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The Windy City Trader. 10/17/17

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I know I am getting up there a bit age wise but I am remembering a time back when sports used to be a nice way to get away from our everyday strife and problems. It sure would be nice to be able to watch just for the beauty of competition and sport and we could root for our favorite teams devoid of issues which have nothing to do with sports.
Metals: Gold and silver will likely spend their time in a tight trading range coming into the FOMC meeting on October 31, November 1 and then again on December 12/13. As long as Fed members continue to point to one more hike the range trade is expected. Copper has exploded past 325 as it has finally realized the stock market has soared and demand has picked up.

Gold; The $100 drop for gold during August/September took a lot of the technically overbought pressure away for now. As the Fed kept insisting we’d see one more hike this year, the inflationary aspects of being long gold were reduced. For now $1280 looks to hold below while $1320 looks to stifle any significant upside short of a world event. There will be no hike this month but the idea there could be one in December might enable a short from $1320-$1325 to pay off.
Silver: As the Fed remained silent on rate hikes December silver was able to push from lows at $15.25 on July 10 to highs at $18.29 on September 8. When the Fed did nothing in September but hinted strongly at a hike by year-end futures fell all the way back to 16.34 on October 6. We’ve pushed back to $17.50 now and a range from $17.20/$16.80 up to $18.00 is likely. I wouldn’t buy before at least $17.00 however and more likely $1680. .
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.
I had been taking a break from these pages of late but the last comment about 320-325 came true here with the current rise to 32595. China continues to be a strong buyer and with strong manufacturing numbers of late and the idea that housing and auto should be stronger moving forward, this market can be bought after breaks or corrections. I wouldn’t buy before 31000 and possibly 30500 from the current 32400 so use that area if trying to get long December copper.

Currencies and Financials: Despite talk from pundits everywhere about an US Dollar crash, I see no reason for that at this time. We continue to speak of higher rates and we have the economy heating up to support higher rates. Most talk today will be of buying the $ after breaks and selling non $ currencies after rallies.

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.
Again, haven’t been active writing for a bit but after pushing through 13000 last month the December Pound ran to 13695 on September 20 so it did push to that 135-137 objective. As the Dollar rose we did make it back to 13050 two weeks later and has rebounded to 13350 so far. The Brexit move probably saved the British economy and it should continue to rise moving forward ala the US economy. Use a pull back to 13150 if considering a buy. I will likely send out a trade tip to buy if so.
Swiss Franc: European currencies other than the Pound will continue to be handicapped by being in the Euro zone. Worldwide socialism will not work any better than Venezuela, or any other place it has been tried. In fact the 100 % failure rate of this lead in to communism has a 100% failure rate. And NO, it isn’t just because no one has done it right. Ask Bernie Madoff or his victims about whether or not Ponzi schemes work. Anyway as long as this persists, I look to sell rallies for the Swiss. From the current 10305 I would wait for another test of 10400-10420 to look at a short futures contract or long put option.
Japanese Yen: The December Yen has been in a trading range between 9350 and 8800 since January of this year. I believe that if we see a breakout it would be below the low-end at 8800. I wouldn’t feel bad selling a break below 8800 as these higher Yen values have no fundamental basis behind them. I don’t believe we will see much higher than 9400 if 9350 is broken but I believe we will see at least 8600 down to 8400 if the long time lower support at 8800 is taken out. From the current 8950 let’s watch for that action during the weeks ahead.
Euro Currency: It is unrealistic to try to fathom how the December Euro could make it to 12150 last month. Their economies are struggling and they are still in their QE phase, let along being in a position to raise their interest rates from the negative territory in which they still reside. Futures did drop back to 11700 last week, popped above 11900 and currently sit at 11842. If we see the triple top at 11900 tested this week or near turn I will be looking at a short futures contract or at the very least, buy a put option. I’ll keep you posted.
Canadian Dollar: The December Canadian Dollar ran up to 8300 from lows at 7300 in May. It only stalled slightly at the 8000-8050 level. Now on the way down we have seen the market flush to 7950, rise back to 8050 then do it again. From the current 7990 I believe if we see a flush through 7950 a heftier break to 7850-7800 will be seen. Let’s watch for another test of 8050 or break though 7950 to attempt a short position during the next week or two.
US Dollar: The Dollar has fallen from highs at 10300 last January to lows near 9100 in mid September. When you consider we have higher rates than most of the Euro zone or Japan, it seems that the Dollar is being artificially held down. After the lows at 9100 recently the December Dollar did advance to 9410 last week before pulling back to 9259 last Friday. I like the 9250 level as a buy as I am looking for the Dollar to continue to climb steadily higher during the next 2-3 years at least. I will send out a trade dip if we test, and hold, the 9250 level.
Eurodollar: This market remains locked in a tight range where 9847 has capped the down side while 9858-9862 has stifled upside. We need to pay heed to any Fed comments pertaining to rates. If we do not see a hike in December futures probably push to 9865-9875. If we do get a hike we probably stay right near 9850 as the 9850 trade is already pricing in a rate hike at the December 12/13 meeting.
30 Year Bonds: December bonds continued their long drop from above 15800 in late August to 15108 as the Fed held steady on hikes in September but insinuated a hike coming in December. First off the hike is not written in stone. Because of that we have already climbed back above 15400 and we have room to push to 15428-15502 before running into any technical resistance. I would take a two-step approach to bonds. In mid November if we still are near 15416 for futures I would consider buying both a call and put for January bond options which would be based on the March futures. Since most time value would be gone they should not be too expensive and could lead to a volatile move depending on whether they raise or not.
S&P 500: Like the energizer bunny The US stock market keeps going and going and ……. The S&P has rallied over 25% and the NASDAQ and Dow almost 30 % since last November 8. With many job crippling regulations being removed and many large US companies committing to building in the US the positives are many. The move is all the more surprising in that we have had to deal with at least 3 natural disasters, numerous terrorist attacks in the US and elsewhere and the ever-present presence of North Korea. Short of further North Korea or Iran nonsense there is little reason to see much downside other than corrections. We have made it to 2560 from lows at 2060 last election day and even small corrections are short-lived. From the current 2554 if we see a slight pull back to 2520 a buy may be in order.
Dow: The Dow has seen even larger gains than has the S&P during the last 11 months, rising nearly 30 % and for the same reasons as listed above. From the current price of 22880 for the December futures a fairly hefty correction would be to the 22500 level. If we see that during the weeks ahead and it isn’t world conflict related, I would feel comfortable with a buy there.

