Hello Fellow Traders,
With all the talk about Clippers (soon to be former) owner Donald Sterling some talk has emerged about his “friend” V Stiviano. According to reports it appears she has hustled more money out of rich old men than Bernie Madoff did.
This Week’s Commentary
Metals: Gold and silver have bounced up and down based on what is happening in the Ukraine on that particular day. After holding from 298-300 for a time copper finally was able to muster a little strength as equities pushed toward lifetime highs.
Gold: In late February June gold broke above $1270. In the subsequent pull back we have seen that level hold on two occasions and then bounce back quickly. Both bounce back events were Ukraine related. For the short term $1270 should hold but if broken a flush out to $1230 is possible. On top the area from $1320-$1325 will be tough to exceed short term. The Fed keeps saying we have no inflation and this keeps a limit to upside. The reality however is we do have inflation as their gauge always is (excluding energy and food prices). I don’t know about you folks and maybe it is because I have three sons but food and energy are my two biggest expenses other than a mortgage. Also, long term we expect to see higher prices as the trillions in Fed printed Monopoly money will be extremely inflationary and bullish. After another test of $1270 if that level holds I would consider a bull strategy of buying futures or call options or perhaps writing lower put options.
Silver: Action here has mimicked gold. May silver reached $20.40 last week and has held at $19.20 twice since then. Momentum is lower but as mentioned above, markets are very skittish now and have been turning on the smallest news. If $19.20 doesn’t hold we will likely break below $19.00 down to $18.75 – $18.80.
The words from last time still apply and we have now switched to July silver but May silver did come down to $1875 exactly last Friday before a dead cat bounce has moved the aforementioned July and May futures to $19.60 as of this writing. I believe it is merely piggy backing the gold which is rising due to Ukraine tension. Most likely no military action will occur by the US or Europe and “sanctions” will continue to be bandied about. This administration has played the sanction game unsuccessfully with Iran for 5 years now so don’t look for any quick resolution to Ukraine.
Copper: Copper has shown a pulse of late since holding above 300 recently. July futures did push above 310 and has pulled back to 306. Most of this was related to US equities pressing against lifetime highs but with recent poor auto and housing numbers we may drift back below 300 again. I like the short side from 308-310 better than the long side from 298-300.
Currencies and Financials: The range bound action continues for the currencies as each country has done their best to destroy their own currency. Economies are weak most everywhere and the idea is to have the weakest currency to help their export picture. Stocks are trying to reach new highs and the bonds and interest rate futures have soared due to the Fed 0 rate to infinity policy.
British Pound: The Pound continues to remain one of the more stable currencies and hasn’t seen the sporadic volatile up and down moves which most in the group have experienced. Each break stops short of the former low while each high is slightly higher than the one before. From the current 16860 It appears a given that traders will push this market to 17000. It could be a rough ride if buying here as this market based on the British economy should be closer to 160 than to 170 and if it ever cuts loose a speedy descent is very possible. Let’s wait for 170 and then consider a bear strategy.
Swiss Franc: I had suggested an option strangle of writing higher calls and lower puts last time and this still seems to be appropriate. The June Swiss held just above 11280 and has recovered to 11400 right now and may press to 11500. The trading range going back to mid November is 11500 on top and 10920 down below so the strangle option still seems to be the way to go.
Japanese Yen: The June Yen, much like many in this group has stayed within a relatively tight range. Since mid November highs have been near 9920 and lows near 9500. I’d prefer the short side near 9900 as the bank of Japan is probably the only one capable of competing with our Fed as to doing their all to keep their currency as weak as possible. Most likely they will step in and intervene by selling Yen if futures begin to push toward 9900 so let’s consider a bear position if we see 9900 from the current 9805.
Euro Currency: The obvious theme for the week is that currencies have been in and look to remain in a tight trading range. Again, as with the others mentioned above, the high since mid November is 13970 and low 13480. We are testing the 13900 level currently and I don’t expect to see more than 13980 on top. I have also written in these pages about legging into strangles. If you don’t wish to short futures or buy puts at the upper levels here, consider writing higher call options now and then after the next and inevitable break consider writing puts to leg into the trade.
Canadian Dollar: The June Canadian Dollar seems to have said, “Enough is enough”. It has continued to hold at 9040 and signs say that will continue. The area from 9140-9160 has been resistant so far but if broken futures should easily run to 9200 and possibly 9280. Use a dip to 9040 to consider a long bullish strategy.
US Dollar: The June Dollar broke due to positive economic news in Europe. This is the least volatile of currencies and the ranges are usually tighter so I would not expect more than 8010-8040 on top this time around. A buy at 78800-7900 risking below 7860 or a sell between 8010-8020, risking above 8060 seems to be the only play for the June Dollar at this point.
Eurodollar: Fed action has turned this into a non market. If we ever see any real signs of an improving economy it will likely generate speedy downdrafts for Eurodollars as the inflationary aspects of QE would spark the need to raise interest rates. With so much pent up potential selling here downside could be fast and furious but timing is everything and apparently we are not at that time just yet.
These words from last time apply as long as the Fed keeps rates at 0 %. The only way to try this market may be to buy put options for mid 2016 or beyond and then forget about them for a year or so.
