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
I tried to do the right thing on Mother’s Day. I gave my wife the usual, a card, chocolates, flowers and then I asked her if maybe she can tell me some of my faults so I can work on them and try to do better. To my surprise she said I only have two faults. The first one is I never listen and then a bunch of other stuff she was rattling on about.
Metals: Gold and silver broke hard as we continue on track for steady rate hikes each quarter. As it appears that the trade tariff “war” with China is easing, copper and US stocks have rebounded sharply.
Gold; Once June gold broke through 1300, 1280 came quickly. If financials continue to break and the US Dollar continues to rise we should test 1275 this week. If 1275 cannot hold I look for 1245-1250 shortly thereafter so don’t be in a hurry to buy.
Silver: For the most part July silver has swung between 16.10 and 16.80 except for the 3 day rise to 17.40 then drop below 16.80 in mid April. I expect the same action for silver as I do for gold which means not much upside from current levels and a slowing down side as well. I would wait for another test of 16.10 if thinking of a long for July silver.
The words from last time still apply as July silver did push a few cents above 16.80 before falling back. So far we have tested 16.28 and I do expect 16.10 to be tested. It should hold near that level but if not, 15.80 would be the next target.
Copper: July copper made a steady move higher until the stock market saw the sharp break in late January into February. We saw about a 40 cent break down to 29600 in late March, recovered to 32200 by late April and currently sit near 30800. The stock market is slowly adapting to higher rates and as long as stocks progress as they have, I expect to see copper push to 32500-33000 near term. If we see another slide to 30200 I would consider a long for July futures.
The words remain from last time as July copper did dip slightly below 30200 and so far have pushed back to 31115. If 314 is breeched I would expect 320-322 within days.
Currencies and Financials: For months I have been explaining why I felt the Dollar was undervalued while non US $ currencies were in many cases (Euro,Swiss,Yen) extremely overvalued given the condition of our economy versus theirs and our higher interest rate picture. This picture dramatically changed since the Dollar bottomed near 8900 just three weeks ago as the June Dollar reached 9303 this morning.
Again, there is little to add from last time as the Dollar, after a minor correction to 9211 has zoomed back to 9396 and other non Dollar currencies fell to long time lows during the past two weeks.
British Pound: The June Pound easily dropped to 13500 and held for a while after 13800 was broken. The rebound only made it back to 13650 and now that 13500 has been taken out 13300 is the next target and if 13300 cannot hold, look for 13150.
Swiss Franc: So far the June Swiss has been able to hold just under 10000 at 9975. The rebound has been paltry and futures were only able to bounce back to 10075. Our Dollar may be due for a slight correction and if so, the Swiss may run to 10150 where I believe it would be a promising short. I would not buy as I believe if we test 9975 again we break that level on the way to 9750.
Japanese Yen: The June Yen finally broke down, easily flushing through both 9200 and 9100. Last night we broke to 8992 and more is coming. I still expect to see a minimum lower to 8900 and more likely 8825. Use a correction to 9100 to consider a short.
Euro Currency: Despite dropping from 12650 to lows today at 11845, the June Euro still has a long way to drop. I’d be nervous to sell after a 800 plus drop in a couple of months and will probably wait to see a correction to 12250 from the current 11865 before shorting. This may be the beginning of getting back in line with its real value which I feel is closer to 11000. There is a little support at 11750 but nothing of significance until the lower gap at 11434 from last June.
One again let’s keep the narrative going. The June Euro after some choppy action from 11850-12050 finally broke to 11739 overnight. If we see a pop back to 11850 I would consider a short. As the words from last week mentioned however, I do look for a harsher sell off to the gap at 11434 from last June and I still feel that 11000 is a fairer price for the Euro given their economic state and low to negative interest rates. Additionally they have not fully exited their QE yet so higher rates are still a long way off.
Canadian Dollar: The June Canadian Dollar is showing a perfect head and shoulders bottom. A view of the daily chart shows 7750 bottoms in late March (shoulder), a rise to just below 8000 during April (head, and current drop to bottoms at 7750 once again to complete the other shoulder. A rise above 7800 confirms the formation so we may have a play here this week. I’ll keep all posted.
