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The Windy City Trader. 08/08/17

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You know summer is winding down in Chicago when NFL football begins. Until last year our baseball teams were usually long gone from any playoff consideration by this time so DA BEARRSSSS were usually all we had to look forward to. Thanks to the Cubbies we at least can watch baseball through September now. And speaking of the Bears, Chicago fans won’t have Jay Cutler to kick around anymore after he decided to end his broadcasting career before it started by signing with the Miami Dolphins. I am in the big minority in Chicago but I liked Jay and wish him nothing but the best with the Dolphins.
Metals: The rally for this group hit the skids once the odds increased quite a bit that the Fed would raise rates at the September meeting. There is still much time until the meeting so we may just see up and down action until then for both gold and silver while copper continues its climb which likely takes it over 300.

Gold; December gold’s rise was stifled at $1280. Most likely talk of increasing odds for a rate hike at the September FOMC meeting was responsible. I believe with that prospect in the air gold will have a hard time rising too much more than the $1280 it reached last week before coming back to $1260. I believe we will pull back to at least $1240 from the current $1263 but if $1240 fails $1220-$1225 would be the next target.
Silver: With no rate hikes and recent poor retail sales numbers there is little immediate pressure for the Fed to raise rates at this time. September silver bottomed a few weeks back just below $15.20 and so far have worked back up to $16,57. For the same reasons as with gold the current environment may enable futures to push to $$16.80 at least with an outside shot at $17.20 if $16.80-$17.00 cannot stifle upside. From the current $16.50 use a slide to $16.20 to consider the long side.
The words from last time held true to form with September futures reaching $16.96 last week before slipping to $16.10 yesterday. They have rebounded to $16.37 currently and as with gold, a range is expected through next month when the Fed might bump rates up ¼ point. I believe we will break $16.00 and test $15.80 with a shot at $15.60 if $15.80 cannot hold. Wait for that if thinking of a long.
Copper: Since bottoming near 24800 in early May the September copper has slowly and methodically stair-stepped up to new highs last Friday above 27500. There is no reason for lower stock market action other than corrections so I expect copper to continue higher to at least February’s high at 28500 but more likely 30000 will be seen by this fall. Use a correction to 26400 from the current 27375 for a longer term buy opportunity.
The words from last time need not be changed either. Unfortunately futures couldn’t dent 270 and pushed all the way above 293 yesterday. I don’t believe 300 will offer more than a day or two token resistance and we could see 320-325 by year-end. If we do see any sort of stock market correction it may slow the copper climb. The breakout level was 275 and from the current 291 I don’t believe we will get that far down on a correction but we may test the old highs near 285 from February so let’s watch for that short-term for a possible long-term buy.

Currencies and Financials: As they say… the market is always right. Despite showing the poorest fundamentals and having the most reason to drop, perhaps drop hard, the Euro has led the pack higher here. The Yen had renewed it’s rise and the Canadian Dollar is correcting after a long rally.

