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 am always looking to improve myself with knowledge so I went into a bookstore and asked the saleswoman, “Where’s the Self-Help section?” She said she couldn’t tell me because if she did, it would defeat the purpose.
Metals: Gold and silver have come back strong as funds and stock traders have realized that the tariffs are good for the US in the long run and stocks have broken through most resistance levels and may keep going all the way to contract highs in the coming weeks. The inflationary aspects of this enabled the entire group to push higher after reaching oversold levels due to what I referred to last week as “tariff mania”. I love it when the pundits on various cable “news” channels push the stocks are crashing narrative simply because they hate Trump since they are always wrong. Can you say Paul Krugman?
Gold; After holding at 1240 last week August gold has recovered along with US stocks and made it to 1267 today. I believe we may see a bit more this week to 1275. This will be tough resistance but if equities continue their current rise and 1275 is taken out August gold may continue to at least 1290 up to 1300 short term. I would not be looking at a buy or sell right now and would let market action dictate future strategy.
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.
There is little to change since last week. September silver held at 15.81 last week and so far has recovered to 16.26. The words from last time still apply and I expect first 16.40, then 16.60 to be tested this week. If both fail to resist, 16.80 is the next target.
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.
No reason to change last week’s comments as September futures pushed to 27825 last Friday to fill the gap the day after 29200 was bested. We have already recovered to 28775 since Friday as US stocks continue to rally so I Iook for at least 29400 this week and more likely 30000-30200. If stocks continue to rise, further up, possibly considerably so is expected for copper going forward.
Currencies and Financials: The US Dollar has seen a healthy correction and most non US currencies have rallied close to what may be a promising short sale, particularly the Swiss and Euro.
British Pound: Last week I mentioned that I would like the long side of the September Pound near 13000. It stopped short at 13100 and so far pushed over 13400. This is the one European currency which I would buy after dips. Not being tied to socialism in Europe can only be a positive and much as the US has done, they rejected elitists in the “Hague” telling us how we must live our economic and personal lives. I don’t think it will make it to 13000 but a slight correction to 13150 may offer another buy chance.
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.
The words from last time still apply and the September Swiss did make it to 10204 and I expected 10200-10225 as a top. So far we have slid back to 10155 and may not test 10200 again soon. In fact I expect to see 10000-10025 near term but would not buy that support as I believe if that level is taken out 9900 would come easily.
Japanese Yen: I was expecting to see 8950-8960 but the September yen was only able to reach 9044 last week after pushing to 9200 the week before. Futures overtook 9100 and I would see if 9040-9050 is tested again for a possible buy.
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.
As with the Swiss, there is little to add to last week’s words. September futures did rise to 11851 overnight and so far have come back to 11804. I am not looking for a major crash but I believe we could easily drop to 11650 all the way to 11475 if the US economy keeps humming along.
Canadian Dollar: The September Canadian Dollar never retreated a second time as I was hoping for a dip back to 7500 to dry a short term buy but futures bounced from 7474 to 7625 in two days to take this market out of the oversold state it had resided within. Now I am looking the other way and if futures push further up to 7675-7700 from the current 7640 I would look at the short side.
US Dollar: We have seen a healthy correction for the September US Dollar. I expected 9420 to hold but the break became more severe after last Friday’s very positive US jobs number. That actually should have been a positive for the Dollar but the rally was getting a bit stretched as September futures had moved from 8851 on April 17 to 9525 by June 28 with never more than a 200 point correction along the way. This correction from 9525 to 9344 was a 180 point dip and so far we have pushed back to 9390. A buy near 9360 risking below 9280 may pay off.
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. Ditto from last week as nothing has changed.
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 markets 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.
The words from last time came close except for a one day blow off top last Friday to 14611. So far we have pulled back to 14503 and further down to at least 14300 is possible near term and probably below 14000 again if the US stock market rise continues to advance as I expect.
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 non 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.
