William Frejlich's philosophy is that money management is the cornerstone behind any successful trading plan and his weekly newsletter and trade tips emphasize that philosophy. Contact Mr. Frejlich at (312) 264-4356
Hello Fellow Traders,
It is said that over 1.2 BILLION chicken wings will be consumed on Super Bowl Sunday alone. That means 560 million chickens gave their all for our latest eating craze. Ok time to get the science community working on producing chickens with 4 wings each.
This Week’s Commentary
Metals: Metals have all pulled back after failing at the high end of their ranges last week. With an improving stock market and the prospects for higher interest rates looming, upside may be limited short term.
Gold: April gold failed just under $1700 last week and has wiggled down to the current $1660. We will likely see at least another $30 down to $1635 and possibly $1630 before I would consider a buy. All major stock indices have ripped higher since early this month and most earnings (about 80%) have come in at, or better, than expected. If the perception is that the economy is improving the zero interest rate policy may soon end. Higher rates would improve the US Dollar and slow higher action for gold. If $1630 is exceeded April gold may test $1600 and possibly $1575 but that would be my extreme low point for now.
Silver: March silver stopped just shy of $32.50 last week and has quickly pulled back below $31.00 at the current $30.95. I expected $32.50 to cap the top and $29.50 to stop the down side. I see nothing on the immediate horizon to change that outlook. The same factors which are likely to keep gold from major upside exist for silver so use the ranges mentioned if considering a trade.
Copper: March copper has actually done a nice job of holding above the upper trend line. Highs are getting a bit higher as well as dips stopping higher. For now the range appears to be 360 down below and 372 up top. China has not been the player here most had expected and this probably explains why copper has stalled even though US, European and Asian stocks have climbed sharply higher. I believe it is more likely we will see March copper push past 372 resistance than we will see recent lows at 360 retested. If so first 376, then 385 would be the next targets.
Currencies and Financials: The Euro currency has been the stalwart of the group of late while the Canadian Dollar (yes, THAT Canadian Dollar) has been pummeled along with the Yen, Swiss and Pound while our Dollar has held steady.
British Pound: A struggling economy and low interest rates are not a formula for a strong currency. It just took the Pound a long time to realize it. For the past two months prior to mid January the March Pound hung strong between 160 and 163 and was still pushing 16170 less than two weeks ago. Once the major support at 15960 was beaten the Pound easily flushed down to the current 15675 in about a week’s time. There is some weekly support near 15640 but with the state of their economy and the weakness for the Pound I feel we will not see much of a rebound until 15500 is tested.
Swiss Franc: We are seeing some unusual action for the March Swiss of late. Despite having the strongest and most stable economy in the region the buying has shifted to the Euro as the Swiss has languished, testing 10986 two weeks ago, crashing to 10660 just 4 days after that, and now slowly creeping higher to the current 10800. It still appears the Swiss will stay in the range of 105-110 generally and 107-110 specifically. Right now continue to sell option strangles as the range continues and if we see an extreme drop towards 10500, I would consider a long term buy of futures.
Japanese Yen: The March Yen continues to show weakness with only minor 1 or 2 day corrections stopping the bleeding. The flush below 11000 to 10961 has the feel of a temporary bottom however as the crash from 12300 in early December to the current 11000 has cleaned out most diehard longs and enabled many to initiate short positions. I expect a rapid correction to at least 11350 and possibly 11500, perhaps by early next week. If we see those levels tested a sale of a higher call may be the way to go as I believe 11500 will be the new upper end of the range while 10800 likely caps the bottom.
Euro Currency: The March Euro once again exceeded my expectations with the push to just below 13500 Friday and yesterday. I would say that this is probably a nice area to consider a short near 13500 but I have always contended that what a market doesn’t do tells you much more than what it does do. In the case of the Euro most indications were for it to fall, possibly significantly so. Since it has not there is some other unknown entity supporting a stronger Euro so I would wait for additional topping action before thinking of a short. I believe we should see at least a mini correction to 13275 from the current 13455 so use that number if contemplating a long or covering a short.
Canadian Dollar: Someone woke up Rip Van Canadian Dollar last week. After trading a tight range between 1000-10180 for 2 ½ months the break of 10000 was profound and within 3 sessions the March Canadian Dollar saw a double bottom at 9889 both Friday and yesterday. Prospects for lower interest rates was the official story line but the move mainly seems technical as stops below 10000 were touched off. Look for a rebound to 10000-10020 this week.
US Dollar: The US Dollar has taken over for the Canadian Dollar as the market “mostly likely to put traders to sleep as it has remained between 8180 and 7900 going back until early September. If the current environment of the US possibly discontinuing pressing rates lower and QE ends, the Dollar would be poised to fly past 8180 and could see 8400-8500 within days or weeks afterwards. So I would use breaks to 7900-7920 to look at bullish strategies.
