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
Let’s see now, I no longer watch the news because… well just because. I don’t watch much regular TV because everything on these days is either a competition (think American ninja warriors, battle of the network stars, dancing with the stars.. OK you get it) or an inane reality show. (think Kardashians, any city Housewives of that city, etal..) Sports have come down to athletes who make millions for playing a game thinking we want to hear their opinions on everything. You know, kind of like Hollywood and musician types. Many years ago in its early days TV was called the great American wasteland. Wonder what they would say now.
Metals: All here continue to remain in long term tight trading ranges. The Fed has been very wishy washy on rate hikes to come. When they imply no hikes or a slower pace to hikes, futures rise as the implication is that a rate hike will slow the economy and take away inflationary fears. When they talk up rates to slow inflation, futures dip. This has been the key factor keeping any substantial moves from taking place.
Gold; August futures have remained in a range from $1200-$1300 since January for the reasons mentioned above. We are starting to see higher action for some commodities sectors which could spark inflationary concerns and lend support to gold. For the short term there is little reason for much volatility in either direction. I would prefer buying into dips so if August futures continue to hold the $1190-$1200 level, a buy, looking for a push to $1240 would be the way to go.
Silver: As with gold I see little reason for any significant moves in silver in either direction. Futures have remained in a $3.00 range since last September and after this latest test of $15.15, may offer a short term buy. From the current $15.58, after seeing $15.15 this morning, we should test $15.80. If that level is broken look for more to $16.20. If $15.80 resists, wait for another test of $15.20 before buying.
Copper: Since rising from 22600 to 27200 right after the election last November, September copper has traded a range from 25000-27500 with an occasional blip above or below those prices. Late April saw lows near 25000 and we have climbed steadily higher since then to last week’s high at 27200. A healthier economy is bullish to copper and the moves may have been stronger with better home sales as home and auto are the two major components of copper pricing. If we begin to see more strength in the new home industry I believe 27200 would be a mere speed bump on the way to 30000. Until then expect a range from 25600 to 27500.
Currencies and Financials: After the past two months of lower US $ action and higher non US $ action, we are showing early signs of reversing that short term trend. In early 2017 the Fed insinuated at least 3 rate hikes during 2017 and when they only raised once through May the Dollar weakened, thus the others pushed above their true value based on their respective economies and interest rates. It is becoming obvious this stock market rally is for real and I expect the Fed to act more aggressively on rate hikes during the second half of this year into 2018.
British Pound: The June Pound ran quickly to 13000 once 12650 was dispatched but futures have now stalled just over 13000. I believe the Dollar break was overblown and as we approach recent highs for US stocks rate hike talk will ratchet up once more and the Dollar could recover from the current 9680 back to 9850-9920. This would likely push the Pound back to at least 12800 and perhaps 12650 if momentum builds.
Although the words above were from a few weeks back the market action rang true to expected form. The low 2 weeks ago for the September Pound was 12625 and so far we have recovered to the current 12916. For the time being I expect a bit more upside to 13075 while first the aforementioned 12800, then 12650 will provide support. Even if the US Dollar does begin to show more strength, I don’t expect it to be at the expense of the Pound as it will against the Swiss, Yen, and Euro. Since exiting the Euro zone, the British economy has performed much better than when they were saddled with being one of the few economies paying for the poorly performing economies of the Euro zone. I would feel good with buying the September Pound on a slide back to 12650 if fortunate enough to see that sizable of a break.
Swiss Franc: The September Swiss fell quickly to 10375 after showing a blow off top pattern with last week’s spike to 10520. From the current 10406 I would love a chance to short the Swiss on another test of 10475 to 10500. I believe the Swiss is strong enough on its own to move higher but I would be concerned that poor European economies within the Euro zone will drag the Euro down, thus limiting upside for the Swiss. We may not make it to 10475 again as patterns show a much better chance of a break to, and through 10300 before any appreciable upside can be expected. If you must buy, wait for 10225 to consider that prospect.
Japanese Yen: The slow crawl lower continues for the Yen. I ranted for months that this market had no business trading at 9200-9300 and a more appropriate price given Japanese interest rates and the state of its economy merited a value near 8400. After a blow off top to 9235 late last month the September Yen has stair stepped down to lows at 8774. From the current 8767 we should easily break through 8750 on the way to stronger support at 8600. A slight correction back to 8900 may offer another shorting chance before the expected flush to at least 8600 so watch those levels for a possible short.
Euro Currency: As there was little reason for such sharply higher Yen values there is even less reason for the Euro to have made it to 11500 last week. Interest rates remain below 0 in Europe and many poor member countries are struggling more financially than California, New York, and Illinois, which are virtually bankrupt states. I will either be looking to short futures on a test of 11475-11500 or will be looking at put options for September. If selling near 11500, risk above 11560.
