The Softs Review
For the week of November 7, 2011

By Jurgens H. Bauer

The MF Global situation has brought a severe black eye to the industry. There seems to be money missing and there are reports the FBI is involved in a criminal probe. The exchanges took action last week, banning orders other than for liquidation in MFG accounts. But how can you tell which is which without seeing each position? As a result many orders were not handled. In other words, that action, while warranted, proved costly to liquidity and may also have served to injure some of those with positions on, making them unable to transact. Then there is this bit of news released 11.05 by ICE.

https://www.theice.com/publicdocs/futures_us/exchange_notices/EsNot110511MFG.pdf

Apparently RJO has taken over the clearing and administrative role for most remaining MF Global accounts. I can only hope that things improve, but for now keep your fingers crossed. The demise of MF Global will likely bring about more regulation and scrutiny. The safety of investor capital is paramount. But now it needs to be determined if MF Global is alone? Watching and waiting...

In a general sense the soft markets will be apt to follow dollar developments this coming week and Greece, as well as Europe will be the key. Sovereign debt will continue to hold the macro markets hostage to every new twist and turn. Speaking of twist, the Fed confirmed their Twist program to keep interest rates low is to continue. Will events in Europe settle enough that focus will shift back to the US? If so, aren't there significant debt issues here to face?

Regardless, for the near term, with so many things available to influence traders midst thin markets caution is prudent. The current environment has the propensity to fuel dramatic moves in either direction as the markets seem to suffer from a serious lack of liquidity. Keeping positions small and protecting trading capital are high on the list of appropriate approaches. Specifically, 220 to 219 has held (thus far) in KCZ. I continue to recommend owning puts and put spreads until KCZ closes over 236. Cocoa might be willing to try for higher values. Cotton has lost and demand for US cotton doesn't look as though it will improve anytime soon. Sugar prices still haven't escaped the gravity of 25 cents. In sum, it may be a good time to keep your hands in your pockets.

Disclaimer: Past performance is not indicative of future results. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Fundamental factors, seasonal and weather trends, daily news, and other current events may have already been factored into the markets. The use of stop loss or contingent orders may not protect profits and may not limit losses to the amount intended. Certain market conditions make it difficult or impossible to execute such orders.