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,
You may have heard about someone sneaking into the meeting with the Cardinals in Rome. When the imitation Papal Crown was removed all were stunned to see the culprit. It was none other than new ambassador to the world, Dennis Rodman, with brilliant red hair said to match the red Prada shoes worn by the Pope. It was assumed that Dennis was down to his last minute of fame and has replenished his supply back to 14 minutes now. Rumor has it he is now headed to Venezuela because he heard they have an opening for “el Presidente” down there.
This Week’s Commentary
Metals: After the harsh break in prices here a few weeks ago, futures have stabilized into tight trading ranges.
Gold: The pattern has been the same for April gold for the past two weeks. Futures settle near $1575, rise intraday to near $1585, flush to below $1570, then settle the day near $1575. This shows consolidation type action which usually leads to a strong move one way or the other when it breaks above or below the range. The bias and probable move here would be above $1585 as the market rallies easily toward $1585, then crawls down grudgingly intraday. If April gold pushes through $1585 I think we would easily see $1635 and possibly $1660 if momentum builds. Conversely, a break below $1560 maybe takes gold to $1540 but not much more.
Silver: May silver sees similar action as gold but the bias is slightly higher, most likely because silver was beaten down harder than gold during the recent slide. Futures did push to $29.20 last Friday and if that can be overcome further upside to at least $29.80 is expected. We are seeing higher highs and higher lows for silver so this technical action is slow, but positive.
Copper: Much as with its silver and gold counterparts, copper has settled into a tediously slow range. So far the 345 support mentioned last week has held as May copper has twice tested 347. If 345 is bested we may see minor support at 340 but nothing major before 325. If 355 is taken out on top a slight rise to a maximum of 362 is possible.
Currencies and Financials: The Dollar and bonds are trading as if interest rates have already been raised (they have not) other currencies are taking a stand after severe downward action of late, and the stock indices continue riding the easy money printing press express higher.
British Pound: The June Pound easily flushed through 15000 last week after a paltry rebound ran out of gas at 15200. There is some minor weekly support at 14750 but the monthly support near 14500 is a more likely landing place for Pound prices. For now 15000 will attempt to stop any corrections but I believe it would take a more extreme move up to 15250 before the shorts bail out and new buys run their course. I would take a serious look at a bearish strategy should the upper scenario unfold.
Swiss Franc: The old expression “Throw the baby out with the bathwater” certainly applies here. The Swiss economy is one of the few in Europe holding its own and the reality is that it would be much stronger without the “support” being part of the Euro zone can give. I do expect support to be solid from 10500 – 10550 so use that level from the current 10615 if considering a long future. Another idea would be to sell a lower serial put for April or May Swiss options if we futures approach 10500.
Last week’s words still apply as the June Swiss pushed to 10480 last Friday and we have already recovered to 10570. I would expect another test of 10500 and if it holds the second time around a bullish strategy should be considered.
Japanese Yen: Last week it was expected that the Bank of Japan would raise their interest rates slightly. When this failed to materialize the strong support at 10600 gave way to a blow off move lower where the June Yen crashed from 10760 to 10360 in three sessions. Futures have bounced back to 10420 and the breakout point at 10600 will be the first target for the current correction.
Euro Currency: Since the blow off top above 12700 early last month the March Euro has stair-stepped lower and finally cracked to below 13000 last Friday and yesterday. Given Europe’s problems 13700 was an absurd rise. Reality has set in however and I look for a bit more down to 12850 where I would expect this market to settle down. If we see 12850 consider selling a lower put option for April or May options.
Last week’s words still apply here as well. The June Euro did flush to 12960 last week and have popped back to 13040 as of this writing so I would continue to wait for a test of 12850 before thinking of a buy of futures or sell of a lower put option.
Canadian Dollar: The Canadian economy has deep ties to commodities. It is no surprise then that as crude has crashed $9 and gold $100 during the last month that the March Canadian Dollar has fallen from 10000 to 9700 in a two week period. There is minor support at 9650 but if gold and crude continue to slump that may pass as only a speed bump on the way to last June’s lows at 9540. We need a close above 9780 to turn patterns back to neutral.
These words still apply for this week. The metals have settled down along with the energies and so therefore has the Canadian Dollar. From the current 9725 for June futures I believe we will see a test of 9780 very soon, if not this week. If 9780 is taken out we likely would see further upside to at least 9860 in short order.
US Dollar: The Us Dollar continues to rise, reaching new highs at 8313 yesterday morning. This type of action is usually a harbinger of higher interest rates coming as the harmful inflationary effects of the easy money policy begin to filter into the system. For the short term 8320 will act as minor resistance while major resistance will not be seen until 8400. Down below consider a buy on a correction to 8220.