The June CD did hold lower levels, bounced back to 7850 and so far has retreated to 7770. A bit more to 7725 may offer another buying chance.
US Dollar: There isn’t much to say which I haven’t already. Futures traded to 8850 and as mentioned above, we have climbed all the way above 9300 in just three weeks. I expect 9400 easily but if some of the other currencies correct higher, the Dollar may correct lower. From the current 9303 wait for a slide to 9220-9200 for another chance to enter.
The words from last time would have paid off big time as the June Dollar made it to 9211 last week and made it all the way to just under 9400 this morning. From the current 9377 I would wait for a slide to at least 9300 and possibly 9275 for a last chance to get long the Dollar as we are tracking to see 9500 by next week.
Eurodollar: There is little to say here. Futures continue to drift steadily lower and will continue to do so as financials such as the Eurodollars and bonds drop as interest rates rise. December 2018 futures have fallen from 9800 early this year to a low at 9733 today. Two more rate hikes during 2018 should push these to 9675 by expiration.
So far so good as we did push to 9730 last week and from the current 9732 I do expect to see that 9675 at least by expiration in mid December, I have continued to short futures and buy put options for Eurodollars and if not currently in either of those positions I highly recommend to do so as prior to the years 2008-2016 where rates were 0 %, rate hike policy both up and down was usually a lengthy process which usually would last from 2-3 years.
30 Year Bonds: As recently as April 11 the June bonds were trading at 14628. Within two weeks traders started to take seriously that the Fed would continue to raise rates. Within two weeks they crashed to 14117. Last Friday completed a correction to 14408 and we currently reside at 14316. I would use another test of 14408-14416 to look for a long term short position. I believe the Fed raises another ¼ point at the June 11/12 meeting and probably another ¼ point during the September meeting. In theory that should push the futures below 14000 so let’s watch this one closely during the next couple of weeks.
It may seem repetitive but much of the action during the past few weeks has come to pass and looks to continue. To wit, the June bonds made it to 14005 last week and so far have corrected to 14115. We may not make it to a major resistance at 14216 but if so, a sell is in order.
S&P 500: The market initially crashed hard in late January into February over trade war fears. As it is becoming obvious this will not likely do any long term damage traders began to worry about the interest rate hikes since equities traditionally get nervous about that possibility. We are starting to see a subtle shift now where rate talk is absorbed without the market taking too big a hit. We still see the market break often times after great economic numbers in the “good news is bad news” as stocks then worry about further rate hikes to slow a heating up economy to slow the inflation which can accompany surging markets. From the current 2677 I believe once we break 2680 we will at least move to highs at 2720 from two weeks ago. If 2720 fails to stop, first 2780, then 2800 would be the next targets.
The analysis from above still holds as does the projected price action. The June S&P easily soared through 2680 and made it to 2739 already today. I don’t see much in the way of a further push to at least 2780 up to 2800 before seeing much resistance. For now 2720 should hold down below.
Dow: The story obviously is the same for the Dow. June futures easily pushed through 2380 resistance and tested 25000 within days. After a minor pull back to 24600 the Dow is now pressing 25000 once again and if that is broken, we only see minor resistance at 25200 but nothing major until 25600.
Energies: Energies continue to rise driven by strong crude which is due to the much healthier world economies we have seen during the past year. Demand has risen and going forward, demand is expected to continue to rise. We are sort of stuck right now however since futures have risen too far to buy yet remain too strong to short. The best bet is to hope for corrections to enable you to enter at less risky levels.
Nothing has changed since last time as futures did reach new highs by a bit and remain too high to buy yet it is hard to short either with the strong technical uptrend and perceived demand strengthening world economies led by the US may bring.
Heating Oil: The products remain strong and July heating oil made it to 23000 last Thursday. The upper breakout occurred from 21600-21800 and from the current 22500 I would not consider a buy before those levels. If 21800 is breeched momentum may be enough to drive to 21000 so tread lightly after sell offs.