Eurodollar: The December 2013 Eurodollar is finally showing signs of potentially higher US rates coming sooner rather than later. Futures cracked below support at 9958 and this lower action may continue as US stocks push towards highs not seen since 2007-08. Stronger equities and a stronger economy would be the catalyst for starting to systematically raise rates. If 9950 is bested the intermediate target is at least 9925.
30 Year Bonds: March bonds failed to push through 14616 four times during the past two weeks and finally broke hard once stock indices reached new highs for the move. As the US, Europe and Asia seem to have now coordinated their stories relating to their respective economies, cash rates here have started to inch up with the ten year note making it to 2 % for the first time in nearly a year. For now March bonds look to try and hold longer term support at 143.00. Wait for at least 144.16 if considering a short.
S&P 500: The March S&P used the 1475 as merely a speed bump on the way to the high at 1500.00 We are in waters not seen for almost 5 years so it is hard to gauge momentum. Decent earnings numbers for 80 % of stocks reported so far where they met or exceeded expectations have kept breaks to a minimum but stronger technical resistance at 1500.00 is more likely to limit upside, at least until we see a correction to 1471.00. If 1471 is taken out further weakness to 1455 is possible and that may occur as most all know that businesses tend to severely understate their earnings so as not to disappoint.
Dow: We may have moved too far too fast here as the March Dow is overbought right now after pushing close to 13900. I would wait for a correction to the breakout point near 13550 and if that level holds, look at some type of bull strategy. An extreme top short term should be 14000.
Energies: We have seen unusual action for the past few months as crude, no lead and heating oil rise as natural gas drops and when the crude, no lead and heating oil fall, natural gas has tended to rise. The reason for the strong acceleration for crude, no lead and heating oil during the past 2-3 weeks is largely due to higher stock market action around the globe as traders perceive more demand for these products with improving economies. Never ending tensions in the Middle East are also a contributing factor for recent higher energies.
Heating Oil: March heating oil has slowly stair stepped higher since bottoming near 290 in December. It is into strong resistance near 310 now and I feel it will correct back towards 300- 302 if 310 proves to be unpenetrable the first time around. If buying near 302 do not risk much below that area as a break of 302 would likely push technical patterns to neutral or lower depending on the severity of the break through 302.
Unleaded (RBOB) Gas: No lead gas continues to defy seasonal tendencies to drop off as driving slows during the winter. March gas has exploded higher, soaring from 272 in mid January to highs near 296. Supplies are more than adequate so it appears this is merely a bullish reaction to stronger global stock markets during the past two weeks and the assumption of higher demand coming. Even so I would wait for a pull back to at least 286 to 282 from the current 294 if considering a long position.
Crude Oil: March crude has pushed higher for the same reasons as mentioned above. After holding near $86 in early December futures have quickly risen, pausing briefly between $9000 and $9100 before steadily climbing to the next strong resistance at $97.00 There is no shortage of crude oil so as with the no lead, this rally is more predicated on potential demand than any real demand. I would wait for a minimum of $93 before even considering a buy of March crude.
Natural Gas: As weather turned colder during early January March natural gas soared from 310 to 365 in under two weeks. We are currently seeing a 1-2 day warm pattern throughout most of the Midwest which has sparked a dip to 325. Conditions change dramatically on the heels of the two day warm up as temperatures look to plunge from near 60 to single digits in a 36 hour period beginning Tuesday evening. Look for a rebound to at least 350 this week from the current 325 for March natural gas
Grains: The entire group has slowed considerably since the initial runs higher after this month’s USDA report. Now most are holding steady as the South America harvest is under way.
Corn: After holding above 6.75 support last week March corn began to rise, making it to 6.95 coming into last Friday’s report. Both the final production numbers and carryover were well below expectations and futures made it to as high as 7.29 this morning. The South American crop is progressing nicely however so I am not expecting more than 7.35 on top right now. Down side may be limited also and a range between 7.10 and 7.35 would not be a surprise at least for the next 2-3 weeks.
These words from last time still apply as we have seen 7.35 tested 4 times during the past few weeks and saw a low at 7.14 last week. It appears the bias is slightly higher and a run past 7.35 may spark further upside to at least 7.50.
Soybeans: The USDA report was not friendly for beans but better exports to China along with early dry conditions in South America have enabled beans to creep higher. For now March beans will struggle to push through the 14.50-14.60 level. If exceeded it would have to be for some compelling reason such as poor weather in South America or a hefty pick up in exports to China. If 14.60 is beaten we might see 15.00 but not much more. I would wait for at least 14.25 and maybe 14.10 to think of a long position for March beans.
