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
OK I know I’m a bit late but I would like to wish everyone all the best for a very healthy, happy and prosperous new year. So are visions of bitcoins dancing in everyone’s heads?
This Week’s Commentary
Metals: Gold and silver have quietly crept higher as the US Dollar weakened but need a new spark for much more on top now. Copper exploded to new contract highs over 332 as the US economy keeps humming along.
Gold; I had mentioned a drop to 1240 after the Fed rate hike and February futures did reach 1238.30 the prior day, anticipating the hike. It took a month to push to just below 1330 and now that the Dollar has strengthened and the Fed keeps speaking of three more rate hikes this year, upside may be limited until we see a correction. From the current 1321 I would wait for at least 1300 and possibly 1295 before even considering the long side.
Silver: As with lower gold I expected a drop to 15.80 for silver with the rate hike and March futures made it to 15.63 the day before the hike. We had seen a speedy push higher which has now stalled just over 17.32. I would wait for a slide back to at least 16.80 and possibly 16.60 if considering a long. Despite higher rates the booming pace of the US economy and the inflationary aspects of that should be supportive to metals after breaks.
Copper: Since the flush to 29500 in early December March copper has seen a steady climb to contract highs last week at 33220. That was a b it too much too soon and so far we have slid back to 32200. There is minor support at 31500 but I would be patient and I believe momentum may take the correction back to 30750-30800. If so I would consider a buy as long as it wasn’t due to some unexpected longer term shock.
Currencies and Financials: The strong US economy should be making the Dollar much stronger as we are in a much better position to raise interest rates than our European and Asian counterparts. As things are shaping up however the strong US economy has been a boom to other country’s economies as well. This has been the reason why the Dollar has weakened relative to the others here. That will shake itself out over time and going forward I would be a buyer of the Dollar on dips and a seller of other currencies except for the Pound as they approach the top of their respective trading ranges. The Pound has rallied since Brexit as the British economy is finally on the right track after removing itself from the globalist/socialist shackles they were under. The Canadian Dollar also looks to maintain longer term strength.
British Pound: The March Pound had continued to hold from 13000-13100 and so far has moved back to 13650 just since mid November. If 13650 is breeched, first 13750 – 13800 is likely and possibly all the way to 14000 if momentum builds.
Swiss Franc: Moving forward I would expect a trading range for the March Swiss where 10400-10420 caps the top while 10120-10140 could hold down below. I would only be a seller of rallies and not a buyer of dips (except to cover a short) as there is more potential for a lower breakout here than for an upper breakout.
Japanese Yen: The March Yen has tightened into a tiny 8850-9000 range going back to late November. If 8850 is beaten I would wait for at least 8750-8775 to contemplate a buy. As with most of the others in the group however I would prefer to wait for a possible test of 9000-9050 to take a short position. Any rallies for most here besides the US Dollar and Pound will likely be sparked by some short term shock and their upper momentum should die quickly so use those pops higher for a selling opportunity.
Euro Currency: Earlier comments related to a boom for Euro currencies due to the stronger US Dollar are most appropriate to the Euro currency. They have still not gotten out of their QE phase let alone begin to raise rates. Most rallies for the Euro are speculative tied to the prospects of improvement for the Euro zone economy. The recent move to 12150 was far overdone and in no way reflected reality. So far we have seen the March Euro retreat to 12010. Once 12000 fails, expect to see 11800 within days and 11650 shortly thereafter. A slight pop to 12050-12100 could be the opportunity for a solid long term short position be it shorting futures or buying put options.
Canadian Dollar: Any improvement for the US economy should naturally be beneficial to our neighbors to the north as well. Since the roughly 50 % correction from 8275 to 7750 between September and November the March CD moved all the way to 8100 last Friday. We have slipped back to 8065 and are slightly overbought now. The area from 7975 – 8000 looks solid and if we hold there I would like the long side so let’s keep an eye out for that this week.
US Dollar: Short of US potential involvement in any world conflict there is little to slow down the US economy which was intentionally held down for 8 years and has a lot of catching up to do. To slow the inevitable inflation of a powerful economy our Fed will have to be much more vigilant with the interest rate policy and most governors are calling for a minimum of three rate hikes in 2018 and another in early 2019. This recent slide to 9150 was a favor to buy the March buck and so far we have come back to 9213. First resistance on top is 9320 and if that offers little resistance, 9400 and 9500 will not be far behind. A buy of the March US Dollar around 9150-9175, risking below 9070, looks to be the approach now.