Eurodollar: I had the option of watching the Eurodollars trade or watching paint dry. For more excitement I chose the latter. We seem to be stuck in tiny 1-2 point ranges on a daily basis and while the bonds have crashed nearly 5 full basis points in less than a week, the Eurodollars remain a yawner right now. I have heard rumors that it is being considered as a new more efficient sleep aid. Ambien, move over. There’s a new sleep sheriff in town.
30 Year Bonds: Since Ben Bernanke’s testimony before Congress the June bonds have been blistered from 145.00 to just over 140.00 in 5 trading sessions. This corresponds to new highs for stock indices during this same time frame and indicates higher rates sooner rather than later barring the possibility that traders begin to focus on the economy and not the hyper inflated few stocks which make up the stock indexes and are responsible for the higher values. For now 140.00 likely holds for June bonds. Look for a “dead cat bounce” back to 142.00 to 142.24 this week and then explore bearish opportunities.
S&P 500: Since the 1 day correction from 1518 to 1476 on February 25, the June S&P has climbed to new highs just below 1550. Monthly charts show a possibility of further upside to 1575 if 1550 doesn’t repel but the higher we fly unabated, the harsher the break will be when it occurs. If you must buy perhaps use a call option or wait for at least 1520 on a setback.
Dow: The Dow has actually been stronger than the S&P and Nasdaq of late. The stock indices are comprised of stocks which is how the index price is calculated. For the S&P there are 500 within the group but only 30 for the major Dow Industrial Index so a large move for a few stocks can skew the overall economic picture. For instance, if you took one stock, Apple, out of the Dow 30, the average would be just shy of 11000 as opposed to 14450. This is why I am leery of purchasing stocks or stock indices at these puffed up levels. If these were coordinated with ANY improvement in employment, housing, or economic growth, these levels might not seem so dangerous or vulnerable to a serious drop. Anyway, June futures may move on up to 14500 based on monthly chart patterns but I would wait for at least 13900 to even think about a longer term buy.
Energies: As with the metals and currencies, this group has also stabilized after short term down turns and show signs of creeping higher.
Heating Oil: April heating oil did push over 300 last week, fell back to 295 and is trying to find a direction. We may see some last gasp attempts to the upside but I believe as we exit the seasonal heating oil period, anything higher than be a favor to sell. It appears that a range of 290 – 302 may take hold near term with higher upside possible for gas and crude.
Unleaded (RBOB) Gas: Some short term storage and delivery interruptions were responsible for the huge pop to 328 yesterday morning. The rise was short lived however as April gas easily slumped after this questionable stop hunting rise and have fallen back to 315 as of this writing. I think we could try an option strangle here selling higher calls and lower puts as market action for gas shows too high too soon but also the fact that we are into the seasonal buying mode makes breaks weaker as well. I can see a range of 325 – 290 during the next two months.
Crude Oil: April crude finally slid below 9000 yesterday. This most like took out long time longs who placed stops below that key psychological level. Now that that is out of the way I expect a rebound to at least $91.30 and possibly all the way to $93.00. This may entice enough longs to jump back on the bull bandwagon before the next wave of selling begins. If we do see $93 I would be suggesting selling higher call options and/or selling futures outright. If $90 doesn’t stem the tide the next major support comes in at $87.
This market ran true to last week’s words as April futures journeyed below $90 twice only to close well over $90 on each session. We saw new highs for the move yesterday with a $92.15 high and crude is still on track for at least $93 and perhaps $93.50 this week.
Natural Gas: The harsh break from 368 in mid January culminated with a blow off drop to 320 by mid February for April natural gas. It took just 6 sessions for futures to push back to 356 and it appears to be taking aim at the 362 level. If bested, further advances to 378 are possible. Let’s use a correction to the chart gap at 338 to look at a bullish strategy.
Last week came close but the correction fell short as the low just above 345 didn’t quite reach the objective. April natural gas did surpass 362 yesterday and now takes aim at more major resistance from 375-378. I have been hearing of much higher expected demand down the road and this year’s break may just have been the last chance to see natural gas in the low 300 level. I am awaiting a correction to 350 now and will be taking a look at long call options going out to late 2013 into 2014.
Grains: Beans and meal have consolidated, corn is steady after the USDA report lowered stocks and the wheat sell off may be waning.
Corn: May corn flushed to support near 6.80 but after last Friday’s USDA numbers lowered corn stocks we have seen futures push all the way to the upper end of the range near 7.20. Later this month we will see the major USDA report on March 28 which will show prospective plantings and quarterly stocks numbers. I look for the range of 6.80-7.20 to continue until then.
Soybeans: Beans have been saved twice from the wrecker’s ball after large purchases from China. We saw two breaks of nearly a dollar followed each time by sharp rallies after China liked the lower prices and came in buying. May futures are currently near 14.75 and I do not believe we will exceed $15.00 with the South American harvest in full swing and cheaper fresh product available. For now 14.20 should stop any down moves while 15.00 likely stifles further upside.