Canadian Dollar: Since bottoming at 7260 in early May the September CD has soared to highs just below 7800 just last Friday. We are quite overbought now technically with Stochastics ratings near 95% so it would be hard to recommend a buy after this run up. In fact I would consider a short here at 7770, risking above 7830 and looking for a correction to at least 7620-7600. Or if you do not wish to buck the strong up trend, wait for a pull back to the 7600-7620 area mentioned to consider a long position.
US Dollar: Last September the September 2017 began a long rise from 9500 which culminated with a push to 10365 by mid December as our Fed raised rates in December and spoke of 3 rate hikes to come in 2017. Since they have only raised a quarter point once since then futures have taken a two step down, one step up approach as they have whittled down to a bottom at 9522 on June 30. We then popped back to 9625 and now slid to the current 9575. I will be watching closely this week and will be looking to buy another dip to 9925. If so I would likely be looking at a risk to below 9475 so be alert for a possible trade tip this week for the Dollar.
Eurodollar: December Eurodollars made it to 9850 last week from highs at 9865. As the Fed keeps wavering this market may continue in this range for at least the next 1-2 months. As the odds are good that we will see at least one more rate hike this year I would rather be short than long so let’s see if we can push back to 9863-9864 for a possible short sale.
30 Year Bonds: As the Fed continued to do nothing with rates the September bonds soared from lows near 15100 to highs at 15710 just two weeks ago. That was too speedy of a rise in too short of a time and we have quickly reversed course down to lows at 15118 last Friday. We have bounced back to 15200 and as we rose too quickly before, we have now dropped too quickly to oversold territory. I still like the short side for the long term but I would wait for a further correction to 15316-15400 before taking action.
S&P 500: The S&P remains on track for further gains with obvious corrections along the way. After peaking above 2450 in mid June we pulled back to first 2402, then 2405 and have pushed back to 2429 yesterday. Short of any geopolitical shocks we are certainly on course to take out 2450 this month. If we do see one last gasp lower to 2410 I would feel good with a buy there, risking below 2397.
Dow: After peaking above 21500, the September Dow futures corrected to 21257 and have now bounced back to 21380. We should have no problem reaching new highs by month end so use a mini correction to 21320 from the current 21380 to attempt a long.
Energies: Even with OPEC production cuts this group was bludgeoned during May and June. All are oversold now and due for corrections higher so this will be our topic of discussion this week as to the breadth of the rebound and where we can look to initiate short positions as supplies remain burdensome.
Heating Oil: With a perfect down trending pattern and huge supplies none in this group should be seeing any strong moves higher. After bottoming near 13600 from highs near 17000 in April, August heating oil has bounced back to 15200 and then pulled back to 14200. I like the short side on a push to 14800 which is minor resistance right now. If 14800 is beaten further upside to 15200 makes for a more promising short sale.
Unleaded (RBOB) Gas: The technical pattern for no lead looks identical to heating oil and the fundamental factors are equally bearish with big supplies and lessening demand. It took just two months for August gas to drop from 17500 to 13900. From the current 14830 I would use a push to 15400 to consider the short side. With OPEC supply cuts ending (cuts didn’t matter anyway as the entire group was slammed lower during the time period of production cuts) I see little reason for much upside for any here. If shorting near 154000, risk above 15800. We would have to be significantly lower, say near 12500 – 12000 before I would even consider a long.
Crude Oil: Many felt that the projected production cuts from OPEC would give a bullish boost to crude futures. Let me put crude supplies in a simple form. Let’s say a business had 10 of a certain product and all he can ever sell is 5. To get rid of the other 5 what must happen. Common and business sense says they must lower the price to try to move the additional product. The equivalent of the OPEC cuts is to (in using the same example) have 9 of a product and they still are only selling 5. This is why crude oil fell $9 during the period of lower production. As I have stated many times in these pages I expect a trading range from about $42 to $54 for the rest of 2017 barring any Middle East tensions. If we do break from that pattern I would expect a drop to $38 and maybe a buck extra to $55 on top but that would be about it.
Natural Gas: During June August natural gas made three attempts to rise. Each rally attempt was stifled at the 3125 area before futures finally gave in and flushed to 2830 last week. We probably hold above 2800 for now as we are into hurricane season. Supplies of natural gas are massive but even the hint of a hurricane which may cause shut down of rigs in the Gulf usually generates a spike higher. If we see another drop to 2830 from the current 2980, I would like the long side, risking below 2690.
Grains: All crops were downgraded a few % points in yesterday’s crop progress report, They all spiked higher early on last night but reversed to slightly lower after 5:45 this morning. All here, especially wheat and beans have been on a tear for the past three weeks while corn has risen but not to the same degree so a mild profit taking correction would not surprise. Tomorrow morning’s USDA report will be released at 11:00 am central time so volatility may increase during the next two days.
Corn: Since bottoming at 3.65 two weeks ago September corn ran as high as 4.05 and has pulled back a bit to 3.98. Crop condition ratings are lower than last year at this time and corn silkings are at 19 % versus 30 % last year and 27 % on average for the past five years. We are expected to remain warm and relatively dry near term and Midwest temps should be in the low to mid 90s for most of next week. A pull back to 3.94 may offer a buying chance.