British Pound: As the Euro soared of late the September Pound was able to easily surpass 13000 on the way to 13300. So far pull backs have held above 13000 and this support may hold. If not I would wait for a dip to 12850-12820 for a possible buy. I do believe we will test 13500-13700 by year-end and I will be buying dips for this market going forward.
Swiss Franc: The September Swiss shot from 10375 to 10630 in 2 days after Draghi’s talk last week. That was at least 130 points higher than it had any right to trade up to. I would not buy the Swiss at all unless we see a drop to a minimum of 10465 and more likely 10350 if you wish to buy at all. I am watching the 10600-10650 area for a possible short this week.
The Swiss did act as I expected and crashed from the highs mentioned at 10630 to not only 10350 but all the way to 10268 last Friday. I am not sure why the Swiss was slammed yet the Euro was not as the Swiss economy is doing much better than the rest of the Euro zone economies. I would rather be short than long here and we are showing signs of at least a temporary low so let’s wait to see if we can push back to 10450-10500 from the current 10310 for that opportunity.
Japanese Yen: The September Yen along with the Euro were the currencies to buy during the last three weeks. I felt we would see resistance at 9100 but futures did make it to 9120 last week before slipping back to 9020. It appears futures wish to make a run to recent highs at 9240 and perhaps the 9300 highs seen in early April. When a market should be moving lower yet it refuses to break, it is a market to avoid. I would wait for more clarity here before taking a side.
Euro Currency: As there was little reason for such sharply higher Swiss and Yen values there is even less reason for the Euro to have made it over 11700 this week. Interest rates remain below 0 in Europe and many poor member countries are struggling more financially than California, New York, and Illinois, which are virtually bankrupt states. I will be looking to short futures on a test of 11675-11700 if seen. They still haven’t been able to stop their version of QE so they are a LONG way from getting out of negative rates. A realistic price for the Euro would be below 11000.
I wouldn’t change a thing from last time as the Euro should be trading near 11000. However it pushed to 11940 last week so I am going with two earlier comments. The market is always right and as with the Yen, when a market is trading completely divergent from it’s fundamental factors… stay away.
Canadian Dollar: The September Canadian Dollar continues the roll it has been on since bottoming at 7268 on May 5th. It stalled a while at 7780 before resuming the uptrend when Canada raised their interest rate two weeks ago. We pushed to 8017 yesterday and have more upside to 8200. We are quite overbought now with stochastic near 95 % so I would prefer to wait for a correction before trying the long side. An extreme pull back takes us back to 7880-7900 from the current 7995 so let’s watch for that this week.
The words from last time came to pass except that the September CD only pushed to 8062 before correcting back to 7870 yesterday. We are trying to consolidate here and if 7880 holds a buy may be in order. I believe we may break this level and fall to stronger support at 7800 and if so I would like the long side.
US Dollar: Since flushing to 9239 last week the September Dollar first rebounded to 9364 and so far has come back to 9320. Part of this is the Fed policy of saying that rate hikes would be at a slower pace which somewhat explains the drop. However our rates, low as they are, still outpace both Europe and Japan so this explains the uncertainty I discussed for those two. I believe the Dollar will hold at old support near 9200 but for now there are better markets to trade.
Eurodollar: Since late June the December Eurodollar has seen a high of 9858 and a low at 9850. That is a whopping 8 tick or $200 range for the past 6 weeks. We may see lower action but not before early September. The next FOMC meeting is September 20 and 21 and if talk ratchets up about a rate hike we may see futures break 9850 on the way to 9830-9835.
30 Year Bonds: In the last letter I talked of 15516 as resistance. We made it to 15510 last week before dropping to 15322 last Friday after the strong jobs number. From the current 15410 let’s look for another test of 15516 as we approach September which will be the next chance for a rate hike.
S&P 500: After rising over 20 % since election day, a rise from 2020 to 2480 the market is now looking for a new spark. Last Friday’s better than expected employment number spurred another test of the 2480 level futures have been unable to dent since mid July despite a number of attempts. Obviously if we push through 2480 I would expect a speedy run to 2500 and if that doesn’t stop the rise 2525 would be the next target. I probably would not buy unless we either pushed above 2480 or if we see a slight pull back to 2440.
Dow: Obviously the action has been the same as the Dow futures have risen nearly 23 % since November 8 with few pauses along the way. The move took us from 18000 to above 22000 during the last two weeks and we have seen 9 consecutive record closes as of yesterday’s close. From the current 22075 I would wait for a pull back to 21800 and perhaps 21600 if looking to enter.

Energies: The rebound off of lows seen in mid June has been impressive. Most have advanced well past resistance levels but below the levels traded at before the harsh break during May and June.