30 Year Bonds: The combination of Janet Yellen’s remarks after last week’s FOMC meeting as to 0 rates til infinity coupled with renewed unrest in the Ukraine (flight to quality buy) served to push the June 30 year bonds to 13616. This is a long way from lows below 12700 earlier this year and is too much too soon, especially since no one is likely to intervene in another worldwide civil war. Sanctions will hurt the US and Europe as much or even more than they will affect Russia so that tepid response will not deter any actions out of Moscow. With low rates and a shaky stock market bonds probably have more upside than down right now and for the immediate future. Use a pull back to 13316 from the current 13528 to consider a bull strategy.
S&P 500: As I mentioned last time the main and possibly only reason for stocks to advance is due to being the only game in town. Most countries have interest rates near 0 and other than maybe Australia have long suffering economies. Taken on the surface last Friday’s jobs number of adding 278,000 jobs looks decent. You may have been surprised to see the unemployment rate drop to 6.3 % from 6.6 % as it is widely accepted that at least 250,000 jobs need to be added monthly just to stay even. Here is the fact that this administration leaves out when patting themselves on the back about a 6.3 jobless rate. They had to drop 808,000 people out of the work force last month and claim they stopped looking for work to be able to drop the core % number. They also like to brag as to how they added 9 million jobs since the recession without mentioning that 12 million jobs were lost during that time for a net loss of another 3 million jobs. How then do we drop from nearly 10 % unemployment to 6.3 % ? Easy. Just claim that despite the fact that millions are out of work and looking for work, our leaders say they have stopped looking so they can drop them from the accounting of workers in the country. In fact we have the lowest percentage amount of citizens capable of working but can’t find a job since the Jimmy Carter era, 1979, the last time we have only seen a 62 % work participation. The point is we need to focus on long term growth and not short term accounting tricks with a sole purpose of getting reelected. Markets don’t tell you the day that all of a sudden it is over and I am leery of buying stocks here with so many negative aspects going on at the same time in the economy.
Dow: The above comments describe why I would be leery of buying stocks right now. I didn’t even go into a weak housing market now that foreclosure buys are waning, a weak auto market, and of course the not only weak job situation but that many workers are making far less every year and many are being forced to work 29 hours to avoid companies having to offer insurance. Oh and one more thing. We just broke the record for the most dollar amount of buying stocks ever which were bought on margin. The last two times this occurred was in 2007 and 2000. Take a look at a long term chart to see what happened in those years. I have not mentioned any prices for either the S&P or the Dow as that is irrelevant now. I would seriously consider having put options on going forward because as I mentioned above, the market doesn’t tell you the day that it all goes poof !!
Energies: Not surprisingly given the huge supplies, crude, no lead and heating oil have had harsh breaks during the past two weeks. Natural gas saw a correction and likely will trade in a tight range this month.
Heating Oil: June heating peaked just below 302 last week. Most weekly API storage reports from the past 4-6 months show huge supplies but as they say, the market is always right, at least for the short term. However the huge supply and slack demand picture usually wins out in the end. We have fallen from 302 to 289 during the past week. There is minor support at 287 and if beaten I expect to see 283 within a day or two and 280 shortly thereafter.
Unleaded (RBOB) Gas: The comments above apply here also as big supplies coupled with lower demand somehow didn’t break the market. Ukraine may have played a small role but true fundamentals have kicked in and we should see down action for at least another two weeks or so. June futures crashed from 307 last week to 289 and may be a bit oversold. Let’s wait for a correction back to 297-298 to initiate a bearish position, be it shorting futures, buying puts or writing higher call options.
Crude Oil: Crude prices finally broke hard last week for two main reasons. We saw another additional 5.5 million barrels put into storage and the realization that there would be no supply disruption because of the Ukraine situation. From highs at 104.25 just a couple of weeks ago June crude pushed to a recent low yesterday at 99.43. We are slightly oversold now at 99.40 and support is solid at 98.50 so I look for a pop higher to 101 where I would explore the short side.
Natural Gas: After stopping just shy of recent highs at 490, reaching 485 last week, a weak inventory last Thursday knocked June natural gas down to 465. Supplies are lower than they have been for a few years however so upside should continue but on a much slower scale for at least the next month. If temps warm sooner than expected the rise may accelerate. Be patient and I believe from the current 473 we will see another test of 465 down to 460 which may be a possible buying area.
Grains: Beans saw an up and down week, corn is stuck awaiting the next few weeks weather and wheat has exploded higher on poor weather in the Plains and Ukrainian unrest.
Corn: Corn seems to be held back by some unknown selling. Based on the fact that only 28 % of corn is planted versus a normal 50 % planted by this time coupled with very strong exports during the past month should have been extremely bullish. Conditions have worsened yet July corn at 5.05 right now is lower than the 5.08 we saw back on March 31. The thinking apparently is that the crop could be planted quickly now that the rains have slowed in the Midwest. This is a similar year to 2012 to date where planting was delayed by much spring rain. However the spigots turned off that year in early May and we saw little moisture before July as corn rose from 5.00 to 8.40 within 6 weeks. This Friday’s USDA report is also supposed to lower the planting intentions and the carryover from last year and if that occurs and corn still cannot rally, it may not do much more without poor weather going forward.
