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
This past weekend we in Chicago were fortunate enough to have temperatures in the mid – upper 90s, humidity close to 90% and heat index near 110. So I’m thinking of my friends in the Southeast and Southwest USA who live in those climes every day and my first thought is….. ARE YOU CRAZY ? But I guess they feel the same way about me when they come to Chicago in late January. ARE YOU CRAZY?
Metals: Gold and silver continue to drift lower as the Fed continues the slow rate hike process and inflation seems to be holding the 2-2 ½ % level. Copper appears to have a bit more down and palladium and platinum will go the way of gold for the most part.
Gold; First 1290, then 1275 were key support levels for August gold and once they were beaten 1245 was seen in less than two weeks. We are seeing no major world conflicts now and the stock market is adapting to “Tariff Mania” so my guess is 1245 does not hold and we could see 1225-1230 later this week. You may be able to snatch 10-12 dollars buying at 1225 but this market is weak so rallies now may be better for a chance to initiate a short. A rise to 1275 if 1245 holds may fit that bill.
Silver: September silver continues the technical action which was seen for July futures. The range for the most part was 16.10 – 16.80 with the upside holding at 17.40 and downside holding 15.80 after breaking the aforementioned range. We saw the trade just above 17.40 just two weeks ago once 16.80 failed and so far we have seen 15.84 as a low today. If 15.80 holds.and silver tries to advance first 16.40, then 16.80 would be upside targets. If 15.80 cannot support I would expect 15.20-15.25 within days.
Copper: Copper has been deeply affected by tariff mania since we do much copper business with China. US stocks seem to have a floor now which accounts for the tariff related sell off and September copper may be close to a bottom as well after dropping from 334 to 292 since early June. For now if 29200 holds as support we could see an immediate rise back to 30400-30600. If 29200 fails, the chart gap at 28000 from a year ago would be tested. If the stock market rebounds copper probably will also.
Currencies and Financials: Regular readers know that for months I have liked the long side of the US Dollar against the short side of the Euro and Swiss in particular. The Yen seems to be shaping up as a buy along with our $ as a flight to quality when stocks see a bruising every other week or so and Canadian Dollar may be close to a buy after flushing below 7500 last week.
British Pound: The September Pound has wallowed lower of late as the liberal party in England cannot accept that Brexit passed and have been whining for 2 years and recently tried to make an amendment to try and void the voted on, and approved referendum. Hmmmm, sounds familiar, doesn’t it? Anyway the September Pound has dropped from 14450 in mid April to lows last week at 13100. The breakout point in May 2017 was 13000 so let’s see if it holds this time. Since I believe Brexit is a strong positive for Britain’s economy I do expect 13000 to hold and I would like the long side right near 13000, risking below 12800 initially.
Swiss Franc: The strong economy in the US has been a huge boon to Europe as well. This is why the Swiss was finally able to hold just under 10000 after the long drop from 11050 to 10057 between March and May. We have chopped between 10000 and 10300 since May but this market can be sold, after corrective rallies. Draghi basically stated in his address early last week that the stimulus would remain at 30 billion Euros a month until October and then 18 billion a month until December 31. He then stated there would be no action on rates before the middle of 2019. So they are at least a year and 4-5 rate hikes behind the USA on rates so I would continue to sell into rallies for the Swiss and Euro because if our economy slows, so will theirs.
Japanese Yen: The Yen is probably the second firmest currency on the board after the US Dollar. Japan’s economy started rebounding around the same time ours did (November 2016) and they were not as dependent on a strong US economy as was Europe. Of late, whenever tariff mania comes to the forefront and world stock markets fall, the two “flight to quality” buys are first the Dollar and then the Yen. This is why I altered my long term view of the Yen and it, along with the US $ are two here which can be bought after dips. From the current 9075 I like the long side of the September Yen on a bit more down to 8950-8960. However if we cannot push through 9000 I may up the buy price.
Euro Currency: Commentary for the Euro mimics that for the Swiss. The Euro zone is still in their QE phase and is a long way from raising rates. This should keep a lid on rallies until at least the fall of 2019. This market was at 12750 for some reason late last year and is still overvalued at the current 11670. Use a slight rise to 11800 to look at the short side.