Move along, nothing to change here, move along. Sure enough the September S&P held at 27000 all of last week and already made it to 2785 today. I believe 2800 will be exceeded this week and take aim at 2820. Once 2820 is taken out there is nothing to stop futures from pushing to old highs at 2889 from January 29. In reality this is a much more stable move than the previous rise as futures moved higher too quickly during 2017 and needed a correction anyway.
Dow: The September Dow futures held once again at 24000 last week and pushed through resistance at 24400 like a hot knife through butter. We have surpassed 24700 now and once 24800 is exceeded we should see smooth sailing up to the next resistance at 25400. If a dip to 24400 is seen a buy may be in order.
Energies: This group, particularly crude oil has been telling us all along that tariff mania was a media induced effort to justify their (medias) existence. Once again they have been proven totally wrong, not that they will ever admit it afterward. If world economies would be crashing (ms media words and hope, not mine) due to the tariffs why did crude rally from $63 to $75 during the media hoopla. It certainly wasn’t because OPEC only raised production by 600,000 barrels a day versus the expected 1,000,000 barrels a day. 400,000 barrels a day is insignificant in world demand and would not have generated a $12 rise in 12 trading days. Most in the business and not those reporting on the business knew the US economy was merely in a consolidation phase and fundamentals were there for solid gains. Besides, what if God forbid, the ms media is wrong and the tariffs are good for the US economy in the long run as we were being buried on trade differences. Anyway, crude, gas and heating oil all made strong moves higher, pulled back a bit, and seem to have regained upward momentum. I believe however that based on current supplies on hand that there is more than enough crude to meet the stronger demand to come so we may slide about ½ way back from current rallies so I would be patient if considering the long side.
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.
Let’s keep the narrative going as August HO fell to 21400 last week and so far has come back to 22000. There is minor resistance at 22200 but I would still wait for another test of 21400 if considering a buy. If 21400 fails to support, wait for 20800-20600.
Unleaded (RBOB) Gas: Gas has not shown the volatility that both crude and heating oil have shown of late. The high was 22700 in May followed by the low at 19800 during June. So far August gas has pushed back to numerous attempts at 21600 without breaking through that resistance level. Due to the narrative that demand will continue but that supplies are adequate now, I would wait for a further dip to at least 20800 and possibly 20600 if looking at the long side.
Crude Oil: The general commentary for energies shown above pretty much described my feelings for crude. Expected demand kept it going when most pundits insinuated there would be no demand. That said I still think $75 is too much right now based on world supplies and a correction to at least $71 and possibly the 50 % correction area at $69 is possible. My feeling then is that we stay in a $70-$75 range through the summer and if world economies continue the current rise we may make it to $80 by year end. An extreme down move might make $65 but for now I believe $69 will hold.
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.
I would change the words from last week except there is nothing to change. August natural gas failed near 300 and are pushing the 282 area now. If 280 is breeched the first support will be 274 but if momentum builds 270-266 is possible. Only a change in weather patterns to continuing heat for an extended period of time through a large swath of the US could generate a rise to higher than 300 for now.
Grains: The combination of the overhyped tariffs coupled with perfect Midwest growing conditions sparked a run to new or long time lows for this group. I believe the lows from last week which I will describe in the commentary below will hold as lows for the year.
Corn: After a 71 cent drop from 4.29 ½ on May 24 to lows at 3.58 ½ last week corn is quite oversold and even a mini weather scare might spark a quick 20-25 cent rise at any time. The drop accounted for the psychological effects of the primarily bean tariffs and ideal growing conditions weather wise so far also contributed to the drop. Corn is in a quandary now as it appears too low to short but so far all the tariff tariff tariff talk has traders afraid to enter on the long side as well. A buy here near 3.65 for December corn, risking below 3.58 may enable you to take advantage of a short covering or weather related bounce higher.
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.
In fact November beans not only tested, but bested 8.64 ½ as they pushed to 8.53 ¼ last Friday before closing at 8.94 ½. Yep, a 40 cent rise which shows you what can happen here when emotion takes over trading. Of course we have come back to 8.66 ½ as of this writing but as I mentioned above, I believe the lows for the year are in. We already saw Argentina buying US beans last week. Think of it, China buys beans from Argentina at inflated prices. Argentina now needs beans so they buy from the US. Short of continued perfect weather I believe that we can buy another test of 8.55-8.60 and risk below 8.47.
