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May 16, 2016

Futures Market Recap Week Ending May 13

INO.com

Crude Oil Futures

Crude oil futures in the June contract settled last Friday in New York at 44.66 a barrel while currently trading at 46.22 up about $1.50 for the trading week continuing its bullish momentum hitting a 6 month high. I have not been involved in oil for several months, but if you do have a bullish position, I would place my stop loss at the 10 day low around 43.00 as I think this market is getting a little long in the tooth as I’m starting to have a bearish bias. Crude oil prices are trading far above their 20 and 100-day moving average telling you that the short-term trend is higher as the chart structure has improved tremendously. We could be possibly entering a short position in the next several weeks so keep a close eye on this market as the risk/reward could be your favor soon. The fire in Alberta Canada shutting down oil facilities definitely propelled prices higher, but that situation should be taken care of soon as I still think Iran will pump more oil especially at these higher prices, but I still remain on the sidelines waiting to enter. The U.S dollar has rallied about 300 points over the last 2 weeks, but that has not affected crude oil prices, but that situation cannot last much longer as a strong U.S dollar will press oil to the downside in the long run.

TREND: HIGHER

CHART STRUCTURE: SOLID

Natural Gas Futures

Natural gas futures in the July contract settled last Friday in New York at 227 while currently trading at 224 down slightly for the trading week. I’m looking at a possible short position next week if prices break 220 while placing my stop loss above the 10 day high which stands at 2.33 risking around 13 points or $1,300 per large contract plus slippage and commission. The problem with natural gas is that the United States has massive supplies and is the world leader in natural gas production. That’s why you have seen this bear market over the last several years, but I’m a technical trader, and the risk/reward will be in your favor if prices breakout to the downside as that is the only reason why I would be recommending this trade. The volatility in natural gas is very low at present as prices have gone nowhere in recent weeks and I like markets like that because of the fact that they allow you to place a tight stop loss, therefore, lowering monetary risk so keep a close eye on this market as a short position could be looming.

TREND: MIXED

CHART STRUCTURE: EXCELLENT

Gold Futures

Gold futures in the June contract settled last Friday in New York at 1,294 an ounce while currently trading at 1,267 down about $27 for the trading week right near a 2 week low. At present, I’m sitting on the sidelines in this market, but if you have a bullish position, my recommendation would be to place your stop at the 2 week low around 1,258 as prices have stalled out at the $1,300 level. The main reason for gold’s weakness over the last couple weeks is the fact that the U.S dollar has hit a 2 week high and now is trading above its 20-day moving average telling you that the short-term trend is higher and has rallied about 250 points from the May 3rd low sending many commodity prices lower. In previous blogs, I was looking at buying the gold market on weakness, but I’m not interested at this time so move on and look at other markets that are beginning to trend as this market might be topping out in my opinion. Silver prices are right at a 3 week low also putting pressure on gold prices, and for this market to continue its bullish trend its needs a weaker U.S dollar, and that’s just not the case at this time, or you need a sharply lower stock market. I am recommending a short position currently, therefore, sending money out of equities and into the precious metals.

TREND: MIXED

CHART STRUCTURE: EXCELLENT

Silver Futures

Silver futures in the July contract settled last Friday in New York at 17.52 an ounce while currently trading at 17.06 down about 45 cents for the trading week right near a 3 week low as I’m sitting on the sidelines in this market at present. Silver prices are trading below their 20 day but still above their 100-day moving average telling you that the trend in the short term is mixed and choppy so avoid this market in my opinion and look at other markets that are beginning to trend. The U.S dollar has now rallied about 300 points in the last 2 weeks putting pressure on silver prices which did break $18 an ounce recently but unable to hold as a strong dollar equals lower precious metals prices in the long term. At present, I have very few trade recommendations and in my opinion, I think many commodities are starting to look weak including gold, but I’m not involved in these trades at present. Volatility in silver is relatively low as prices have really gone nowhere over the last several weeks, but that will not continue as I still think down the road volatility will come back into this extremely historically volatile commodity. Trading is all about risk and at present the risk/reward is not in favor so I will look at other trades with lower monetary risk.

TREND: MIXED

CHART STRUCTURE: SOLID

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.

