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August 22, 2016

Futures Recap, Week of Aug. 14, 2016

By Mike Seery, INO.com

Mexican Peso Futures

The Mexican Peso in the September contract settled last Friday at 5462 while currently trading at 5460 basically unchanged for the trading week while trading lower for the 2nd consecutive day down about 50 points this Friday afternoon as I am looking at entering into a bullish position come Monday’s trade. The 10 day low at the present time stands at 5305 which is risking around $900 per contract plus slippage and commission but come Monday’s trade that will be raised to 5358 risking less than $500 per contract plus slippage and commission as I will be patient and look for an entry point come Monday morning. The Peso is trading above its 20 and 100-day moving average telling you that the short-term trend is higher as I think this recent pullback in price is due to the tremendous rally we’ve had in the month of August as I still think the bullish trend is still intact. The risk/reward scenario and the chart structure come Monday’s trade will be outstanding as that is what I look for as a trader as there are very few trends at the present time so keep a close eye on this market as prices are still near a 3 month high.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

S&P 500 Futures

The S&P 500 in the September contract is unchanged this Friday afternoon in Chicago at 2181 reacting neutral off of the Federal Reserve minutes stating that they might raise interest rates, or they might not raise interest rates. This market has gone nowhere over the last 5 weeks with extremely low volatility which makes this situation quite interesting in my opinion. The S&P 500 is trading below its 20 day moving average but still above 100 day moving average still hovering right near all-time highs as the Vix which is known as the volatility index is right near a 2 year low as were starting to enter the extremely volatile autumn months of September and October as I do not think this tight chart structure will last much longer. I am looking at a possible short position if prices break the 2140 level while placing the stop loss above the 10 days high, but at this point, I don’t know where that stands as prices continue to go sideways. Something will develop very soon as the stock market eventually will become volatile again so keep a very close eye on this market. I am a notorious bull when it comes to equities as I do believe it's propped up by the Federal Reserve as prices have continued to move higher over the last 7 years. However, when a special situation develops like what is currently occurring, I will go with the trend and take a shot as long as the risk/reward are in your favor.

TREND: MIXED - HIGHER

CHART STRUCTURE: EXCELLENT

Gold Futures

Gold futures in the December contract settled last Friday in New York at 1,343 an ounce while currently trading at 1,350 up about $7 for the trading week still stuck in a consolidation pattern with no solid trend at the present time. The Federal Reserve minutes came out this week basically stating nothing as usual as no one really knows when interest rates will move higher as there is very little fresh fundamental news to dictate short-term price action in the precious metals as silver prices have broken major support this afternoon pushing gold prices slightly lower. Gold is trading right at their 20-day but still above their 100-day moving average as the short-term trend is mixed as I’m currently sitting on the sidelines in this market as the chart structure is very solid at the current time as there could be a trade recommendation coming very soon just not sure in what direction. Gold futures have major support around the 1,340 level, and major resistance around the 1,360 level as prices remain right in the middle at this point. However, something is going to happen in the month of September as volatility certainly will increase so be patient as trading just to trade is not the way to go as that can be very dangerous in my opinion.

TREND: MIXED

CHART STRUCTURE: IMPROVING

Corn Futures

Corn futures in the December contract are currently trading at 3.44 up for the 6th straight trading session as I was recommending a short position from around the 3.28 level getting stopped out losing around $.12 as this trade went straight up the second I sold it. I’m now sitting on the sidelines looking at other markets that are beginning to trend. At the current time, corn futures are trading above their 20-day but still below their 100-day moving average as a spike bottom occurred last Friday when I recommended a short position off of the USDA crop report estimating 15.1 billion bushels as I thought that was a very bearish number. However, the market reacted in the opposite direction as sometimes you just must shake your head and move on while managing the proper risk. My last 5 trade recommendations have been wrong as this has been one of the coldest stretches I’ve had in several years, and that is why you must have a proper money management system as you will have cold streaks over the course of time. But I’m still around as that is my main emphasis on trading. Once the month of September comes volume will also increase tremendously and the trends will also come back as my only recommendation at the current time is in the silver market. I’m keeping my eye on many other trades at the present time, but the corn and beans were frustrating trades as the market flat-out did not cooperate off the bearish fundamental news.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

Wheat Futures

Wheat futures in the December contract are trading higher by 8 cents this week in Chicago currently trading at 4.48 a bushel breaking out of a 3-week tight consolidation as prices look to be bottoming out in my opinion as I’m currently sitting on the sidelines waiting for the true breakout to occur. Wheat experienced a spike bottom just like corn and soybeans did last Friday off of the USDA crop report as prices look to head higher as we start to enter the volatile autumn season as volatility over the last 3 weeks has been relatively low so keep a close eye on this market to the upside in my opinion. Wheat prices are trading above their 20-day but still far below their 20-day moving average as in the month of July prices traded as high as $5.50 a bushel. That’s how far prices have plummeted over the last 8 weeks, but with the U.S dollar sharply lower once again it looks to me that wheat prices look to go higher. My criteria to enter into a must be a 4 week right & now we are right near a 3 week high so you’re going to have to be patient and wait for a couple of days off the calendar before we enter into a bullish position as the chart structure is outstanding at the present time as I’m certainly not recommending any type of short position.