Canadian Dollar: The September Canadian Dollar was squashed as Justin Trudeau tried to pretend he has a backbone and it failed miserably. Tariff mania took hold here also. This is along term extremely positive for the US economy but psychology tells us is that one day is long term for most markets. This is why we are starting to see stability for US stocks and stock indices. The September CD fell from 8000 in late April to 7475 last week as trade skirmishes (they are not wars media) obviously will hurt Canada more than the US. That goes for Europe especially and China in the long run. Anyway I would consider a buy if 7500 is tested, but not bested in the days to come from the current 7570.
US Dollar: If you have been reading you can tell I like the long side of the Dollar, especially as it relates against the Euro and Swiss. Since the Dollar Index is a weighted index against a basket of currencies and the Euro is the strongest weighting at 57 %, I like either the Dollar long after breaks or the Euro short after corrective rallies. Others in the Index include the Swiss, Canadian Dollar, Japanese Yen, and the Swedish Kroner. From the current 9480, use a dip to 9420 to get in on the long side.
Eurodollar: I have spoken much about Eurodollars since last November when we began shorting futures and buying put options. With the Eurodollar as well as other rate futures, as cash rates rise, these futures fall. The Fed has claimed at least 2 more hikes during 2018 and at least 3 hikes during 2019 so if not in yet, please ask me about which markets to short or buy puts to capitalize on the coming rate hikes.
30 Year Bonds: Bond market action is telling us one of two things as it continues to rise. Either the Fed is not going to raise rates as often as they said they would, or the market is spooked about tariff mania and therefore traders might believe the Fed would go slower on hikes. Again, this is one of those market overreacting SHORT term on an issue which is long term. That said, after moving from 13911 on May 18 to 14528 by May 30 this one is waaaay overbought. We are stalling near 14516 now and if we hold this area for a couple of days I would like the short side of September bonds at 14516.
S&P 500: I have written much today about what I call “Tariff Mania”. This is an irrational fear pushed out through many “experts” on cable business channels. This has caused some stomach churning from investors who saw stocks advance for 15 straight months none stop. As discussed earlier, our trade deals are not really deals as in a deal both sides get a benefit. Financing many industries in Europe, Canada, Mexico and China is no deal for the US and these will get straightened out over time as out trading “partners” realize (they actually already do) they have much more to lose than us. In the meantime we do have some industries being hurt short term by this and the administration is trying to make some accommodations for that. Keep in mind, this is short term angst, no long term trade war. For now September futures are showing major support at 2680 and 2740 needs to be exceeded for more up to 27800-28000 on top.
Dow: Major resistance .for the September Dow future is at 25400. Major support is seen at 23800-2400 and from the current 24200 I would be a buyer on a test and hold of 23800-24000.
Energies: The entire group was beginning to push lower based on the possibility of OPEC cranking up production by up to 1,5000,000 barrels of crude a day. When they decided to only raise production by 600,000 barrels a day all screamed higher last week.
Heating Oil: As to the above comments, August heating oil had fallen from 23000 in late May down to 20700 by early June as the OPEC decision approached. So far since the announcement last week August heating oil has moved to 22200. 23000 was too high and the rise to 22200 was too much. I like the short side from 22000-22200 much more than I like the buy side down near 20800.
Unleaded (RBOB) Gas: The story is the same for no lead as it is for heat and crude. The fear of higher production enabled August gas to slide from 21700 to 19800 in a three week period. When it was announced last week that they would not be raising production as much as expected, futures took a few days to rise back to 21600. I am waiting for a touch higher to 22000 where I will be looking at the short side.
Crude Oil: Let’s keep the boring narrative going. August crude crashed from $73 to almost 63.00 based on the fear of higher production and dare I say it… tariffs. Naturally it rose from $63 to above $74 as…. Stop me if you heard this……. Production wasn’t raised as much as expected. With stochastics reading above 96% crude is more than overbought. And besides, as all the pundits have told us, the tariffs would collapse the US stock market and no one would do business with us any more. The why did crude rally $11 in less than two weeks. An $11 rise is pricing in a HUGE demand picture and how could that be if world economies will be crushed by tariff wars. Be patient folks, this too (tariff mania) will pass.
Natural Gas: The winter was not horrible. Summer so far is not horrible. We have about a 300-400 year supply of natural gas. With all that stated… I expect a tight trading range from 280-300 and if broken I would expect it to be to the down side to 270-265 based on ample supplies and temperate weather.
Grains: This is the complex which has been most affected by trade tariffs on China particularly. It has not helped that Midwest weather has been akin to greenhouse conditions at the same time tariff mania has taken hold most prevalently in the grain complex.