Last week’s words still ring true and May beans have struggled each time they surpassed 14.80. I don’t look for 15.00 to be taken out before the coming USDA numbers and for now 14.50 shows support with major support at 14.20.
Soy Meal: May meal fell shy of 445 resistance moving to 442 and quickly sliding back. I expect slow range bound trade for the next few weeks as we await the March 28 numbers. For now short term traders can buy near 428 and sell near 440.
Bean Oil: Oil had been leading the charge higher for the soys until mid February when May futures crashed from 5320 to 4870 in little more than a week. This market became oversold quickly and so far has rebounded to 5020. Look for a bit more up to 5080-5100 which is the halfway point of the sharp break. If that level repels, a short may be in order.
I cannot add anything to last week’s words. A look at the daily chart shows 3 failed attempts at 5080 and support from 4980 – 5000. Again, slow trade is expected and short term use the range of 5000-5080.
Wheat: Wheat remains oversold but so far lower priced world crops have continued to stifle any rally attempts. I believe we have dropped enough now with the recent flush to 6.80 and rebound over 7.00 but I don’t look for anything more than 7.20 on top short term.
Softs: Cotton has confirmed a bottom, sugar is trying to form a base and cocoa and coffee may offer short term buys.
All of these from last time remain as is except that sugar has now also confirmed a bottom and can be bought on dips.
Sugar; Between mid February and early March May sugar started inching higher where we were seeing higher highs and lower lows. I felt a break over 1860 was necessary to confirm a bottoming formation. This occurred last week and May sugar rose all the way to 1910. From the current 1890 I would look for a test of the 1860 breakout to consider a long future and/or short a lower put option.
Cocoa: May cocoa finally held at long time support at 2020 and in a mere 4 sessions exploded higher to today’s high at 2176. There was no strong reason given so this move may be short lived except to confirm buyers like cocoa below 2100. Use a pull back to 2080-2100 to consider a buy of May cocoa.
Cotton: May cotton continues its climb towards 9000. Once 8400 was beaten 8750 came easily. Corrections are usually 1-2 day affairs here and this market looks strong aided by renewed buying interest from China. From the current 8660 I would watch the 8450-8500 area on a correction to consider a buy.
Orange Juice: May juice broke out to the upside last week. USDA numbers have been lowered each month and to complicate matters, the trees have been afflicted with “greening” a disease which doesn’t hurt the existing fruit but does damage to the trees. We have risen from 120 just last week up to 138 and this move may continue up to 150 and possibly 160 if the tree damage is to a large enough area.
Coffee: Since mid February the May coffee has crawled higher with good market action of higher highs and higher lows. The first resistance is at 14800 and this may spark some selling. I would wait for a dip to at least 14000 from the 14460 we are now seeing and consider a bullish strategy. If 14800 is bested first 152, then 155 would be the next targets.
Last week’s words continue as futures did fail at 148 last Tuesday and failed to break through 140 last Wednesday. We are near 143 now and I would rather buy near 140 than short near 148 as upside from these levels would seem to offer much stronger potential.
Rice: May rice was beaten down from 6 months highs in mid February to 12 month lows yesterday. The 1670 high was followed by a slam to 1520. If any good rice should consolidate between 1500-1520 but I would not pick a bottom right now.
Livestock: Hogs finally have showed some spunk while cattle have not seemed to find an absolute bottom just yet.
Live Cattle: The selling has slowed down for April cattle. Sorry folks, at this point that is about as positive as I can be. We seemed to be showing good signs that the bottom was in earlier this month when futures made a quick spike from 12740 to near 13100 but it took just 2 days to remove those gains as new lows at 12700 were seen yesterday. We have rebounded to 12860 now. If 12920 is bested we should test highs at 13100 again. A solid close above 13100 confirms a temporary bottom and sets the stage for further upside to 13400.
Feeder Cattle: The action is akin to live cattle here and feeders need a spark. We are down to levels not seen for more than a year as April feeders pushed below 14100 and are slowly recovering with today’s trade over 14200. If 14400 can be taken out we may see a speedy rise to 14750. If 14000 doesn’t hold, 13750 is the lower target.
Lean Hogs: To quote the April heating oil commentary….. BANG &^%#*G&%$# POW *^$**%%*H*^%$E#CRASH. April hogs traded at 9050 in late January. They reached new lows this morning at 7972. Last May the lows were seen at 7950 so this should hold at least during the first test. If 8175 is beaten first 8225 then possibly 8400 might be close behind.
Last week’s words came close. After a blow off bottom to 7827 last Wednesday, April futures exploded higher the next two sessions, pushing to 8235 before stalling last Friday. This market may be trying to show a bottom so I would watch the 8000 level after a correction if thinking of a buy area.
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.
SubscribeSign up to receive a daily summary of all PRICE | Market Insights blog posts