of being stopped out before the market makes the desired move, minimal stress, and defined risk. Come learn more about how these products have the potential to increase the odds of success.

Learn How to Day Trade and Swing Trade with Limited Risk & Without Premature Stop Outs

The talking points that were previously holding the stock rally in check seem to be slowly resolving themselves; a draft Brexit deal is making its way to an MP vote, the Chinese trade relations are thawing, corporate earnings are slated to beat low-ball estimates, the Fed has met the market’s accommodation demands, and the employment situation can’t get much better than the current (aside from additional wage growth). However, will there be enough fresh good news to keep buyers interested? Maybe, but we doubt it given the upcoming obstacles.

Technical and political resistance overhead for the E-mini S&P 500

The seasonal low for natural gas isn't due until later this month, or in early November. Also, most speculators are bearish but their short positions aren't extreme just yet so they could have more ammo to employ. If you are a bull, look for support near $2.25 but leave room for a potential probe to $2.00.

Natural gas futures bulls must be patient.

With crude oil prices on the move I am compelled to offer my thoughts on the subject, but don’t expect any bold directional opinions. The oil market is a major turning point in which the direction is even less predictable than usual. Additionally, we could see oil simply settle into a $10.00 range for the time being. That said, given weak seasonal tendencies by mid-October, we must believe any short-term strength the market might muster in the coming weeks will be short-lived. Let’s look at some of the mixed signals we are seeing in West Texas Intermediate crude oil futures traded on the NYMEX (New York Mercantile Exchange) division of the CME Group. Summary: Weak seasonal tendencies and technical resistance could keep the WTI crude oil futures rally capped at $60 to $62.

WTI Crude oil bulls will likely be dissappointed

Seasonality and the COT Report suggest Treasury futures could be rolling over sooner rather than later. We were early to begin doubting the Treasury rally, we know that. But we can’t help but believe the bond market has gotten ahead of itself. Overseas buyers seeking yield and domestic buyers seeking safety from a recession that might not materialize have pushed the Treasury market to levels that appear to be unsustainable. Further, the September Treasury futures are going into expiration, which often exaggerates these types of moves. With the first notice day looming, there is a probable chance the landscape changes in the coming weeks. If you are unfamiliar with first notice day, it is the deadline in which futures traders who are long the market must be out of positions to avoid the risk of receiving a delivery notice (obligation to take delivery of the underlying asset) from the futures exchange. First notice days are notorious for ending dramatic trends in many of the commodity markets. Let’s look at a few things that could break the Treasury market sooner rather than later.

The Treasury rally has been stunning but it is finally in the final stage.

Gold futures have enjoyed a nice run, but the buying could dry up sooner than most realize. The CFTC's COT report reveals there are nearly more traders long gold today than there have ever been. Further, technical oscillators such as the RSI (Relative Strength Index) are overbought and suggesting a pullback is imminent.

The gold rally could be coming to an end.

The natural gas futures trading on the NYMEX division of the CME group have suffered steep losses recently but there are signs the selling has been overdone. The COT Report reveals near record net short positions held by speculators.

Natural gas futures speculators could be too short.

Currencies such as the euro and the British Pound have been beaten down on Brexit concerns and an interest rate differential with the US dollar. However, these stories are likely mostly priced in. A trend reversal could be looming.

The currency market could be due for a shakeup.

This channel will provide free futures and options on futures trading education by DeCarley Trading, and Carley Garner. Including archived webinars, trading platform tutorials, and "learn to trade" snippets.

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