Soybeans: July beans completed a $3.00 rise with the move to 15.20 by mid April. After a correction to 14.60, then another test of what is now a double top at 15.20 beans are falling back and appear to be headed to the last upper breakout point of 14.30. We still have a small carryover of less than 125 million bushels but with weaker exports to China and the chance that producers may switch to planting beans since it is late in the season for corn planting. Let’s see if 14.30 holds, and if so a buy may be in order.
Soy Meal: July meal peaked at 495 and so far has retreated to 472. The breakout point before the strong move to 495 was 462 and that is the initial support on this correction. If 462 holds and Friday’s report remains bullish for bean products we may see a push back to 485 and possibly 495 if momentum builds.
Bean Oil: Bean oil has resumed its role as the poor stepchild of the soy group. From lows below 4000 July oil made a quick two week run to 4400 but has retreated to 4110 right now. This is a little bit too much on the correction and if we see a little lower to 4060, I would consider a long future.
Wheat: Wheat has risen and fallen due to poor then improving weather in the Plains. From $7.25 in mid March, July wheat fell to a double bottom at 6.65, rose to 7.20 and pulled back to 6.70 this time around. That should be enough down for this go around and from the current 6.75 I would look for additional strength to at least 7.00 and possibly 7.10 this week.
The words from last time still apply as July wheat did hold that 6.70 but due to poor weather in the Plains, flew all the way to 7.40 yesterday. The renewed violence in the Ukraine was a mitigating factor also. From the current 7.28 let’s see if we get a pull back to at least 7.10 for a possible buy.
Softs: Sugar and cocoa are taking a beating, OJ is overbought and overdue for a correction, while cotton and coffee remain choppy with a stronger bias.
Sugar; July futures made numerous passes to break through 1800 during the past 4 weeks but backed off hard each time. We have slid back to 1720 now and 1700 must hold or we may take a shot at 1670. It may be that we are settling into a trading range between 1710 and 1790-1800. If 1710 holds I would feel comfortable with buying a future there, risking below 1670 and selling near 1790.
Cocoa: After failing numerous times between 3020 and 3040 cocoa finally relented and sold off hard to 2920 in a mere two sessions. If 2900 is defeated 2880 may offer some mild support but more likely we would see additional weakness to the old breakout point higher at 2820. That would be a critical area so lets keep an eye out for 2820 during the days ahead.
Cotton: July cotton came right down to the upper breakout point at 9000 last week and quickly reversed the budding lower trend. We have pushed to major resistance at 9350 and if beaten, first 9500, then 9700 would be next in line. A pull back and hold at 9150 may offer another buying chance.
Sure enough after holding below 9350 no less than 7 times since early April, we did see a pull back to 9080 then a speedy rise to 9350. We did finally break 9350 and moved to 9500 where the first resistance kicked in. We should see 9350 hold on a correction now but we need a push through 9500 for more upside to 9700-9750.
Orange Juice: Once July juice pushed though 16400 we saw a quick rise to 16800. We saw a 3 day mini crash to 15700 and so far have crept back to 16050. I look for a test of 15500 this week and if bested 150 should come quickly.
Coffee: July coffee has risen due to disease problems with coffee trees in Brazil. Futures have staggered around since the rapid rise to 220 a couple of weeks ago. A trade through 210 is necessary to gather momentum for another test of 220. Down below if 198 is exceeded we may see a minor flush to 188. This one may move either way from here and with the volatility in coffee futures I would wait for moves to the levels mentioned above before considering a buy or sell.
Rice: The high since late February for July rice is 1575 and the low is 1520. This is the dullest tarde we have seen for rice for many years. For the time being buy near 1525 and sell near 1575.
Livestock: Hogs broke hard, shot higher and are retreating from very overbought conditions. Live cattle have turned into a neutral to down trend and feeders are showing that 180 is about it for now.
Live Cattle: June cattle made a few passes trying to break important support at 13400. Cash prices remain strong however and once 13600 was taken out on top it took just 4 sessions to test 14000. Most reports are saying that there aren’t enough feeder cattle on the lots to handle current demand so this market refuses to break. At some point we will see consumers object to the high prices at the retail level but we haven’t hit there yet apparently. This market will be a great short sale one day. It just doesn’t look like they day is here just yet.
Feeder Cattle: I described above the shortage of feeders on the feed lots which is keeping both live and feeder cattle in the stratosphere price wise. May futures are pushing 185 and November is at 192. For anyone who has followed futures for any number of years, these are extraordinary levels. And the Fed says we have no inflation. I have heard talk of 210 feeders possible in the cash market and this move may not stop until we reach 200.
Lean Hogs: June hogs tried but could not dent important support at 12000. It is said that the PED virus will continue to support cash prices and with live and feeder cattle flying high it will be unlikely to see much downside near term. If 12000 is beaten we may see 11850 down to 11600 but as long as cattle remain powerful, downside may be limited.
Questions? Ask William Frejlich today at 312-264-4356
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