Crude Oil Futures
Crude oil futures in the April contract settled last Friday in New York at 38.50 a barrel while currently trading 40.65 up over $2 for the trading week now trading above its 20 and 100-day moving average for the first time in 6 months. The selloff in the U.S dollar has pushed up oil prices tremendously over the last several weeks. Oil prices are trading higher for the 3rd consecutive day; however this rally has been based on very low volume which is a little concerning as I'm sitting on the sidelines in this market as I have missed the rally to the upside. The U.S dollar has hit a 6 month low and that has propped up many commodity prices and especially crude oil as gasoline and heating oil also have rallied substantially. You will notice this at your local gas station as you are paying much more than you were just three or four weeks ago as the tide has turned in the commodity markets. Rumors are circulating that Saudi Arabia is going to urge OPEC to start cutting production, therefore, pushing up prices even higher as their economy is struggling due to low prices. However, the chart structure is poor and sometimes you miss trades as this did not meet criteria to enter into and that's exactly what happened to me, as I am leery of this market in 42/45 level as I assume production will come back onto the table because of higher prices.
CHART STRUCTURE: POOR
Natural Gas Futures
Natural gas futures in the April contract is now trading above its 20-day, but still below its 100-day moving average settling last Friday in New York at 182 while currently trading at 194. I was recommending a short position getting stopped out earlier in the week as now I'm currently sitting on the sidelines. Natural gas prices are trading at a 4 week high. However, the chart structure is poor meaning that the 10-day low it's too far away to meet my criteria to enter into a new trade so keep a close eye on this market as we could get involved to the upside soon. The fundamentals remain bearish. However, that has already been reflected in the price as supplies are huge at the present time, but the bearish short-term trend has ended in my opinion. The energy sector has caught fire over the last several weeks as crude oil is now trading at 42 a barrel which has also supported gas prices in the short term, but look at other markets that are beginning to trend with higher potential.
CHART STRUCTURE: POOR
Silver futures in the May contract settled last Friday at 15.60 an ounce while currently trading at 15.80 up slightly for the trading week responding to the Federal Reserve's announcement yesterday that they will not raise interest rates in the short-term sending silver prices up $.80 hitting a 5 month high continuing its bullish momentum. At the current time I'm sitting on the sidelines in the silver market as the risk is way too high to enter at this point, but I’m certainly not recommending any type of short position as I do think silver prices are going higher in the short-term as the commodity markets in general have caught fire to the upside as the tide has turned in my opinion. At the current time I'm recommending bullish positions in several commodities which is very unusual as I have been short the commodity markets for several years, but as a trader, you must trade with the trend and the path of least resistance & at the current time that means bullish positions to the upside. Silver prices are trading above their 20 and 100 day moving average telling you that the short-term trend is to the upside with the next major level of resistance around 16.50 which was hit last October as I do think higher prices are ahead as interest rates will remain low for years in my opinion as the Federal Reserve wants to prop up stock and hard asset prices.
CHART STRUCTURE: POOR
Gold futures in the April contract settled last Friday in New York at 1,259 an ounce while currently trading at 1,254 down slightly for the trading week in a very highly volatile trading manner as prices reacted sharply to the upside off of the Federal Reserve statement of not raising interest rates sending prices up over $40 in Thursday's trade. At the current time, I'm sitting on the sidelines in this market as I have missed the upside. However, I am not bullish gold at this price level as I think prices are topping out. However I'm not recommending a short position, but if you believe my opinion, I would sell a mini contract while placing the stop loss above the most recent high of 1,287 risking $30 or $1,000 per mini contract plus slippage and commission. Negative interest rates throughout the world have spooked investors back into the gold market as commodities, in general, have rallied as a whole. However, I remain bullish the stock market which continues to move higher as I think money flows will come out of the precious metals here in the short term. Remember when trading commodities it’s all based on risk as the risk/reward on the short side I think is in your favor, but it does not meet my criteria for an official entry into a new trade which has to be a 4 week low, but decide for yourself what's best for your trading account.
CHART STRUCTURE: POOR
What do I mean when I talk about chart structure and why do I think it’s so important when deciding to enter or exit a trade? I define chart structure as a slow grinding up or down trend with low volatility and no chart gaps. Many of the great trends that develop have very good chart structure with many low percentage daily moves over a course of at least 4 weeks thus allowing you to enter a market allowing you to place a stop loss relatively close due to small moves thus reducing risk.
Charts that have violent up and down swings are not considered to have solid chart structure as I like to place my stops at 10 day highs or 10 day lows and if the charts have a tight pattern that will allow the trader to minimize risk which is what trading is all about and if the chart has big swings your stop will be further away allowing the possibility of larger monetary loss.
Cocoa futures in the May contract settled last Friday in New York at 3062 while currently trading at 3137 up about 70 points for the trading week still trading above it's 20 and 100-day moving average telling you that the short-term trend is to the upside as prices have now hit an 11 week high. I have been recommending a bullish position from 2900 and if you took that trade continue to place your stop loss under the 10 day low which stands at 2944 as the next major level of resistance is around the 3200 level which could be tested in next week's trade. The chart structure will start to improve next week, therefore, lowering monetary risk as this market certainly has bottomed out in the short-term as there is a possibility that prices retest the recent highs around the 3400 level as there is momentum behind this market at the current time. The U.S dollar has hit a 6 month low which has certainly propped up many commodity prices over the last several weeks and if you been following any of my previous blogs you understand that I have been short the commodity markets for years. But at the present time, I'm recommending a bullish position in cocoa, coffee, and soybeans as the tide has turned to the upside in my opinion so remain bullish and place the proper stop loss while risking 2% of your account balance on any given trade.