S&P 500 Futures

The S&P 500 in the June contract are trading below its 20-day but still above its 100-day moving average telling you that the short-term trend is mixed. However, I have been recommending a short position from around the 2063 level and if you took that trade place your stop loss above the 10 day high which stands at 2080 as the original risk was around $1,000 per mini contract plus slippage and commission. Trading is all about the risk/reward scenario as whenever you can risk $1,000 in the mini S&P contract I always take that trade regardless of what I think so I remain short as the chart structure is outstanding at the current time due to the fact that volatility is extremely low allowing you to place a very tight stop therefore lowering monetary risk. The next major level of support is around 2040/2050, and if that is broken, I think we really head south as many stocks are acting terrible especially in the retail sector which is a negative towards the American economy in my opinion so continue to play this to the downside as who knows how low prices could go.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

Sugar Futures

Sugar futures in the July contract settled last Friday at 15.74 a pound while currently trading at 16.70 up about 100 points for the trading week, however ending on a sour note this Friday afternoon settling around 27 points lower. I have been recommending a bullish position from around the 16 level and if you took that trade continue to place your stop loss below 10 day low at 15.66 as you’re going to have to be patient as the chart structure will in improve for another 8 days, therefore, the monetary risk will remain the same. Sugar prices are trading far above their 20 and 100-day moving average hitting a contract high in Thursday trade at 16.98. Todays sell-off was basically based on profit-taking so remain long. However if you have missed this trade, you also missed the boat so move on and look at other trades that are beginning to trend as many of the commodity markets have been choppy in recent days. At the current time sugar is my only soft commodity recommendation as I’m keeping a close eye on a possible bullish position in coffee so let’s keep a close eye on several markets as we are starting to enter the volatile summer season which means high risk and high reward in my opinion.

TREND: HIGHER

CHART STRUCTURE: POOR

Coffee Futures

Coffee prices in the July contract settled last Friday in New York at 124.50 a pound while currently trading at 129.35 up around 500 points this week trading higher 7 out of the last 8 trading sessions hitting a 3 week high right at major resistance. Coffee prices are trading above their 20 and 100-day moving average telling you that the short-term trend is to the upside; however I’m sitting on the sidelines in this commodity as prices remain choppy with extremely poor chart structure at present as the risk is too high. The chart structure in coffee will start to improve later next week as we could possibly be looking at another bullish position in this commodity as it certainly looks to me that prices have bottomed out in 2016. Take a look at the daily chart 116/120 has been amazing support as prices have hit that level many times over the last 6 months only to rally, however, we were also looking at major resistance around 131/138 level if prices break that then the all-out bull market resumes. Patience is the key to trading in my opinion over the course of time as I will look for the right opportunity at possibly entering a bullish position while maintaining the 2% risk rule of your account balance on any given trade as coffee prices can experience huge volatility.

TREND: MIXED- HIGHER

CHART STRUCTURE: POOR

Soybean Futures

Soybean oil futures in the July contract settled last Friday in Chicago at 33.06 while currently trading at 32.30 down about 75 points for the trading week continuing its bearish trend. I’ve been recommending a short position from around the 33.35 level and if you took that trade continue to place your stop loss above the 10 day high which stands at 33.86 as the chart structure will not improve for another 8 days. Bean oil prices are trading below their 20 and 100-day moving average telling you that the short-term trend is to the downside as prices have traded lower for the 3rd straight trading session. I’m looking at adding more positions if prices break 32.00 on a closing basis only as the next major level of resistance is all the way down at 30.50 as I think lower prices are ahead. At the current time, I only have 3 trade recommendations which are a short position in the S&P 500 and soybean oil while having a bullish position in the sugar market as many commodities remain very choppy. But the oil chart is getting stronger on a weekly basis to the downside and is the weak sister in the soybean complex as all of the demand is in soybean meal so remain short and take advantage of lower prices while maintaining the proper stop loss.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

Trading Theory

If you follow this rule you will have a chance of being successful over the course of time, if you don’t follow this rule you will be sure to lose your money quickly. This rule is simple Do Not OVERTRADE EVER for this is an easy way to lose all your capital quickly. My definition of over trading is risking too much money on any given trade, for example if you are trading a $100,000 dollar account and you place a gold trade today you should limit your loses to 2% of the account value which in this case is $2,000 which allows you to be wrong on many trades and still be around to play another day. In futures and option trading you will have losing trades that is for certain so make sure you manage those losses and move on to another trade.

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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Item Reviewed: Futures Market Recap Week Ending May 13 Rating: 5 Reviewed By: EconMatters