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October 24, 2016

Futures Market Recap, Week Ending Oct. 14, 2016

By Michael Seery, INO.com

Gold Futures

Gold futures in the December contract settled last Friday in New York at 1,255 an ounce while currently trading at 1,267 slightly higher for the trading week as gold remains relatively nonvolatile at the current time. Presently I am sitting on the sidelines as I’m not involved in any of the precious metals as prices are stuck in a 3 week sideways consolidation pattern. The U.S dollar is now hitting a 8 month high which is certainly not bullish the precious metals as it looks to me that the dollar will try to touch 100 in the coming weeks. I still believe that many of these markets will go sideways until the U.S election is finished which is still around 3 weeks away so be patient as there are still very few trends except in the grain market which is where my focus is at present. Rumors are circulating that the Federal Reserve might raise interest rates in the month of December and that is why the U.S dollar continues to move higher keeping a lid on many commodity prices here in the short-term. However, we have seen this story before.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

Silver Futures

Silver futures in the December contract settled last Friday in New York at 17.44 an ounce while currently trading at 17.51 basically unchanged with very little volatility over the last several weeks which is unusual in silver as historically speaking this is one of the most volatile commodities day in and day out. The next major level of support is 17.00, and if that is broken you would think prices are headed back down to the low 16’s, but I do think the downside is limited in this commodity, but I’m currently not involved in the precious metals. If you are short futures contracts my recommendation would be to place your stop loss above the 10-day high at 17.85 which is risking about $.35 from today’s price level as the chart structure is outstanding as prices have gone sideways. In my opinion, I do believe 2017 will be a bullish year for the commodity markets as I do think the giant bearish trends are over with as growth in the United States and the rest of the world will start to come back eventually.

TREND: LOWER

CHART STRUCTURE: EXCELLENT

Crude Oil Futures

Crude oil futures in the December contract settled last Friday in New York at 50.75 a barrel while currently trading at 50.35 basically unchanged for the trading week still stuck in a 3 week sideways pattern as there is very little fresh fundamental news to dictate short-term price action. Oil is trading above its 20 and 100-day moving average telling you that the short-term trend is to the upside as prices have possibly topped out at the $52 level. I’m currently sitting on the sidelines waiting for a trend to develop as this market has been relatively choppy over the last 6 months despite the fact that prices are right near a 4 month high. The U.S dollar is hitting an 8 month high in today’s trade which I think will start to have a bearish influence on prices down the road as huge supplies persist in this market as I will keep a close eye on a possible short position in the coming weeks.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

Cotton Futures

Cotton futures in the December contract settled last Friday in New York at 70.57 while now trading at 69.00 down about 150 points for the trading week still in a choppy and sideways chart pattern. At present, I’m sitting on the sidelines as I’ve not been involved in the coffee market since the summer months as the chart structure remains poor as I’m advising investors to avoid this market at present. Prices are trading right at their 20 and 100-day moving average which is a very unusual occurrence as something will develop in this market soon. We are currently harvesting in the southern part of the United States producing another outstanding crop as there is very little fresh news to dictate short-term price action until the harvest is complete next month. At present, I have no recommendations in the soft commodities, but this is a very trendy sector, and I assume we will be involved once again.

TREND: MIXED

CHART STRUCTURE: POOR

Sugar Futures

Sugar futures in the March contract are trading below their 20-day but still above their 100-day moving average telling you that the short-term trend is mixed. Prices are right near a 4 week low after settling last Friday in New York at 22.91 a pound while currently trading at 22.55 down about 40 points for the trading week. I’m looking at a possible short position next week. At present the 10-day high stands at 23.59, but I’m not convinced lower prices are ahead so I will wait till Monday’s trade & make a decision at that time. Volatility in sugar is relatively low as this is a highly volatile commodity especially at these lofty price levels in my opinion as prices have had a very difficult time breaking the 23 level which was tested on multiple occasions. Sugar production over the last several years has been disappointing, and that is why you have seen such a bullish trend develop. However, a strong U.S dollar in recent weeks may have capped sugar prices here in the short-term.

TREND: MIXED - LOWER

CHART STRUCTURE: SOLID

Oat Futures

Oat futures in the December contract settled last Friday in Chicago at 1.98 a bushel while currently trading at 2.12 higher for the 6th consecutive trading session hitting a 4 month high continuing its strong bullish momentum. I have been recommending a bullish position from around the 1.82 level and if you took that trade continue to place your stop loss under the 10-day low which now has been raised to 1.91 as the chart structure is relatively poor at present due to the fact of the recent run-up in price. Oat 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 between 2.25/2.35 as prices could test that level next week. Oat prices bottomed out around the 1.75 price level in the month of September as the chart structure was outstanding at the time of the recommendation so continue to place the proper stop loss as predicting how high prices could go a fools game.

TREND: HIGHER

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.