CHART STRUCTURE: IMPROVING
Cotton futures the May contract are now trading above their 20-day but still below their 100-day moving average telling you that the short-term trend is mixed as prices have hit a 3 week high as I'm currently sitting on the sidelines as I was recommending a short position over the last several months getting stopped out earlier in the week. Cotton prices settled last Friday at 57.15 while currently trading at 58.00 as spring planting is underway in the state of Texas as volatility should start to increase in the coming months as traders are putting a weather premium back into the price as flooding in the southern part of the United States is causing concern at the present time. The main reason for the rally is the fact that the U.S dollar has hit a 6 month low as that is definitely supportive to the agricultural commodities including cotton. I will wait for better chart structure to develop therefore lowering monetary risk before entering a new trade so keep a close eye on this market as a possible spike bottom may have occurred 3 weeks ago around the 55 level. The grain market, in general, has also rallied as cotton and grains generally move in the same direction, but the fundamentals still remain bearish. However that has already been factored into the price as now the weather is the main concern and should dictate short-term price action over the next several months in my opinion.
CHART STRUCTURE: IMPROVING
Coffee futures in the May contract settled last Friday in New York at 125.80 a pound while currently trading at 134.50 trading higher for the 3rd consecutive trading session up around 900 points for the trading week hitting a 5 month high. I've been recommending a bullish position from around the 121.50 level and if you took that trade continue to place your stop loss below the 10 day low which currently stands at 119 as the chart structure is terrible at the present time due to the fact that coffee prices have exploded to the upside over the last week. The commodity markets, in general, have rallied substantially due to the fact that the U.S dollar has hit a 6 month low and it certainly looks to me that the bear markets are over with in the short-term. However, if you have missed this trade the risk/reward is not your favor at the current time as you missed the boat so you must look at other markets that are beginning to trend. The next major level of resistance is the October high around 142 as I think prices could test that level next week as coffee prices are still cheap in my opinion as demand currently is strong. At the current time, I'm recommending a bullish position in cocoa and coffee as the soft commodity markets have certainly caught fire recently including the sugar market so start looking at the commodities to the upside.
CHART STRUCTURE: POOR
Soybean futures in the November contract settled last Friday in Chicago at 9.06 a bushel while currently at 9.11 up slightly for the week. I'm now recommending a bullish position at today's price level while placing your stop loss below the 10-day low which is 8.87 risking about $.20 or $1,000 per contract plus slippage and commission as the chart structure will improve next week, therefore, lowering monetary risk. Early estimates of 2016 acres are around 82 million which is basically the same as last year which could possibly produce 3.7 billion bushels which is a very good crop, but not a record crop. I still see weather problems developing in the Midwestern part of United States extremely warm weather continues and reminds me of the drought 2012 sending soybean prices above $16 a bushel to record highs. Soybean prices are trading above their 20 and 100-day moving average telling you that the short-term trend is to the upside as volatility certainly will come back into this market as we enter spring planting in the month of May as I do think the grain market has bottomed here in the short-term. The USDA also lowered Brazil's soybean crop which was estimated around 104 MMT’s down from around 100MMT, which is another bullish indicator as traders will keep a close eye on the weather conditions which will certainly dictate short-term price action over the next several months.
CHART STRUCTURE: SOLID
Sugar futures in the May contract settled last Friday in New York at 15.13 a pound while currently trading at 15.86 continuing its remarkable bullish run to the upside hitting a 14 month high as I'm sitting on the sidelines as the chart structure has not met my criteria towards entering into the trade. However, I'm certainly not recommending any type of short position as it looks to me that prices are headed even higher. Sugar futures are trading above their 20 and 100 day moving average telling you that the short-term trend is to the upside as the commodity markets have caught fire as who knows how high sugar prices can actually go as production cuts throughout major growing regions throughout the world are causing concerns about carryover levels pushing prices up tremendously over the last 3 weeks. Remember when you trade commodities the trend is your friend and trading with the path of least resistance is the most successful way to trade in my opinion over the course of time so do not sell sugar at this point, but if you have missed this trade sit on the sidelines and look at other markets that are beginning to trend as the horse has left the barn in this market in the short-term.
CHART STRUCTURE: POOR
What’s the difference between old crop & new crop in the agricultural commodities?
When analysts and traders talk about agricultural commodities such as soybeans & corn, the one thing they generally mention is old crop versus new crop and that might confuse some beginners on what exactly is the difference. I will keep it simple because the only difference between old crop and new crop is that old crop in soybeans is any month other than November. As an example is March or May and all months that were grown last year while the new crop is the November soybeans and will be harvested this October of 2016 and will be grown this summer. That’s why sometimes there is a price difference between the old crop and the new crop because of the fact that this year’s harvest in soybeans could be as high as 4.0 billion bushels pushing prices lower in the November contract as old crop and new crop can also have different carryover levels or supply levels. Old crop corn is any month other than the December contract while the new crop is only the December contract which will be grown this summer and harvested in October. Sometimes there’s a price difference between old crop and new crop as well because as we will be harvesting around 13.5 billion bushels in October, which is the reason why the December corn can be lower than the May corn because that was old crop which was harvested last October also having a different supply situation. Many of the agricultural commodities are affected by old crop & new crop including the grains, meats, coffee, and cotton. So, if you need help understanding which month you should be trading feel free to give me a call at any time & I will be more than happy to make sure that you are trading the correct month.
Courtesy of Michael Seery at www.seeryfutures.com via INO.com
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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