Heating Oil: The last three weekly inventory reports have shown a drawdown in supplies on hand.
This has enabled the September heating oil to push from lows near 13800 in mid June to highs just below 16800 last week. We have to keep the three-week drawdown in perspective however. Prior to the past three weeks crude oil had seen record amounts in storage. For the market to rise much higher than the 30 some cents it has already demand will have to pick up quite a bit. The dead cat bounce off of lows and bottom picking has been behind this rise and we have stalled between 16200 and 16500 for the past 1 ½ weeks. I think September heating oil can be sold at 16450, risking above 16800.
Unleaded (RBOB) Gas: Action for the September no lead mimicked that of heating oil and in fact the prices were almost identical as no lead rose from 13800 to 16800 during the same mid June until August 1 time frame. Futures so far slid back to 16000 and currently reside near 16100. We are exiting the peak driving season so I think the 30 cent rise more than accounted for a slight drawdown in supplies. As with the heating oil use a pop to 16500 if thinking of a short, risking above 16800.
Crude Oil: To continue this broken record September crude oil made it to 50.50 last week from lows at 42.50 in mid June. The reasons again were three consecutive weeks where excess supplies were withdrawn rather than added. Demand has picked up slightly but as mentioned earlier three weeks of draw downs after reaching long time all time record amounts of excess crude in storage will not sustain a rally. In fact the $8 rebound from lows was better than expected. From the current $49.25 I would like the short side this week if we cannot take out $50 on top. A sell near $50, risking above $50.75 may be the way to go here.
Natural Gas: When your best shot at a rally is hoping for a hurricane in the Gulf of Mexico, yours is a market in trouble. Huge supplies of natural gas keep a lid on any appreciable upside here and as I say, a hurricane or hurricane threat which would cut production for a time is the best shot at a rally. The rise would be short-lived as traders again go back to the huge supply situation. I really don’t want to short natural gas at 2800 but buying may be a slow painful drain with no weather issues.

Grains: The entire complex has rebounded from the serious poundings received when the rains came to the Midwest and Western Midwest two weeks ago. Futures have recovered a bit and have slipped back today as we await the monthly USDA report this Thursday at 11:00 am central time.

Corn: In mid June December corn bottomed at 3.74and within two weeks had advanced to 4.17 in a classic weather market scenario. Dry conditions contributed to the rise and quite naturally rain and cooler temps sparked the decline which brought us back to 3.75 last week. We have bounced back to 3.88 as crops conditions were slightly lowered yesterday afternoon. Last month’s USDA numbers projected a crop of about 171 bushels per acre. Most forecasts have dropped that number to 166 bpa and some of the more bullish forecasts are calling for 162 bpa. Obviously how the numbers come out in relation to what the expectations are will determine direction at about 11:00 and 3 seconds this Thursday. A buy of December corn, risking below 3.69 may be the way to possibly take advantage of a lower yield number.
Soybeans: It is said that all chart gaps will be filled and the case for November beans was no different as they filled the gap last week at 9.59 after shooting to nearly 10.50 in early July. After the week’s lows at 9.56 we have bounced back to 9.79 as we await Thursday’s report. It is projected that we will see huge bean crops this year but demand has been stellar as well so that factor may offset higher yields. This market could be the one most likely to see a major move in either direction after the numbers so you may want to use options instead of futures for more protection.
Soy Meal: Obviously September meal rode the same train as beans and the prices reflected that. From a bottom at 294 in late June futures soared to 343 within 2 weeks and spent the last three weeks selling off to lows at 305 Friday. We have bounced up to 314 and as with beans use options here.
Bean Oil: Bean oil has managed to be a bit more stable than beans or meal during this weather scenario. Breaks are less severe and the technical pattern remains bullish. From the current 3400 use a dip to 3340 and if it is not weather related, take a flyer on a long, risking below 3280.
The words from last time came to pass as September oil did pull back to 3328 last week and so far has popped back to 3413. There is minor resistance at 3420 but nothing major until 3500.
Wheat: September wheat flushed to 4.54, rose to 4.68 and so far has retreated to 4.57 once again. Wheat probably has the most bullish fundamentals on the board. The Australian crop is said to be down 20 % from last year. The Ukraine as well as much of Europe will have reduced crops this year and in some cases highly reduced. The US crop suffered from heat and dryness and in fact September futures made it to 5.75 before the rains came. I believe the damage was already done and like the long side of wheat here at 4.57.

Softs: Coffee and cotton have confirmed rallies, OJ is getting close to a bottom and sugar and cocoa seem to be at the crossroads of breaking out but no confirmation yet.