Corn Futures

Corn futures in the December contract settled last Friday in Chicago at 3.54 while currently trading at 3.53 basically unchanged for the trading week in a very low volatile trading manner. I have been recommending a bullish position from around 3.40 level and if you took that trade continue to place your stop loss at the 10-day low which stands at 3.36 as the chart structure will not improve for another 5 days, so you’re going to have to accept the monetary risk at this time. The next major level of resistance is at 3.60 which was hit on multiple occasions only to fail every single time as the 100-day moving average also stands at 3.57, and if this market breaks those 2 critical levels, I think higher prices are ahead. Corn futures are trading above their 20-day moving average as prices are right near a 3 month high as I’m also recommending bullish positions in soybeans, wheat, oats, rice, as the whole sector in my opinion bottomed out despite the fact of bearish fundamentals.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

Soymeal Futures

Soybean meal futures in the December contract settled last Friday in Chicago at 300.60 a ton while currently trading at 307.10 up about 650 points for the trading week right near a 4 week high. I’m looking at a possible bullish position if prices close above 311 while placing my stop loss at the 10 day low which stands at 295 risking $1,600 per contract plus slippage and commission. At present I’m sitting on the sidelines waiting for the breakout which can happen on any given day as the chart structure will also start to improve next week, therefore, lowering monetary risk to about $1,100 per contract plus slippage and commission as I do think the soybean complex is bottoming out. Soybean meal prices are trading above their 20 but still below their 100-day moving average as it has the same daily chart as the oats did. I’m currently recommending a bullish position in that market as well so be patient & keep a close eye on this market as the harvest lows generally occur in the month of October or November. Prices have dropped about 30% over the last 5 months as strong worldwide demand is coming back at lower prices as trading is all about risk/reward and I do believe it will be in your favor soon.

TREND: HIHGER - MIXED

CHART STRUCTURE: IMPROVING

Rice Futures

Rice futures in the November contract settled last Friday in Chicago at 10.16 while currently trading at 10.33. I’ve been recommending a bullish position from around the 10.00 level and if you took that trade place your stop loss in Monday’s trade around 10.12 as the chart structure is outstanding at the current time. Rice prices are trading above their 20-day but still below their 100-day moving average which is just an eyelash away at 10.46 & if that level is broken. I think prices could trade into the $11 range as prices have now hit a 7 week high with major resistance right at the 100-day and recent highs of 10.47 as the chart structure is terrific. At present, I’m recommending many bullish positions in the grain market as I do think prices are headed higher as rice is the most the eaten commodity in the world with huge worldwide demand. I think historically speaking prices are cheap in my opinion, but trading is all about risk/reward so make sure you place the proper stop loss risking 2% of your account balance on any given trade just in case the trade doesn’t work.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

Wheat Futures

Wheat futures in the December contract settled last Friday in Chicago at 4.21 a bushel while currently trading at 4.14 down about 7 cents for the trading week. I have been recommending a bullish position from around the 4.16 level and if you took that trade continue to place your stop loss under the 10-day low which now stands at 3.96 as the chart structure is outstanding at present. Wheat prices are trading above their 20 but still below their 100-day moving average despite the fact that prices have hit a 7 week high as traders are looking for some fresh fundamental news to dictate short-term price action as prices have been stuck in the mud over the last several trading sessions. If you take a look at the spring wheat its right near a 3-month high stalling out over the last couple of days, but I think that will start to push the Chicago wheat higher as well. Continue to place the proper stop loss as the risk/reward is in your favor at today’s price levels so continue to play this to the upside in my opinion as we are entering the highly volatile autumn and winter months as prices can become incredibly volatile with high risk during certain times of the year.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

Coffee Futures

Coffee futures in the December contract settled last Friday at 155.40 while currently trading at 157 continuing its short-term bullish trend up about 150 points for the week. At present, I’m sitting on the sidelines waiting for the chart structure to improve as the 10-day low is too far away which currently stands at 145 as the risk is over $4,500 per contract plus slippage and commission which is too much monetary risk in my opinion. Trading is all about patience so keep a close eye on this market as the chart structure will start to improve in next week’s trade, therefore, lowering monetary risk with the next major level of resistance near the contract high around 160 and if that is broken you have to think that 200 is a possibility. Volatility in coffee at present is relatively low, and I don’t expect that to continue much longer as we're going to start to enter the volatile seasonal months with large price swings on a daily basis. Even though coffee prices are right at new yearly highs, this market has been very choppy with large price retracements as it has been difficult to make money over the last several months. However, the trends always come back.

TREND: HIGHER

CHART STRUCTURE: POOR

Orange Juice Futures

Orange juice futures in the January contract settled last Friday at 187.55 in New York while currently trading at 198.40 up about 1000 points. I’ve been sitting on the sidelines in this market as I was looking at a possible bearish position in last week’s blog, but I’m going to move on and look at other markets. Juice futures are trading below their 20-day but still above their 100-day moving average telling you that short-term trend is mixed with major support around the 186 level. This has been one of the strongest trends in 2016 as prices have come from around 130 where there is a daily gap on the chart which is very interesting to me. There is still the possibility in my opinion that could be filled, but it just might take some time as prices historically speaking are still very expensive Greening disease has been the culprit lowering production over the last 2 years as we enter the highly volatile winter season where the possibility of a damaging freeze could occur sending prices sharply higher, but at this point in time move on and look at other opportunities.

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, President, Seery Futures 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 Oct. 14, 2016 Rating: 5 Reviewed By: EconMatters