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May 23, 2016

Futures Market Recap Week Ending May 20

INO.com

Crude Oil Futures

Crude oil futures in the July contract settled last Friday in New York at 46.90 a barrel while currently trading at 48.60 up about $1.70 for the trading week continuing its remarkable bullish run over the last 3 months. At the current time, I’m sitting on the sidelines in the crude oil. I did miss this move to the upside as prices bottomed out in early January around the $32 level while now trading almost at $50 in a remarkable turn of events. However, the 10 day low is too far away, therefore, risking too much money so I will look at other markets with better risk/reward scenarios at present. Crude oil is trading far above it's 20 and 100-day moving average telling you that short-term trend is to the upside as I’m certainly not recommending any type of short position as that would be counter trend trading which is a bad idea over the course of time. It will be very interesting to see if rig counts start to increase as they had been coming down over the last year, but now prices have rallied substantially so it will be interesting to see if those corporations start pumping more oil. I do think this rally is getting a little long in the tooth, as I don’t know how much higher prices can go especially with the strengthening U.S dollar.

TREND: HIGHER

CHART STRUCTURE: POOR

Natural Gas Futures

Natural gas futures in the July contract settled last Friday in New York at 2.24 while currently trading at 2.20. I have been recommending a short position from the 2.20 level and if you took that trade continue to place your stop loss above the 10 day high which currently stands at 2.32 as the chart structure will not improve for another 5 days. Natural gas prices are trading below their 20 and 100-day moving average telling you that the short-term trend is to the downside with the next major level of support at the 2.10 level which was hit in yesterday’s trade only to rally on a bullish inventory number. In my opinion, I still think natural gas is looking to retest the contract low around 1.95 as huge inventories here in the United States continue to keep a lid on short-term prices, but remember trading is all about risk and nothing else. If you did not take the original recommendation, I’m still bearish, and I would still recommend selling it at today’s price levels as the risk/reward are still in your favor.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

S&P 500 Futures

The S&P 500 in the June contract settled last Friday in Chicago at 2043 while currently trading at 2051 up 8 points for the trading week. I have been recommending a short position from around the 2063 level and if you took that trade continue to place your stop loss above the 10 day high which stands at 2080 as the chart structure will not improve until next week. The S&P 500 is trading below its 20-day but still above its 100-day moving average which stands at 1986 as the Federal Reserve hinted that they will raise interest rates sending the S&P to a 2 month low yesterday then rallying once again as this trade has been very stubborn. The next major level of support is around 2020, and if that is broken, I think the all-out bear market could be underway so continue to stick to the rules and stay short. Many individual stocks have been going substantially lower especially the retail sector as nobody seems to go shopping anymore as Amazon has absolutely overwhelmed the retail business, but the S&P 500 average is right near all-time highs as something is going to develop in the next couple of weeks and hopefully to the downside.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

Canadian Dollar Futures

The Canadian dollar in the June contract settled last Friday at 7720 while currently trading at 7616. I have been recommending a short position when prices broke the 72 level and if you took that trade continue to place your stop loss above the 10 day high which stands at 7830 as the chart structure will not improve for another 4 days. The Canadian dollar is trading below its 20-day but still above its 100-day moving average, but the reason I took the trade was due to the fact of excellent chart structure as the risk/reward was in your favor as the original monetary risk was about $1,300 per contract plus slippage and commission. The Canadian dollar can have huge price swings as it’s a large contract with high volatility. If you have missed this trade wait for some type of price rally back towards the 77 level to take a shot at the short side as the risk at today’s price level is about $2,000 which is too much risk in my opinion. The Federal Reserve on Wednesday basically suggested that they will raise interest rates as that sent the U.S dollar higher against the Canadian dollar as I think that trend is going to continue so stay short and stick to the rules.

TREND: LOWER

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.

Live Cattle Futures

Live cattle futures in the August contract settled last Friday in Chicago at 118.72 while currently trading at 117.50 down about 120 points for the trading week as I’m currently sitting on the sidelines waiting for better chart structure to develop. Cattle prices are trading above their 20 day but still below their 100-day moving average telling you that the short-term trend is mixed and choppy so play this market at present as it will take at least a couple more weeks before a possible trade. Cattle prices rallied from 111 late last month to almost 121 in last week’s trade as this market remains extremely volatile. It has been for the last 6 months with huge price swings on a daily basis, but I need tighter chart structure to develop therefore allowing you to place a tight stop loss which lowers monetary risk. Cattle prices are consolidating the recent run-up in prices, and it would not surprise me to see choppiness ahead as prices are right at a 2 week low. My trading system states that prices must hit a 4 week low to enter into a short position so be patient and look at other markets that are beginning to trend.