Eurodollar: The Eurodollar began the downtrend early last September and has continued with intensity picking up. We had 9 years of a ZERO rate policy and once the Fed policy changes it usually continues for an average of 3-4 years. This is why I have spent the past 3-4 months speaking with as many as I could to begin to short Eurodollar futures or at the very least to purchase put options. We began buying the March 2019 Eurodollar (9750 strike price) puts for roughly 5 points ($125) and shorting futures near 9800. Futures have come down to 9771 with December’s hike and each ¼ % hike equates roughly to a 25 point drop for futures as futures move the opposite of cash for financials. If this pattern continues and we see 3 hikes this year we should in theory be near or below 9700 by year end and perhaps near 9675 in early 2019 with another ¼ % hike then. Those puts are still relatively inexpensive at about 8 points or $200 and the idea that rate policy continues for long extended periods of time may make this strategy pay off in both the short and long run.
30 Year Bonds: Since we saw the last gasp higher rise to 15418 early last month March bonds first dropped to 15014 within days of December’s rate hike, moved back to 15305 and have now come back to support from 1516-15124. Rates will only be rising from here so we will approach this market as we do the Eurodollars where corrective rallies are selling chances. That move to 15305 was one of those. From the current 15122 a drop through 15116 likely sparks further weakness to first 15024, then below 15000 if momentum remains strong. One last push to 15212 is a selling chance but I think we will break 15116 before we see much upside.
S&P 500: To the moon Alice! The old iconic Jackie Gleason “Honeymooners” line perfectly sums up stock market action during late 2016, 2017 and beyond. And there is little reason to believe we will see much more than token corrections going forward. Now that the straightjackets have been removed from corporate AND mainstream America the stock market will continue to be the best game in town. The March S&P made it to just shy of 2750.00 (from lows of 2000.20 early evening Nov. 8, 2016) and to guess at upside is probably futile. So let’s see where we may dip to after corrections to try to initiate a long position. The breakout over 2700.00 was strong so that may be the first place to look if trying to enter. If buying at 2700.00, I would risk below the next point below, that being 2680.00.
Dow: Paul Krugman, Nobel prize winning economist (sic) for the NY Times told everyone to sell all their stocks if Donald Trump won because if he won the market would crash. Well to be fair to Paul, the market was crashing early on the evening of November 8, 2016 when the candidate who lost appeared to be winning. When the other candidate won, the stock market began an unprecedented climb from which it still shows no sign of abating. Thank you Mr. Krugman for ONCE AGAIN showing that SOME Nobel prizes are not worth the paper they are printed on. I wonder how your readers feel about you now for costing them soooo much money due to your irrational political bias. Anyway the Dow has powered from 20000 to 25400 since then and as with the S&P, there is no reason for it to drop except for nominal corrections. From the current 25250 use a dip to 24900-24800 for another buying chance. By the way Paul will you be continue to advise your few remaining readers to stay out of the market until 2024 now?
Energies: The sharp rise for all in this group except natural gas is directly related to the soaring US economy. Our economy has also kick started Europe and Asia and the expected larger demand has caused speculative buying in anticipation of the larger demand.
Heating Oil: February heating oil had made a sharp rise but was wallowing between 190 and 195 before the extreme cold hit the US during the last two weeks of December and first week of January. Once 195 was breeched futures took just days to fly to 209. We have pulled back to 20475 and there is little support before the breakout at 195. Warmer temps are expected for the next two weeks so we may see 195 tested soon and if that fails to hold, look for 186 shortly thereafter. Use another rise to 208-209 if considering a short.
Unleaded (RBOB) Gas: While the heating oil saw a sudden surge cold induced rise to new highs no lead managed to only rise to highs near 182 which were made in October before the market pulled back to 166. From the current 17950 use a last attempt to test and possibly exceed the 182 highs if considering the short side. These are short term corrections because in general the strong economy will continue to support energies after breaks and we probably creep higher but at a much slower pace after lower corrections. A sell near 182, risking above 185 may pay off and I would look for a drop back to 174-172 once the sell off begins.
Crude Oil: Make no mistake there is no shortage of crude. As mentioned earlier the rally is 100 % speculative based on economic projections that demand will help to make up for the oversupply situation seen for crude. February futures made it to 62.20 last week fell back towards 6100 on Friday and is currently hovering near 6150. As the week goes on if 6200 is not tested soon it is likely that first 6100, then 6000 will fail to support. The chart patterns is saying the odds are better that we will see a drop to 5900-5850 than we will rush to new highs. A sell near 61.75, risking above 63.00 may be the way to go.
Natural Gas: To show the magnitude of the huge supply situation in natural gas this is a market which dropped nearly 60 cents to 256 as we were experiencing the coldest of the brutal icy blast experienced during the past three weeks. February natural gas did push to 310 following the break to new lows but needed just three days to fall back to minor support at 275. We may not fall much further than 255-260 but much colder temps must return if we are to see much more than 325-330 on top.
