The Thanksgiving holiday had barely gotten underway last week when the futures markets took a hard hit with the carefully timed disclosure of the Dubai financial problems.

The Dow Futures were down 200 points Wednesday night as everyone stateside was figuring out when the turkey dinner was planned to hit the table — hopefully between football games.  The heightened market uncertainty and excessive unrealized profits from long positions made for an easy housecleaning sell off in stocks around the world.

While the dollar amount of the exposure was minor in global terms, this dropoff reminds us of the fragile mental state of investors in 2009.  The concern about a larger potential regional issue and speculation about who’s tied to this Dubai debt caused banking and financial shares to decline sharply in panic selling that hasn’t been seen in months.  The downturn began in Asia then to Europe before the U.S. markets opened Friday morning.

From my perspective it was a healthy flush out after the largely unstoppable bull run for the last eight months.  Stocks had made new yearly highs November 13th but had made two failed attempts in the S&P futures to eclipse that 1112 mark.  More interesting was how close prices got to those highs on the Wednesday before the holiday before backing off.

Tip Top Drop?

Technically the charts were set up as a “Triple Top” and profit taking was already in the minds of technical traders before the news hit the wires.  It also turns out that that 1112 level is significant because it is the 50% retracement from 2007-2008 — which analysts are watching closely for future trend clues.  As it turns out, the market may have been looking for an excuse to drop and this fit the bill precisely with the lack of transparency.

One advantage my Resource Trader Alert readers get from using options is the limited risk and the staying power of long-term positions.  After gold had moved up 9 consecutive sessions making All Time Highs, common sense, if applicable to the markets, told everybody that a pullback was likely.  Options allow us to ride through any down periods with a larger goal in mind.

As it turns out the U. S. Dollar is still the world’s reserve currency in case anyone has forgotten.  The event last week sent Dollar shorts scrambling for safety and the ensuing buying frenzy was reminiscent of 12 months ago.  The financial collapse last year led to a climb in the Dollar as protection in times of uncertainty.

Friday Floor Fun

My guest media appearances are planned at least a week in advance so I knew I would be on TV the day after Thanksgiving, which is usually a snoozer shortened session.

With a houseful of stuffed guests my plan was to get out of the house and get a holiday from the holiday.  My only concern was being informed so I can respond to questions with somewhat intelligent answers.  This fear led to my Wednesday night uncovering of the pending problems for the morning.

My first stop was a morning grain update for Bloomberg about two hours before the open.  The “Looking For Support” market analysis focused more on the Crude, Stock and Dollar markets for clues than any crop fundamentals.  Corn and Soybeans held the Wednesday lows and rocketed higher to end the week strong.

Later that morning, the Fox Business Network had me stand next to the S&P pit for the open to give “a traders reaction” with most indexes opening down over 2% to start the day.  So much for a quiet break, the selling roar snapped everybody back to attention.  My analysis was, and still is, that the markets were overdue after the historic climb in almost every asset class.

As a trader I said that the damage may be largely done after the opening drop and as long as the markets stabilized and held the opening lows after the first 30 minutes then the worst may be over.  The S&P open at 1080 also happened to be a 20-day moving average but next technical support below that lies way down at the November lows of 1025.

Where to Look for Help…Tums?

While stocks were the big news of the day, larger percentage moves were all around in the trading pits for commodities.  Gold had dropped over $60 before recovery Friday while finishing still positive nearly $30 for the week.  Unless you bought Gold Wednesday November 23, 2009 you were still a net winner overall.  Silver and Oil were also some of the hardest hit mid-morning but much of it was forcing out of the weak hands.

I was fixed on the Dollar and Bonds to keep an eye out for new session highs signaling more fear and flight to quality as more facts came to light.  The crowded short Dollar trade looked like the uncomfortable guy on his 3rd plate of turkey with all the sides…After stuffing and cramming in all he could he realized his limitations and the need for time to make more room.

A key to follow for future clues is the resumption of Dollar weakness…  Plain and simple, that will tell us if the trends are still intact and the market indigestion and burp can be excused.

It ALL comes back to commodities,
Alan Knuckman

December 1, 2009

Alan Knuckman

Commodity expert Alan Knuckman hails from the home of commodity trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT).  Alan’s worked with all aspects of the commodity markets for the past 18 years - and now he brings his inside knowledge on energies, grains and gold to you. Alan's expertise and authority has led to frequent appearances in mainstream media, such as MarketWatch, Bloomberg, Fox Business,  CNN Money, and Reuters. He has also made multiple appearances on CNBC and CNBC Europe programs. Alan is currently the editor of Resource Trader Alert, a trading service devoted to raking in profits from hard commodities.

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