I’ve lost the illusion of sensing I can see good opportunities on the grain markets.  And, the softs seem a wee bit off kilter for my tastes.  So, I’m pairing my focus at the start of this week to metals, currencies, and indices.

Options traders remember we have expiration coming on Friday!  The next expiration will be December expiration at which point the smarter trading community will already be taking position for the new year’s trend.  It’s not too early to start thinking about 2010.  This markets may be able to run higher, but, not forever.

While I’m on the subject of options, keep in mind what sort of traders will be rewarded this expiration.  Let’s just assume our more sophisticated traders are using rather dumb market neutral strategies.  Let’s assume the more naive players have a directional bias.  So, roughly speaking the majority of “smart” trades would have gone on around October 16th.  Let’s assume sometime around 10-15 days into the trades, IF AND ONLY IF, they were profitable, they would have taken them off.  Otherwise, smart money would be looking for those markets to be within a similar price range as we close out those contracts which will expire this week.  At which point those markets will be free to explore new ranges in ways they haven’t previously been able too.  One market near and dear to my heart is the metals market.  If this logic pans out, I could see perhaps one more sucker’s rally before a decent breather.  Time will tell.

General outlook:

As always, this is purely an empirical and a theoretical exercise.  Trading is extremely risky.  If you were to trade, you should only ever do so with money you can afford to lose.  Be well, be safe, and be warm.

• The price of gold can come down really fast.  If you haven’t been long gold past a top before, you are naive.  This is a speculative market.  It’s a small market.  And, when it is time for it to take a break, watch out.  I remember being with a bunch of trader’s in Vegas during a metals run a few years back.  Sometime during day two of our stay the market turned over.  It ruined the visit for a number of new friends.  In short, don’t fall asleep at the wheel.  Just like any other market, this one is prone to sharp corrections.
• We’ve come a long ways.  We are up about 30% since April.
• I’m seeing signs of technical divergence surfacing on the price charts.  I’d go into more detail.  But, in this case, the technique I’m using is not published.  It’s not one I came up with.  But, it’s really not mine to share presently.

I’ll I want to say is be very weary of your long positions.

Even better than some general advice, let’s take a look at some recent history so you can get a feeling for 4th quarter gold prices:

Gold at the end of 2004:

Gold at the end of 2005:

Gold at the end of 2006:

Gold at the end of 2007:

Well, that’s 4 out of 5.  In 2008, gold had started a significant pullback earlier.  It was not up to it’s usual self.  Needless to say, this year’s market is set up for an opportunity here.  But, I am definitely not encouraging anyone to be shorting gold at these levels.  Just because the opportunity may be there, it may not be the smartest trade.

Instead of getting frustrated, I’m getting focused on a few other things for the moment.  So, I’m going to wait and see.  I’ll be back before the week is over.  But, my interests going forward are definitely honing in on Friday and next week.  Who knows, perhaps we’ll see some head fakes in a few key markets over the next few days.  Read the tape, watch intraday if you can’t get away.

My personal bias is that things will indeed fall apart again; but, not just yet.  As always, I’ll reevaluate as needed.  The purpose of this post is to take a quick look around at what a variety of other writers, traders, and economists have to say on the subject. 

So, without any further explanation, I’m presenting a quick synopsis or sample of seven individuals whose opinion I respect:

• Larry Williams: Expressed this week that he is staying out, looking for a long in the next couple weeks. (~Bull~)
• Robert McHugh: Believes that dooms day is perhaps a week or two away from starting. (~Bull~)
• Bill Cara: On Monday indicated he was bullish gold and silver miners. (~Bull~)
• Bill Gross: “the six month rally in risk assets… is likely at its pinnacle.” (~Bear~)
• Paul Miller: “I certainly share that view that with consumers deleveraging at considerable speed, with unemployment still rising, bank credit still contracting, and capacity utilization very low, the recovery will lack vigor.  But that’s no the reason for my unease.  The financial world has not been reformed.” (~Bear~)
• Barry Ritholtz: “Given the recent market action, I am now starting to pull in my horns a bit, as this rally looks to be getting a little tired and showing signs of technical deterioration… This is not a major call, it looks to me like more of a minor reversal.” (~Bear~)

Needless to say there is a strong confluence of game changing contemplation in the air.  What would you expect for the last week of October?!