Sugar; After bottoming near 1275 in late June October sugar began a steady climb which culminated with a high at 1516 on August 1. It has taken just 6 days to fall back to 1375 and this area must hold or we could see further down to 1320.
Cocoa: Late June saw trades below 1800 for September cocoa. Futures did make it to 2092 early last week and a push over 2100 may have generated some momentum for the beginnings of a healthier rise. It failed, fell below 2000 and is currently wallowing near 2020. Fundamentals are fairly well-balanced with the price, we see no shortages so we may juts trade from 1900 – 2100 near term unless we see a strong demand pick up.
Cotton: After bottoming just over 6600 recently from highs at 7500 a month earlier December cotton rose to 6900 and has now slipped back below 6700. I believe we will try to hold between 6600 and 6700 for the short-term. Let’s watch this one closely this week as we may have a buying chance this week. A buy near 6620, risking below 6500 may pay off but I will advise with a trade tip if we see that action this week.
This is another one where the words from last time still apply as market action held true to expectations. After holding near 6625, December cotton ran to 6930, fell back to 6750, rose to 6900 and currently sits at 6855. If 7000 is beaten we should see a quick spike to 7200. If we fail at 6930 wait for another drop to 6650 if thinking of buying.
Sometimes you just need to keep the running narrative going. All of the above for the last two letters has come to pass and in fact we have run through 7100 now and likely touch 7200 this week, maybe tomorrow. There is much congestion between 7200 and 7300 however so if long, I would consider to take a profit near 7200 then wait for a pull back to 6930-6950 to reenter.
Orange Juice: September is showing signs of a bottom. It made it below 12500 recently, pushed through 13600 and has now slid back to 13000. A test of lows at 12500 within breaking the lows may confirm a bottom. I am watching and if we see 12500 this week we may have a buy.
Coffee: Since the blow off bottom to 11550 .on June 22 the action has pretty much been nonstop higher. We seem to see a two-step up one step back approach and September futures made it to 14400 yesterday. From the current 14280 I would like the long side but only on a pull back to 13800 and possibly 13600.

Livestock: Hogs are attempting to rally after a hefty downturn while the big numbers on the feed lots have weighed on cattle futures.

Live Cattle: October live cattle had made it to 11900 before a very bearish cattle on feed put an end to that budding rally. In two weeks we have been crushed down to lows today at 11017. We could see a dead cat bounce to at least 11300 and maybe 11450 but it would take huge demand and exports for more than token rallies given the possibility of huge numbers coming to market during the next 3-6 months.
Feeder Cattle: What’s good for the live is good for the feeders and trading action going forward should reflect that. September feeders ran from 140 10 156 pre bearish cattle on feed report and so far have come back to 14500. We may see a dead cat bounce back to 15000 and if so, a sell maybe in order. I would wait however and start to watch the November feeders as those months may be more bearish by reflecting the higher numbers on the feed lots slated for that time frame.
Lean Hogs: The huge discount of futures to cash prevented this market from breaking for a long stretch. However, exports to Japan suddenly slowed and the cash began to retreat to meet much lower futures prices. The disparity was over 20 dollars or 2000 points in future speak and that is now below 1200, still a big discount but they appear to be starting to match up. In 6 weeks October hogs dropped from highs at 7240 to lows at 6400 just last week. The current correction had brought futures to 6890 but we are falling back as I write this to lows at 6785 currently. I like the short side after rallies here.
Questions? Ask William Frejlich today at 312-264-4356

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About the author

Mr. Frejlich began his futures career in 1982. After crafting his trade at a small futures firm, Bill moved to the Chicago Board of Trade in 1985 where he worked until joining The PRICE Futures Group in early 2011.

William specializes in numerous futures & options strategies and combination strategies using both the futures and options in tandem. Bill’s counseling has touched traders from the novice to the most sophisticated investor as he has both managed and assisted with their trading.

On a weekly basis since 1995, Bill writes the The Windy City Trader newsletter to help his clients and subscribers better understand the inner workings of the futures markets.

Contact William Frejlich: (800) 769-7021 or at

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