Corn: Despite 2 million less acres planted and smaller crops from Brazil and Argentina, corn has dropped over 70 cents since May 29 when December futures peaked just below 4.30 and had pushed to 3.60 last week and today. Much of the devastation is the fact that even though tariffs would affect beans more so than corn, often times in a complex such as grains the baby gets thrown out with the bathwater so to speak and the extreme crash for beans no doubt spilled over into corn .As mentioned earlier Midwest weather which was very shaky this spring cleared in early June and we are on target for big corn crops this year. If we see a changing pattern where extreme heat comes back into play we would consider a buy. If not I believe we would be a seller into corrective rallies.
Soybeans: I’ll spare you the same repetitive as to why beans were crushed and just talk numbers. May 29, November beans high of 10.60 ½. June 19, November beans low of 8.64 ½. Enough said. After that crash a dead cat bounce took futures back to 9.20 within 4 days but we are currently testing those 8.64 ½ lows now. If weather remains as it has been it is hard to say where this market may go, perhaps 8.00-8.25? Let’s just say it will take something to spark any appreciable rise here short of the psychological bump we would get from perhaps easing on the tariffs.
Soy Meal: OK that time again in the letter. Blah blah blah blah blah !!!!! You know ….. September meal pushed 400 in early May. They reached 325 last week, bounced a bit to 342 and have come down to 327 currently and the only way for much upside are the reasons mentioned for beans.
Bean Oil: Bean oil wasn’t doing anything spectacular before beans and meal were slammed. Even if this situation gets some relief and we may have cause to consider buying the soy group, this would be the last one we’d recommend.
Wheat: Wheat may offer a buying chance here as it is one of the few not being hurt by tariff talk and it is said that this year’s crop may be lacking. September futures reached 5.10 four times and pulled back each time. This is the third time we have pulled back to 4.80 and we held there the first two times. If we hold 4.80 today and/or tomorrow I would like a buy at 4.80 risking below 4.70. I may send out a trade tip on this tomorrow.
Softs: BANG ZOOM ALICE !!!!! All in this group with the exception of orange juice have been pummeled of late and by the looks of things, downside may not be finished yet.
Sugar; October sugar advanced from 1120 to 1320 during April and May. As corn began to drop however so did sugar. Cheap corn means sugar is would not be needed for ethanol production and with big crops in 2016 and 2017 sugar finally cried uncle today and crashed to 1151 once 1200 was defeated. We will likely test the old low at 1120 and possibly 1100-1080 if 1120 fails to support.
Cocoa: It was not ridiculous that September cocoa fell from 2950 to 2320in about a month. What was more than surprising, almost shocking was that it soared from 1840 to 2950 in the first place. The upper breakout point to that massive rally was seen at 2250. From the current 2500 I would not consider a buy before 2250. On top another pop higher to 2600 looks like a nice shorting spot.
Cotton; Drought conditions in the SW US enabled December cotton to fly from the breakout point at 8000-81000 to 9500 in about a two week period of time. We do cotton business with China frequently so needless to say now futures have quickly dropped to 8300 where it is valiantly trying to hold. If we get a flush to 8000-8100 I would take a crack at the long side.
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.
Put the month September in front and this would be the market action since last time. September juice did hold near 15550 and so far has pushed back to 16800. The highs at 17200 look to be no problem for juice, probably this week as it moves to 17500.
Coffee: There is no immediate relief seen for coffee as we reached lows not seen since 2013 today. Big crops from South America and Viet Nam along with a softening demand picture are responsible. September made it to 11155 today and I am looking for at least 10700 once 11000 is broken.
Livestock: Cattle are starting to look a little toppy after nice rallies and hogs may not drop much more but upside may be limited as well.
Live Cattle: August cattle made it to 10800 last week, fell below 10200 last Thursday and pushed to 10825 today before sliding to 10725 by the close. Use additional strength to 11050 to look at the short side for beef.
Feeder Cattle: After having a rollercoaster ride from 14200 to 15100 to 14500 and up to 15300 feeders may be approaching old highs near 15600. I would watch at 15600 or a bit because if it breaks though there 15900-16000 will come quickly. This may occur this week so let’s keep close tabs and I will advise if we have a trade.
Lean Hogs: For the past three months August hogs have traded between 8000 and 7300. Today saw a close at 7442 so let’s see if we test and hold recent lows near 7250 for a possible buy.