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,
Despite the well below normal temps in the Midwest we know spring is just around the corner come Master’s week. The best in the world will descend on Augusta Georgia this week and just seeing the sun and the Azaleas gives us hope as we put on our parkas, scarves and gloves to venture outdoors. At least it isn’t snowing.
This Week’s Commentary
Metals: Copper is recovering after taking a beating as US stocks have languished since the big break in early February. Gold and silver held near recent lows and have shown signs of life with each stock market break.
Gold; June gold held near support at 1310 last week, shot over 1360, backed off to 1325 and currently are creeping back with today’s trade above 1340. Stock market action seems to indicate more up and down choppy volatility and this may keep gold in a wide erratic range where 1300-1310 finds support while 1360-1365 stifles upside.
Silver: Silver will rise and fall for the same reasons as with gold so only the numbers will change. I do expect a continued range where $16.00-$16.10 holds below while $16.80 stifles further up for the time being.
There is little to change from the above words as May silver reached 16.10, held there, made it 16.81 last week and so far has risen back over 16.80. For the same reasons as with gold I expect the range to continue and unless the US stock market resumes the bullish stance it saw before February, a break above 16.80 to 17.20 is more likely than a drop below 16.10.
Copper: Last July through September copper after breaking through 29400 copper took numerous attempts to drop back through 29400. After pushing all the way to 33400 in December May copper was stymied by the abrupt and harsh break for US stocks. It took three months but copper did finally make it back to the 29400 breakout point last week. It held and so far has begun to climb back, reaching 30715 today. Much will depend on whether or not stocks can firm up again and if so, 32000-32400 should come quickly. A dip to 29800-30000 may offer another chance to buy.
Currencies and Financials: Most here, including the US Dollar have settled into wide trading ranges depending on what US stocks are doing during any particular day or week. The Pound and Yen have held up the best and the Canadian Dollar may also offer more upside after holding just below 7700 last week.
British Pound: The June Pound made its way to 14300 last week after holding near 13800 in early March. The level of 14050 was half way back from the high to the low and we did hold 14050 both last week and overnight. We have bounced back to 14110 so far and I expect 14200 to be seen this week and possibly 14300 if momentum builds. If 14050 continues to hold I would like the long side here going forward.
Swiss Franc: The stair step down formation continues for the June Swiss. We finally held at 10500 last week but the recovery from the nearly 500 point break since mid February has been weak. There remains a gap at 10446 and I would not consider a buy for the Swiss prior to the market filling that gap. If you did buy near 10450, I would risk below the next lower gap from January at 10368.
Japanese Yen: The June Yen has also settled into a trading range but at significantly higher levels than the 8800-9100 range seen most of last year from September to the breakout higher in mid January. For now 9320 should hold down below while 9560- 9600 is resistant on top. There is little reason for much more than 9550-9600 on top now so I would consider a short near 9600, risking above 9700 and looking for at least 9350 down below. I will follow up with a trade tip if we test 9600 from the current 9460 we are seeing now.
Euro Currency: Action for the Euro is similar to what we are seeing for the Yen. Between July and January, we pretty much saw a range from 11700-12200Once 12200 failed to hold futures took little time to run to 12650, fell back a few times to rest 12200 and currently reside at 12368. I believe this is till far too high for the Euro and would consider the short side on another test of 12550. Down below, if 12200 is taken out first 12100, then 11950 should come quickly.
Canadian Dollar: As mentioned above we may have a buy for the Canadian Dollar this week, perhaps by tomorrow. We are at lows not seen since last June with the break to 7700 from highs near 8200 in late January. I don’t wish to pick a bottom just yet but a buy near 7675, risking below 7635 may be one idea but more likely a call option for April or May based on June futures would be the safe way to trade this very oversold market.
Futures did fall to 7650 last week, rebounded over 7800 and are now sitting at 7760. Another rise through 7800 likely generates more upside to at least 7900. A drop to 7735 or a rise through 7800 might give buyers another shot to get long.
US Dollar: What should be one of the strongest world currencies, if not the strongest, is just not reacting as such. The range for the June $ shows 8800 down below and 9050 above. Much of the weakness is obviously due to our shaky stock market action of late and the ramifications of the Fed holding off on rate hikes potentially due to the aforementioned weakness. I can somewhat understand the weakness against the Pound and Yen but imagine why it remains weaker than the Euro and Swiss where these countries are still working their way out of their QE lifelines, let alone beginning to raise rates.
Eurodollar: Coming into the March 20-21 Fed meeting all in this group has fallen to new lows. The fact that much of the price action was already factored in along with the previously discussed stock market weakness actually spurred a 10-20 points spike for most in this group. They have retreated about 1/3 to ½ of their pre meeting advance and long term nothing has changed. I have been, and will continue to recommend shorting futures or buying puts for 2019-2020 contracts after each correction higher.