TREND: MIXED - HIGHER

CHART STRUCTURE: EXCELLENT

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.

Lean Hog Futures

Lean hog futures in the October contract are trading above their 20-day moving average but still below their 100-day telling you that the short-term trend is mixed. I have not been involved in the hogs for several months as it certainly looks to me that a possible bottom around the 58 level has occurred, but I’m waiting for better chart structure and a true trend to develop before entering into a position. If you take a look at the daily chart yesterday’s sharp reversal to the downside filled the gap and if you have read any of my previous blogs I absolutely hate gaps as they are generally filled just like what I believe is going to happen in the October cattle market around the 109 level so be patient. I think the massive decline in prices and all the bad news has already been reflected into this market. If you are bullish the hogs & think a bottom has been created my recommendation would be to buy at today’s price level 60.60 while placing the stop below the contract low around 57.60 risking around 100 points or $400 per contract plus slippage and commission, but as I stated before I am sitting on the sidelines at the current time.

TREND: MIXED

CHART STRUCTURE: IMPROVING

Cotton Futures

Cotton futures in the December contract settled last Friday in New York at 70.65 while currently trading at 68.10 down another 250 points for the trading week absolutely collapsing from recent highs from around the 77 level. I was recommending a bullish position from around the 64.75 level getting stopped out last in week’s trade around 71.65 as prices have just fallen out of bed. At the current time, I’m sitting on the sidelines as the chart structure is absolutely terrible, and I don’t think I’ll be involved in this market for some time as major support is at the 64 level which it looks to me that a possible retest could happen in the coming weeks. Prices are trading below their 20 day but still above their 100-day moving average as China put water on this fire selling some of their massive reserves onto the market as weather conditions also improved in the southern part of the United States as now there is absolutely no trend, and very few trends in the soft commodities as a whole is I have no trade recommendations in this sector at the present time.

TREND:MIXED - LOWER

CHART STRUCTURE: POOR

Coffee Futures

Coffee futures in the December contract settled last Friday in New York at 140.35 a pound while currently trading at 142 up about 170 points for the trading week still right near a 7 week low but held major support retesting the June 27th low around 137.80 in Wednesday’s trade. Coffee prices are trading below their 20-day but above their 100-day moving average telling you that the short-term trend is mixed as I’m sitting on the sidelines at the present time waiting for a true breakout to occur. The chart structure at the present time is relatively poor, but that could change after another week or so. I still do believe prices are headed higher as prices topped out around the 157 level last month as I still think this is just a retracement from the recent run-up in prices as at the current time volatility is relatively low. If prices do break the 137 level, you would have to think that bearish trend could develop as the bullish trend will not occur until we get above 150 which is about 800 points away. But that can happen relatively quickly as the soft commodities remain in neutral trends, but that will remain much longer especially when we enter the volatile month of September.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

Orange Juice Futures

Orange juice futures in the November contract settled last Friday at 182.65 while currently trading at 177.40 down around 500 points for the trading week still stuck in a recent consolidation as I’m looking at possibly putting on a short position if prices break the 170 level in the next couple of days. Orange juice prices are trading below their 20-day but still above their 100-day moving average telling you that the short-term trend is mixed. However, if you take a look at the daily chart there is a gap all the way down to the 130 level which I still think is vulnerable to be filled meaning prices could have a long way to go to the downside in my opinion, but be patient and wait for the true breakout to occur. Prices over the last 7 weeks have gone sideways topping out around the 195 level. I want to see a little better chart structure to develop coupled with the fact of a more solid risk/reward scenario occurring as that might take several more days off the calendar, but I do think there is a play to the downside real soon as orange juice prices are extremely volatile with huge price swings on a daily basis.

TREND: MIXED

CHART STRUCTURE: IMPROVING

Sugar Futures

Sugar futures in the October contract settled last Friday in New York at 19.71 a pound while currently trading at 19.79 basically unchanged for the trading week as there is no trend in this commodity at the present time as I’m sitting on the sidelines waiting for something to develop. Sugar prices are still trading above their 20 and 100-day moving average as the short-term trend is higher coupled with the fact that the long-term trend still remains higher. But we’re stuck in a trading range like many commodities at the present time as I do think volatility will increase once September arrives as the month of August, generally speaking, are the dog days of the commodity markets. At the present time, I only have one trade recommendation which is in the silver market, but it looks to me that we will be stopped out today as I now have no trade recommendations which has not happened in my 21-year career that’s how rare that is. However, I do have a lot of trades on the horizon. Sugar prices have major support around 18.80, and if that is broken, you would have to think that the bearish trend would begin, and it will take a close above 20.80 to continue the bullish trend to the upside so be patient and see what next week brings.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

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 Mike Seery, 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 Recap, Week of Aug. 14, 2016 Rating: 5 Reviewed By: EconMatters