Unleaded (RBOB) Gas: Demand for gas continues to rise and July no lead pushed to a new high at 22730 last week. After a 40 cent rise since mid April however the market is overbought and a correction would be much needed and healthier for the market long term. From the current 22250 I would not even think of buying before 21400 because if 21400 doesn’t hold, 20800 would come quickly.
Crude Oil: As expected the move to pull out of the Iran “deal” did little to affect futures. July crude was able to push to a new high to 72.37 but it was near 71.00 when it was announced so it turned out to be nothing price or volatility wise and trading goes on as usual. The usual is a slowly higher trending market which is also overbought as are the others here beside natural gas. The lower breakout point at 69.00 looks to be supportive so a correction to that level may induce some buying after a break.
Natural Gas: Between mid March and late last week July natural gas swung back and forth in a 272-288 trading range. Futures did make it to 290 last week to pop out of the range but saw little follow through and they have slipped back to 281. We are entering later spring into summer and a warm start to the season may offer some help. If 292 is beaten, I would expect further up to 302. It would take some extreme heat at this point for much more than that so I would wait for a pull back to at least 275 if considering a long for July gas.
Grains: Corn and wheat have slowly ground higher after sharp breaks a few weeks ago. Beans and meal have seen rollercoaster action as trade tariff talks with China continue. It appears some concessions have been made over the weekend and all grains spiked higher overnight.
Corn: After reaching 4.08 ½ just prior to the monthly report recently, July corn did see a mini correction last week which held at 3.94. As mentioned above futures have been creeping higher and July futures did spike to 4.07 ½ last night as word came out that China was willing to talk and it increased the chances that we may not see any tariffs on US grain to China. It is still said that we could be on pace for our lowest corn stocks to usage ration in a number of years. Good demand will accelerate that positive and if we have any weather issues, 4.08 ½ will not be hard to beat.
Soybeans: The beans are probably more susceptible to the possible tariff wars between the US and china as they are traditionally big buyers of US beans. Beans have been volatile with big swings after US China talk. The latest low came in early April when July beans crashed from above 10.70 to 9.95 in just three sessions. Of course it took a mere 6 sessions to reach a new high at 10.79 once China backed down. Better Midwest weather spurred a harsh sell off which took beans to 10.10 yesterday and my guess is they will be somewhere near 10.25 coming into Thursday’s report. Weather versus demand is the biggest factor moving forward.
The words and the volatility remain intact since last time. July beans shot to 10.34 from 10.22 after the report which was construed as negative. It took less than a week to drop to lows near 9.93 last Thursday and Friday. Yesterday it was a announced that China is willing to talk and we seem to have some compromise in the works. Beans shot to 10.22 overnight, up 23 cents when they opened so the price action and the commentary from above still apply. This complex exports much beans and meal to China so soy remains the most vulnerable. Personally I believe this will get worked out and as always, weather during the next 4-6 weeks will be the biggest determining factor for the soy complex.
Soy Meal: July meal so far has been able to hold support at 375. This is relative as that was the breakout point to the upside on the way to 407 in mid April. The technical formation is showing a possible head and shoulders bottom with 375 as the shoulders on each side of the aforementioned high at 407. From the current 378 if China talks subside 375 should hold as a low and I would expect July meal to push to minor resistance at 392 and more upside to 400 if 392 is taken out on top. A buy near 375, risking below 365 may be the way to go.
Bean Oil: There are many edible world oils which explain why bean oil seldom shows the exuberance which beans and meal show. In fact as they were rising, bean oil was tanking and only began to rise when meal and beans corrected lower. A buy near 3040 from the current 3090, risking below 2965 would be the only way I would trade this Cinderella of the soy group.
There is little to say about bean oil other than what was discussed above. Futures did see a tiny blip down to 3050 but didn’t reach our 3040 objective. Futures have pushed back to 3120 now and may reach 3150 but there is seldom much movement for bean oil as it is the laggard of the soy group for the reasons mentioned above. When beans are crushed into meal and oil, meal is necessary as feed but sometimes good demand for meal then leads to a surplus for oil.