30 Year Bonds: Eurodollar commentary applies here and possibly even to a greater degree than for Eurodollars. June bonds bottomed at 14114 in February and had made it all the way to 14624 last Friday. I wouldn’t expect more than 14700 on top and in fact the 14624 may be the high for the year minus any unexpected economic or world events. In fact, a buy at 14616, risking above 14708 may pay off nicely during the next 1-2 months.
S&P 500: The late February 3 day flash crash is the reason for the continued volatility since then. US stocks had advanced for 15 months straight and a certain sense of complacency had set in whereby traders felt the market would go up forever. The crash has put a psychological component into play and now money managers and investors are thinking twice before jumping into the long side blindly. The constant tariff talk (these are big plusses to the US economy long term) but the media could never admit that of course and the majority almost seem as if they want the US economy not to succeed (Paul Krugman of the NY Times comes to mind) just to be spiteful to President Trump. It seems as if this volatility has been ongoing for a long time but in fact, has only occurred since early February. Once the hoopla wanes, we should expect to see a steadier move up as the most sectors of the economy continue to grow. Emotional factors are hard to gauge so I am not looking at any specific numbers right now and will advise going forward
Dow: The story obviously is the same for the Dow. We first must get away from the 400-500 point swings which often occur within and hour or so of late. This is caused by the psychological factors mentioned. The old adage which still applies as to the biggest mover of markets is that markets go up because of greed and fear. Right now fear seems to have the upper hand.
Energies: Much of the commentary so far has focused on the stock market. The reason is that it is affecting so many commodities sectors at this point. Energies didn’t rise as they had simply based on not enough available supply. They were rising sharply based on perceived heavier demand which was sparked by the exceptionally strong stock market and US economy which also helped both Europe and Asia to recover from their decade long malaise. So the recent lower action here is also mainly due to the uncertainty now about that perceived demand. Financials and even grains are also affected by the huge swings for stocks.
Heating Oil: As to the above comments; Before the market crash May heating oil traded from lows at 144 last summer and even 166 in later fall to highs at 210. In about a week futures fell to 181. As the market stabilized May oil did make it back to 205 and currently are trading just below 200. I expect that as we see strong first quarter earnings for stocks that the upturn will resume. It may not be as much for heating oil as we will be exiting the winter heating season but crude and no lead should be more positive.
Unleaded (RBOB) Gas: The action here mimicked heating oil as May gas fell from 210 to 184, ran back to 206 and so far are hanging around 19775. I am looking for a further drop to 192 and if conditions are right (stk. mkt. not crashing) we may take a run at buying, risking below 188. I will advise if so.
Crude Oil: May crude typifies the theme today and as such May futures were trading at 65.42 this morning. As per usual the media again began hyperventilating about a trade war and from unchanged the Dow managed to crash 600 points while the S&P went from even to 75 points lower. As they reached their lows crude had fallen all the way to 62.95. Without outside factors I would suggest a long near 62.75 but once again, it is hard to gauge emotion so I will just watch. If 62.75 is bested it means stocks have fallen further and we could see at least 61.00, if not 60.00.
Natural Gas: There is little to discuss or trade with natural gas right now except for possibly writing option strangles. (selling calls and puts on each side of market to take in premium) May natural gas has settled into a 260-280 range with little to drive it in either direction now. If we were to start to see any indications of a warmer than normal spring/summer we might see a rise to 300 but with plentiful supplies and outside factors throwing bearish aspect into the trade, lets stay on the sidelines for now.
Grains: Last Thursday’s quarterly grain stocks and prospective plantings report showed lower planting intentions for corn and beans, sparking hefty advances for both. Wheat showed a neutral/bearish report but it ultimately followed beans and corn higher. As I will explain below, the ack market is sketchy and this has spilled into grains as the morning wore on.
Corn: Last year US producers planted 94 million acres of corn. Last Thursday’s projection and estimates predicted a little over 90 million acres so we already were looking at about 5 % less than last year. When the number showed just a touch over 88 million acres to be planted, futures all exploded higher and across the board we saw 15 cent gains for corn. July futures ran from 3.84 coming into the numbers to 3.99 before settling at 3.96 ¼. They also followed though overnight, pushing up another nickel to 4.01. As the daily stock market plunge began futures did drop back to even at 3.96 where futures are biding their time as of this writing. In addition to the lower crop it was estimated that Argentina’s corn crop is down nearly 25 % from last year so again, and not to start boring myself here, but when stocks rebound I expect to see grains start a slow move upward. All of this is contingent on good growing weather for the spring into summer. March saw one of the coldest winters for the Midwest and April is showing no sign of that letting up at least for two weeks. Additionally we are looking at multiple snow and rain events this week. I believe we should hold near 3.95 for now and may look into adding to existing futures contracts and call options for them as well.
Soybeans: The surprise acreage number for beans helped the soy complex also. Last year saw over 90 million acres planted for beans and the last USDA report estimated over 90 million acres which would have been a huge jump for a second consecutive year. The actual number came in just under 89 million so while it stopped the pre report slide for beans, 89 million acres is still a big number, especially relative to corn. For these reasons I will stick with corn for buys unless weather conditions warrant buying in the soy complex. July beans ran from 10.23 to 10.60 Friday, ran to 10.70 overnight and have pulled back to 10.48 ½ so far today. I would not consider a buy before 10.40, and possibly 10.25 for July beans.