TREND: MIXED

CHART STRUCTURE: POOR

Coffee Futures

Coffee futures in the July contract settled last Friday in New York at 130.10 a pound while currently trading at 125.20 down about 500 points for the trading week as prices traded as high as 135.30 before dropping 1100 points over the last 3 days as this market remains extremely volatile. I’ve been sitting on the sidelines in this market for quite some time as the chart structure is terrible as prices seem to go straight up and then straight down. However, I do believe that coffee prices are relatively cheap and are in a bottoming pattern, but I need better chart structure to develop before entering into this trade so keep an eye on this market, but I do think prices are headed higher. The Federal Reserve hinted on Wednesday that they might raise interest rates as that sent a lot of the commodity markets lower including coffee prices. However, I do think the 1100 point drop is overdone to the downside. If you take a look at the daily chart, there is major support between 116/120 and every time prices hit those levels prices have rallied. I don’t think we are entering into a bearish trend, but this market remains extremely choppy, and I do not like to trade choppy markets because they are extremely difficult to trade successfully so move on and look at other markets that are beginning to trend.

TREND: MIXED

CHART STRUCTURE: POOR

Cotton Futures

Cotton futures in the July contract settled last Friday in New York at 60.62 while currently trading at 61.50 up about 100 points for the trading week still trading below its 20-day but above its 100-day moving average telling you that the short-term trend is mixed. At the current time, I’m sitting on the sidelines waiting for a trend to develop as prices are right near a 4 week low as I will keep a close eye on this market as a possible short position could be executed in next week’s trade. Volatility in cotton certainly will increase as we enter the hot and dry summer season as the current crop here in the United States is off to a solid start, but it’s very early in the growing season as things can change very quickly. The problem with cotton fundamentally speaking is the fact that China is just not importing U.S cotton like they have in the past due to the fact that they hold around 50% of the world reserves as they just don’t need more cotton at this time as they are trying to sell off some of the reserves at present as the demand still remains weak. At the current time, I’m only recommending a bullish sugar position out of the soft commodities as I’m keeping a close eye on cocoa, cotton, and the coffee market as cotton has not participated in the recent commodity rally.

TREND: MIXED

CHART STRUCTURE: IMPROVING

Sugar Futures

Sugar futures in the July contract settled last Friday in New York at 16.74 a pound while currently trading at 16.85 up slightly for the trading week up against major resistance at the 17 level which has been unable to penetrate. Sugar prices are trading far above their 20 and 100-day moving average telling you the short-term trend is to the upside. I have been recommending a bullish position from around the 16.00 level and if you took that trade continue to place your stop loss at the 10 day low which still stands at 15.66. However, the chart structure will start to improve on a daily basis next week, therefore, lowering monetary risk. Sugar volatility has been relatively high in recent weeks and should continue throughout the summer months, however if you have missed this trade move on and look at other markets that are beginning to trend as the risk/reward is not in your favor at present. In my opinion, if prices do break the 17 level we could be off to the races to the upside as generally speaking the commodity markets still remain in bullish uptrends at present. There is a lot of demand for sugar as the fundamentals have certainly changed in 2016 as the bearish trend has come to an end.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

Soybean Oil Futures

Soybean oil futures in the July contract settled last Friday in Chicago at 32.50 while currently trading at 31.73 down about 75 points for the week. 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 at the 10 day high which stands at 33.86 as the chart structure will start to improve next week. I was also recommending adding to this position when prices broke 32.00 which did occur in yesterday’s trade as I still think lower prices are ahead. Soybean oil prices are trading below their 20 and 100-day moving average telling you that the short-term trend is to the downside with the next major level of support from yesterday’s low around 31.00 as the trend is getting stronger on a weekly basis despite the fact that soymeal and soybeans continue their bullish momentum. As a trader, you always must consider the risk/reward before entering into a trade, and when I recommended the original trade, the risk was around $350 as that was the main reason I took a short position.

TREND: LOWER

CHART STRUCTURE: SOLID

Trading Theory

There are many different theories about how long does a meaningful consolidation have to last before you enter a trade? In my opinion, I always want to see a consolidation that lasts at least 8 or more weeks before I would consider entering. The reason that I want a longer consolidation is to try and avoid a bunch of false breakouts such as a 10 or 15-day consolidations which happen all the time. I am trying to put the odds in my favor by trading the breakout of at least 8 weeks or more and the longer such as a 10 or 13 week consolidation, the better.

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 20 Rating: 5 Reviewed By: EconMatters