Soy Meal: September meal fell from highs near 400 in late April to lows at 325 last Friday. As did beans, meal rallied also, pushing to 340. They have since come back to 330 and may test 325 this week and possibly 320. If they test 320 I would like the long side risking below 314.
Bean Oil: I would stick with beans and meal here to get a bigger bang for your buck but if you like bean oil I would consider a buy of the September oil at 2850 and risk below 2775.
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.
The words from last week came to pass but they came to pass too quickly to take advantage of it. Last Monday and Tuesday September wheat held at 4.80 and 4.81 respectively. However if not in already, they gapped to 4.98 Thursday, advanced to 5.16 Friday and so far have pulled back to 5.07 today. It is said that this year’s wheat crop worldwide is subpar so it is somewhat a surprise we are wallowing in this low $5 level and my guess is the weakness of the others here has held wheat down. This one may have the most potential in the complex and we may have a trade this week for wheat.
Softs: After weeks of beatings most in this group are at least showing signs that a bottom may be in for all.
Sugar; October sugar advanced from 1120 to 1320 during April and May. As corn began to drop however so did sugar. Cheap corn means less sugar 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.
So far the words from last week remain as October futures made it to 1124 last Tuesday, rebounded to 1174 Wednesday and currently sit at 1142. We may still see another attempt to push 1120 this week so I won’t recommend a buy just yet but if we test 1120 once again and cannot dent that support a buy is in order, risking below 1180.
Cocoa: Since the big rise to 2950 and the hefty fall to 2320 September cocoa has seen volatile action between 2550 on top and 2350 down below. Market action shows the possibility of a 100 point move to 2650 or 2250 should the current range falter on top or below the current range but this market is a 50/50 proposition right now so let’s wait for come clarity before entering either on the long or short side.
Cotton; Drought conditions in the SW US enabled December cotton to fly from the breakout point at 8000-8100 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.
Last week’s words came close as December cotton did push to 8175 last Friday and so far has soared back to 8572 today. There is minor resistance at 8600 and more major at 8825 so we either fail at 8600 and come back to 8200, or we see a push above 8600 and move to at least 8825 and possibly 8900.
Orange Juice: September juice easily moved up to 17000 once 16200 was defeated last week. Even though the minor tropical storm fizzled juice still is clinging to higher trade and sits at 16855 currently. As we are in the hurricane season futures should hold that 16200 support down below and 17200 probably will not be taken out on top unless we see evidence of another storm headed for the Gulf.
Coffee: There is no immediate relief seen for coffee as we reached lows not seen since 2013 today. Big crops from South America and Vietnam 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.
The words from last time came almost exactly to pass with Friday’s low at 10690 for September coffee. That was too much and futures immediately flew higher to close at 11450 after hitting below 10700 earlier in Friday’s session. From the current 11500 I look for a bit more to 11800 and an extreme move to 12000 but I still would wait for at least 11000 before buying.
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.
The words from last remain as all futures pushed to recent highs before breaking down late week last week and following through to the downside today.
Live Cattle: After reaching 10850 last week August live cattle broke down last week to close Friday at 10637. The low today is 10577 and further down to at least 10400 and possibly 10300 is expected this week. If we make it to 10300 I will likely sending out a trade tip to buy August cattle.
Feeder Cattle: I was looking for a push to 15600 last week but futures pulled back after coming close with the high of 15400. There is minor support at 14800 but much stronger support at 14500 so I would wait for that extreme move as feeders often times make extreme moves. On top a push to 15400-15600 may make for a nice shorting opportunity.
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.
No need to change the narrative as August hogs flushed to 7255 this morning. We have seen a slight bounce back to 7322 but I think we may see another test of 7250. If 7250 cannot hold further erosion to 7000 is possible.
Questions? Ask William Frejlich today at 312-264-4356