Grains: This Friday’s USDA report is being anxiously awaited for a sign of any bullishness. Other than short term intraday moves higher most in the group are slithering around at or near their contract lows. On Friday if looking to possibly take advantage of a surprising bullish number you may wish to buy an inexpensive February call option which is based on the March futures. Most time value is gone and these will likely be very inexpensive. I will send out some option choices around 10:00 am central time Friday which is an hour before the 11:00 am report.
Corn: Since early December March corn has stayed between 3.46 ½ and 3.55. Last year’s big crop coupled with a large carryover has kept any rally attempts in check. A bullish surprise number might generate a 15-20 cent rise given the low volatility and low prices we are currently witnessing.
Soybeans: Since breaking below 9.80 early last month March beans have been unable to push past 9.77. We will probably stay between 9.55 and 9,75 this week as action should be slow for the entire group. I like buying near 9.55 rather than selling at 9.75 and if we see 9.55 by tomorrow or Wednesday, I’d try a long, risking below 9.48.
Soy Meal: March meal has been very resilient near 315-316 after showing a bottom there in November, shooting all the way to 352 in early December and now falling back to a triple bottom near 316 once again. From the current 321 I would consider a buy at 316, risking below 309.
Bean Oil: Bean oil has actually held up better than beans and meal for the past two months. March futures have shot from 3250 last week to 3410 and now back to 3345. A further dip to 3300 may offer a buying chance, risking below 3240.
Wheat: Since bottoming at 4.10 in early December March wheat slowly crawled to highs at 4.38 last week. We pulled back to 4.25 today and if we see 4.25 holding this week, a buy wouldn’t look bad. Let’s see if it holds because a drop through 4.25 starts a run to 4.20 and perhaps 4.15.
Softs: Cotton is the only mover here while the others have pushed to recent or new lows and recovered slightly.
Sugar; March sugar has been in a very tight range with a 1582 high and 1360 low since last June. The area near 1380 held numerous times first in September and then again in December. From recent highs at 1540 March sugar fell back to 1454 so far. Crude prices remain higher but there has been no clamor for ratcheting up ethanol production as of yet. That has been holding back futures so I would wait for another trip down to 1380-1400 if looking to get long.
Cocoa: Despite ideas that this year’s cocoa crop may be lighter in the Ivory Coast March futures have been struggling to find any traction. For the most part the past month has seen lows near 1850 and highs near 1950 with a few lower blips two weeks ago to 1805. From the current 1905 I like the long side of cocoa if we test 1850 once again this week. Stay tuned as I will likely be sending out a trade tip to buy if that occurs.
Cotton: Once March cotton was able to charge through the upper range at 7500 early last month it took just weeks to make it to 8000. While I like the long side of cotton I would rather see it pull back to test 7550-7500 from the current 7825 as the risk is too much from here, especially with an overbought market.
Orange Juice: March juice fell from 16600 in late November to 13200 early last week, managing to avoid breaking through contract lows near 13100. The cold snap which engulfed the US sparked a quick rise to 14150. We have pulled back to 13900 and a 50 % correction higher takes March juice almost to 15000. If we see a slide back to 13600-13500 I will consider either a long futures or a call option.
Coffee: The story is pretty much the same for coffee and actually all in the group other than cotton. March coffee bottomed near 11800 in early December and made it all the way to 13135 last week. Of course, as with most here the euphoria was short lived and March coffee made it back to 12430 today. I believe we will test 12100-12200 during the next couple of days and if so we may take a look at a long future or long call option.
Livestock: Both live and feeder cattle have been slaughtered (no pun intended) after big rallies during December while hogs pushed very close to contract highs today.
Live Cattle: Back in late September February cattle bottomed near 11700 and made it to 13200 by late October. It consequently dropped to 11700 by early December, charged to 12400 last week and took just 3 days to reach lows at 11677 today. So the question now is will it hold this important area or pull all the way back to lows seen at 11000 in August. I think the answer is somewhere in between. I am looking for additional weakness to 11400-11500 for a possible buy.
Feeder Cattle: Market action was the same for feeders as March futures pushed to 15900, fell to 13800, rose to 14900 and have come back to 14175. This has occurred since November and if 13800 is bested I expect to see 13400-13500 and will consider a long at those prices.
Lean Hogs: Holiday seasonal buying and strong exports to Japan have continued to support hog prices. So far February hogs are showing a long term triple bottom near 6650. Each test of 6650 brought buying and the new area to beat is 7350. Actually I would rather wait for a rise through 7350 up to 7500 to consider the short side. Seasonal tendencies turn weaker into February so let’s watch for a push to 7500 to consider the short side.
Questions? Ask William Frejlich today at 312-264-4356
A Subsidiary of Price Holdings, Inc. – a Diversified Financial Services Firm. Member NIBA, NFA
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. ©2018
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