Soy Meal: As with beans meal has been slowly crawling higher but still has not been able to push through strong resistance at 425. The 410 area has been solid down below but if 425 cannot be taken out soon a slide below 410 to 395-400 looks likely.
Bean Oil: March bean oil has held up better than beans and meal but it was pounded the hardest during the break from early September through year end so it appears to be evening up somewhat. Even with that I don’t look for much more than 5275 on top from the current 5200. Initial support is seen at 5075 and if beaten 4975-4950 is a strong possibility.
Wheat: Last June March wheat broke above 7.40 and within a month ran to 9.50. The range of 8.50 to 9.50 lasted well into December but once 8.50 was beaten futures came right down to the breakout point at 7.40 last Friday. This market is oversold and from what I can see pent up demand is expected to rise quite a bit this quarter. If this report is not bearish a buy of March wheat looks tempting. Sure enough, as with the others here the support did hold (7.40 for March wheat) and we have already climbed to 7.82. There is some resistance between 7.85 and 7.90 so if long, perhaps consider taking profits and wait for a minor correction to 7.60 to reenter from the long side. Supply was reduced and demand is picking up so this market should be well supported on breaks.
Not much has changed since the last time here as wheat did fail at 8.00 and came close to our objective of 7.60 (made it to 7.63) last week and is pushing 7.80 currently. March futures do need to see a solid push through 8.00 soon however. If 8.00 does not repel first 8.25 then 8.55 would be the next targets.
Softs: Cotton did explode higher, coffee gave everyone another chance to enter and OJ, cocoa, and sugar continue to try and find a bottom.
Cocoa: March cocoa finally flushed through the 2200 level it had tried so hard to stay above. Wait for additional weakness to 2120 to consider the long side again while first 2200, then 2240 will resist short term rebound attempts.
Cotton: Once 7700 was beaten 8000 and 8400 came very quickly as March futures exploded from 7700 to 8400 in just 5 trading sessions. Tighter supplies from last year’s drought, better exports to (who else) China, and a strong technical follow through were cited as the spark. For now 8000 looks to hold as strong support but futures moved too quickly so we may settle into an 8000-8400 range as we await further developments. Use another slide to 8000 to look at a long.
Sugar: March sugar may have bottomed with last week’s quick flush to 1806 and even speedier rebound to nearly 1900. For now 1840-1850 should be supportive from the current 1860. Futures do need to push through 1925 however to confirm a longer term bottom. If so sugar may take aim at 2000.
Orange Juice: Once it appeared that the frost prospects for Florida were waning the volatility vanished here. March juice should see nice support at 110 but I don’t expect much more than 118 right now. If a break of that range occurs it will probably be above 118 but don’t look for much more than 124-125 on top short term.
Coffee: Since the blow off bottom near 14200 two weeks ago March coffee has moved steadily higher, pushing to 15650 today. There is much resistance at 15800 but if futures can get through that barrier there is little in the way before 16800.
The words from last time still apply and in fact March coffee ran exactly to 15800 and within 3 days pulled back to support at 14600. That looks to be the range right now so I would use breaks to 146 to explore the long side but would not sell short at 158 but perhaps use that level to take profits if long from the 140s.
Rice: March rice failed at the 1550 resistance after holding at 1500 two weeks ago. There does not appear to be much cause for either strong rallies or sharp breaks and there is too little volatility or volume to write strangles so let’s use dips to buy for a longer term move higher from these historically low levels.
Livestock: Long term prospects for beef were rejuvenated after last Friday’s cattle on feed numbers. This should lend support to pork as well.
Live Cattle: After a two week bludgeoning which saw June futures flush from 133 to 125 the light at the end of the tunnel is brighter. Futures had already risen above 128 and after Friday’s bullish report showing roughly 5 % less cattle to be placed during the April/June period futures pushed to 129 yesterday. Use a pull back to 128 to consider a long. I have also purchased June call options and the strikes of 136-138 are fairly priced.
Feeder Cattle: March feeders crashed 12 cents from 15650 to 14450 during the aforementioned two week beating for beef. Futures came back during the next 5 sessions and came exactly to the ½ way point at 15050 yesterday. If that area doesn’t hold look for additional strength to at least 153-155. Use a correction to the lower gap at 14882 from the current 14950 to consider a long.
Lean Hogs: April hogs have slowed since September with less than a 6 cent range since that time. For now futures are showing solid support at 8700. From the current 8915 I would use a correction to 8725 or a rise through 9025 (breaks short term down trend) to initiate a long.
Questions? Ask William Frejlich today at 312-264-4356
Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented is from sources believed to be reliable and all information is subject to change without notice.
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