Soy Meal: From highs above 400 in mid February July meal had fallen all the way to 360 and traded at 370 coming into last week’s numbers. Meal ran to 387.5, pushed to 392.5 overnight and so far as stocks (blah blah blah blah blah) are being crushed, have fallen to 381.3. A drop to 370 may be a buy as strong earning this season will likely ease the nerves for stock investors.
Bean Oil: Bean oil never participated in the rise and in fact has slid steadily lower since topping at 3620 in November. A drop to 3160 may spark a short term 100-120 point rally but the best bet for grains right now is corn, followed by meal and beans if thinking of the long side.
Wheat: The report showed higher prospective plantings for wheat and initially wheat fell as both corn and beans soared last Thursday. July futures which had seen a 90 cent jump from 4.40 to 5.30 had slid all the way back to 4.60 coming into the report. It did eke out a nickel gain to 4.73 but currently are back into the 4.63 range. I would wait for more down to 4.5=45 – 4.50 before considering a buy here.
Softs: Cocoa and cotton have soared of late as sugar, OJ and coffee continue to struggle to find support.
No need to change anything from last time as sugar coffee and juice continue to wallow while cocoa soars and cotton is holding steady.
Sugar; A larger than expected surplus plus lower demand has kept sugar on the defensive. It is showing signs of trying to hold near 1230 for July futures and the flush to 1230 last week may have been a temporary bottom. Let’s watch for a few days and if 1230 continues to hold a buy may offer the chance for a 100-120 point gain as 1380 is longer term resistance.
Cocoa: Since breaking through 2220 last month and rising quickly to 2650 May cocoa has become very overextended and quite overbought based on the fractionally lower crop expected for this coming season. I would have to wait for a pullback to at least 2420 before even allowing my self to start thinking of a buy. In fact I am looking at puts right now and may be sending out a trade tip in the next day or two.
Cotton: Bang Zoom Alice…. To the moon…. That old Honeymooners line describes May cotton which has exploded from 7647 on February 16 to highs at 8530 today. We have exceeded most near term expectations during such a short time frame and as with cocoa, we must wait for a correction as volatility and risk is greatly expanded after such a move in such a short time frame. I wouldn’t even consider a long before 8000. Since last time May cotton made it to 8660 and has fallen back. We held near 8060 twice last week and if that level continues to hold a buy may be in order. It has been dry in the Southwestern USA and if that continues a push back over 8500 is very possible.
Orange Juice: I don’t see much in the way of trading action for juice these days. The range has tightened, futures crawl lower for a month and the month’s worth of dropping is taken away with a one day correction, then it eases lower again. If 134-135 can hold futures may be a buy, risking below 13000 and looking for 14200.
Coffee: May coffee is suffering from the fact that there is just too much cheap product out there. Each rally attempt since November has failed and futures reached new lows shortly after each corrective attempt to rise. After making 12400 last week May coffee has retreated to 121 and needs to hold above the recent lows at 11855. If broken 11550 is possible. If the 120-118 area can hold this time around we may see a more substantial correction to 128-130 based on current patterns.
The words from last time still apply and futures did reach 11610 today. The 11500 area should be supportive and we could see a short cover rally anytime which could take su to 122-124. If 115 is bested we may slide further to 110.
Livestock: Bearish cattle on feed and pig crop reports have been the catalyst for big downside lately. Other than corrective rallies, there is little hope for any appreciable upside at this point.
Live Cattle: In early April June cattle saw a triple top at 11900. Futures made it below 10100 today and if 10000 if broken further down to the lows from last March below 9600 are possible. Not only have we seen ample supplies and lower demand but as with many markets of late, a weak US stock market is no friend to cattle. While that is mainly a psychological notion in that is presumes people will eat cheaper cuts of meat, as we can attest to, psychological notions can have real market consequences. If we hold 10000 it is possible to see a dead cat bounce to the lower breakout area near 10500.
Feeder Cattle: Ditto for feeders and for the same reasons. Since falling from 15400 in late February May feeders have seen a pretty steady drop with few up days along the way. We pushed to 13160 today and 13000 may offer some support. If we do see a correction, 13600 up to 13900 would be the targets.
Lean Hogs: As if the weak technical picture and ideas that China would add pork to their list of retaliatory tariffs weren’t enough, last Thursday’s pig crop report came in much more bearish than expected. Or rather, it came in as expected but it showed hefty stocks on hand and big numbers to be bred during the next 3-6 months. June futures traded to the limit of 300 points down today to close at 7355. This was from highs at 8400 just 5-6 weeks ago. The contract low at 7295 is not likely to stem the selling tide and I would not think of a buy before 7000.
Questions? Ask William Frejlich today at 312-264-4356
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Questions? Ask William Frejlich today at 312-264-4356