Soybeans: A smaller than expected South American crop coupled with strong demand and a poor weather situation has enabled beans to make up a lot of ground in a short time. November beans bottomed at 9.07 on June 23 and so far exploded to highs at 10.47 just yesterday. There are numerous lower gaps on the chart at 10.18 and 9.59. I do not expect the 9.59 to be tested but a correction to 10.19 would not be out of the question after a 1.40 rally in less than three weeks. If so I would consider a buy of November beans near 10.19.
Soy Meal: Meal has made a strong up move for the same reasons as with beans. September meal ran from 2.944 to highs over 3430 yesterday. There is a gap at 3332 and if we see that correction a buy may be in order unless the hot and dry conditions suddenly vanish into more moderate temperatures with more rainfall. Weather markets can be very fruitful or very dangerous if your entry price is too high.
Bean Oil: OK it’s that time again. Blah, blah, blah. Beans go up., Meal goes up….. You guessed it… bean oil goes up. After bottoming at 3120 in June the September oil made it to 3400 overnight. We have slid back with the rest here to 3370 so far. I believe we may see a bit more down to 3320 and would feel comfortable with a buy at that level, risking below 3250.
Wheat: Poor weather in the Dakotas as well with big weather problems in the Ukraine enabled wheat to soar as September futures ran from 4.35 in early June and 4.63 in late June to highs at 5.75 last week. That was a 1.10 move in just four trading sessions, a classic move for weather markets. We then flushed to 5.30, popped back to 5.60 yesterday and so far made it to 5.40 today. We have bounced back to 5.47 currently and this rise should continue as long as weather problems persist. The aforementioned USDA report due out tomorrow offers another updated look into projected wheat production for this season. It is riskier to buy wheat after this healthy rise so I would, be patient for a healthier correction, perhaps to the gap at 5.28.
Softs: OUCH !!!!! That pretty much describes the feeling bulls in this group have experienced of late. All in the group have been bludgeoned down to long time lows during the past few months with no appreciable corrections higher to date.
Sugar; Earlier this year the October sugar was trading at 2050. A larger crop for this season coupled with lower demand was the catalyst for a steady down move to 1274 by late June. We did see a healthy correction to 1441 just yesterday but since then futures fell to a low at 1321 this morning. Minor support is a 1320 and if that low holds and we bounce back higher it may confirm the bottom from June 28 at 1274. A buy near 1320, risking below 1270 may be the way to go here for bottom pickers.
Cocoa: One year ago cocoa was trading at 3100. A slow crawl lower since then took September cocoa from those highs at 3100 to lows at 1767 by April 20. Futures took a few attempts to rise, making it back to 2100 twice and 2000 just last week. We have flushed to 1807 now and the May lows at 1782 are in sight. If we can manage to hold the 1780-1790 area I would give consideration to a buy, risking below 1750.
Cotton: After bottoming just over 6600 recently from highs at 7500 a month earlier December cotton rose to 6900 and has now slipped back below 6700. I believe we will try to hold between 6600 and 6700 for the short term. Let’s watch this one closely this week as we may have a buying chance this week. A buy near 6620, risking below 6500 may pay off but I will advise with a trade tip if we see that action this week.
Orange Juice: From highs at 21000 in December the September juice has seen a relentless break to lows two weeks ago at 12700. After a bounce higher to 14300 after the break we have slid back to 13100 presently. Much as with cotton we may be very close to a short term low for OJ. Lower demand is said to be the reason for the steady drip drip lower. Let’s watch for a possible buy from 12500-12700 this week.
Coffee: I used blah blah already so stop me if you heard this before for the softs group. September coffee was pushing to 18500 last October. A slow crawl lower brought futures to 12200 before a two day blow off drop below 11600 was seen late last month. Futures bounced back to 13200 and have now retreated to 12750. I believe 12200 – 12400 will hold and if we see those levels this week, a buy may be the way to go.
Livestock: We are showing signs that the long down turn may be ending for cattle while the three month long rise for hogs may be nearing an end.
Live Cattle: Since peaking near 12800 last month August live cattle first flushed out hard to the 11300 level and have consolidated between 11250 and 11700. As long as we continue to hold above 11300 the chances are we will see a run to 11700 from the current 11400. Use a dip to 11310 to consider a long, risking below 11200.
Feeder Cattle: Price action for August feeders mimicked that of live cattle. After peaking at 16100 early last month feeders saw a harsh two week flush down to 14100 which has now become solid support. This consolidation from 14200 – 14300 looks to continue and from the current 14550 I would consider a long if we test 14200 once again.
Lean Hogs: After bottoming at 6960 in mid April August hogs went on a steady climb which showed a blow off top at 8545 early last week. We have fallen back to 8200 so far and if we see a close below 8200 further down to at least 8000 down to 7800 is possible.
Questions? Ask William Frejlich today at 312-264-4356
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Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2017
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