Wheat: July wheat seemed on the comeback trail after bottoming at 4.86 last week. Futures had moved back to 5.18 and gapped to 5.26 overnight as beans soared 22 cents and corn a nickel. Some key areas received some much needed rainfall yesterday however and futures have so far today been slugged down to 5.04 ¼ from highs overnight at 5.25 ½. If this 5.05 area holds we may see July wheat head right back higher again. Aggressive types may try a long at 5.05 but you must risk over $1000 as the stop should be below 4.85.
Softs: Cotton and cocoa and to a lesser extent OJ are getting a bit long in the tooth with their current rallies while coffee is showing signs of a bottom and sugar has finally bottomed.
Sugar; A few weeks ago I recommended to buy August (based on October futures) 1300 call options which we bought for 20-22 points. October futures chopped around for a while after that but finally showed support between 1150 and 1160. We came in and bought futures last week at 1160 and I believe we should push to at least 1350 this go around. Since the low near 1160 last week futures have taken off to today’s high at 1251. A slight correction back to 1205 may offer another buying chance.
Cocoa: Each rally attempt has been lower than the previous attempt since July cocoa topped at 2950 some weeks ago. We have been slammed to 2609 currently and I see not much in the way of support before 2400. I would not buy before that and would use another push to 2720 from the current 2621 to consider the short side.
Cotton: A hot and dry Southwest USA coupled with continued strong demand from China led the way for July cotton to make it above 8800 last Friday. We have pulled back to 8600 now and further weakness to the breakout at 8500 may be a buying opportunity. A push through 8800 may set the stage to see 9000 shortly thereafter.
The words from last time are still valid. In fact since then July futures have slid to a double bottom at 8350 then needed just four days to reach new highs for this move today at 8873. I still think we can reach 9000 but I wouldn’t want to be getting long at 9000 as we would be quite overbought at those levels.
Orange Juice: I am not sure what the driver was but July OJ after holding at 13600 in early April, managed to soar 36 cents to 17200 in little more than a month. Supplies are ample and the hurricane season hasn’t begun yet so this seems like heavy speculation to me. After hitting 17200 last Wednesday futures have come back to 16665 but I would not buy before at least 15900 and possibly 15400 if I wanted to go long.
Coffee: Coffee is in the early stages of looking like a bottom. July futures dipped below 11600 last month, worked up to 12600 in early May and tested 11600 again last week. We have moved back above 12000 now and I would use another dip to 11800 to consider a long.
Livestock: Cattle and feeders saw a hefty break but appear to be trying to creep higher while hogs are coming very close to a buy after the current correction.
Live Cattle: A month ago June cattle nosedived to lows at 9700 and recovered to 10500 by the next day. They continued to 10800 as cash prices remained stubbornly high. So far pull backs have held at 10400 but as cash is beginning to fall that area must hold or we face another flush to 10000 as supplies remain high. We are entering the barbeque season in the US and that may be enough to hold the 10400 level.
The words from last time still apply with some minor alterations. Once June did break 10400 it was spanked down to 10135. It quickly recovered but could no longer move through 10400 until today. We have bounced to 10470and there is resistance at 10500. I believe it will break though that area up to 10600 – 10700 but not much more. A rise back to the 106-107 area may be a shorting chance and I will advise if we approach those levels.
Feeder Cattle: Much as with live cattle August feeders crashed from 14900 in late April to lows at 13625 by last Friday. That was too much too soon and we have already shot back to 14060. I expect a little more upside to 14300-14400 and may be shorting if that area proves too tough to overcome.
Lean Hogs: June hogs bottomed at 7275 in late April and within 2 weeks made it back to 7750. The last week saw a break back to lows near 7300 today. Demand remains strong to Asia so I would use a further dip to 7225 to look at a bullish position. That may occur by tomorrow and if so, I will be sending out a trade tip.
Questions? Ask William Frejlich today at 312-264-4356