Energies: Most here have pushed to the higher end of their respective trading ranges during the past two weeks. I do not expect any major moves for any in this group as we continue in the aforementioned trading ranges except for one possibility. We may push slightly above the highs and stay slightly above old low-end ranges which means staying in the range at higher prices on each end.

Heating Oil: November heating oil moved from the 14000 area in late June to highs at 18600 a few weeks ago. This no doubt was due to somewhat lower inventories, multiple weather events and a seasonally higher time of year. Futures came back to 17200 after the 18600 trade and for the next couple of weeks look to trade a high near 18600 on top and down to 16800 down below. For now I would buy near 16800 and would have to look at market conditions at the time if wanting to short.
Unleaded (RBOB) Gas: While heating oil has another few weeks in the seasonally bullish zone, we will be moving out of the summer/fall driving season for no lead. The strong rise since June capitulated near 16800 last month followed by a harsh break to 15400 before the current rise to 16200. I do like the short side of November no lead if it can manage one more push to 16800, risking above 17200. Supplies remain more than ample.
Crude Oil: As mentioned for heating oil and no lead crude also managed a rise from $43 last June to nearly $53 in late September. The $50-$55 area remains a sticking point for higher prices in that US suppliers can come on board and ratchet up refining and still see nice profits. Since the world remains awash with crude oil and rates have begun to rise in the US and elsewhere, this is also a negative factor. For now I don’t see any major moves either way. Even if crude can break recent lows at $49.00 I believe it would hold near the next support at $47.50. As mentioned earlier I still look for a trading range but at higher levels. Regular readers may recall that many months ago I said I believe a range from $44 – $54 would be the norm for 2017. This has remained the case but with a slightly higher bias, thus my earlier comments as to remaining in a range but at higher levels. Thus I amend my range for crude going forward for perhaps 6 months that we stay in a range but $47 supports below while now $55 may stifle higher action.
Natural Gas: Natural gas in general remains saddled with a big supply issue. This market goes in waves where it may drift lower or do nothing for months but has short periods where demand pickup and seasonal tendencies enable significant rallies. We recently saw December futures push to a blow out bottom with the trade to 3020. A look at last year’s chart will show a rise in natural gas from 304 in early November to highs at 37500 by mid December. This was due to the seasonal buying we see in anticipation of possible cold weather in the US. I suggested buying last week for the December futures and was filled near 3110 with a stop at 2995. We are currently at 3120 so that recommendation remains intact.

Grains: Last week’s USDA report slightly lowered bean production estimates and both wheat and corn came in at the higher end of production guesses. Harvest is proceeding slowly and more up and down action will probably be the norm for the next month.

Corn: December corn made it to contract lows at 3.42 ½ just prior to last Thursday’s crop production report. It slightly raised estimates from 169 bushels per acre to 171 bushels per acre but much of this was in the market already and futures ran to 3.54 the same day. There are ideas that with the harvest behind schedule future reports will show less than this past report so futures should hold the 3.47-3.47 ½ level for now. Corn did see a 32 cent rally last fall rising from 3.66 – 3.98 and since we are at lower prices now the chance for a rise to 3.75 -3.78 especially if future numbers of production are lowered. One can buy a 355 December call, good until November 24 for about $187 or a 360 call for about $125.
Soybeans: The bean report showed a small reduction from 49.8 bushels an acre to 49.4 bushels. That in itself would not have sparked the 40 cent rally from 9.59 to over 10.00 which ensued immediately afterwards, but exports to China and other destinations have been solid and this has lent support. From the current 9.95 use a slide back to 9.75 to consider the long side for January soybeans.
Soy Meal: December meal also ran hard after the numbers pushing form 3140 to 3300 post report. We have pulled back to 3225 so far and if we see additional selling down to 3160, I would consider the long side of December meal as the same bullish conditions affecting beans will affect the meal.
Bean Oil: Bean oil tends to trade opposite of beans and meal during quiet market periods as the crush spread is a prevalent trade for the soy complex. Oil did push from 3290 to 3390 after the report and so far has slid back to 3346. Another test of 3300-3280 may offer another chance to get long here.
Wheat: Back in late June wheat was flying high on ideas that the Ukraine and Australian crops would be sparse this year. December CBOT wheat soared from 4.60 in early June to 5.93 by late June. But then… they found more wheat. By late August futures had retreated all the way back to 4.24. We did see a slight rebound after that blasting but failed at 4.64. After the USDA raised wheat estimates futures backed off again but did hold just below 4.30. From the current 4.37 we may see a pop to 4.60 short term but would need better numbers next month for much more upside than that on top.

Softs: Coffee and cotton may be near temporary bottoms, cocoa seems poised for further advances and sugar may still have some downside to come.

Sugar; The potential for another large crop has kept sugar from being able to maintain any strength. For March futures 1460 is now solid upper resistance while 1375 should be supportive. March sugar bottomed at 1350 on June 28 so I would use that number if considering a long from the current level of 1413. We would need a close above 1480 to turn patterns higher but that would likely take some positive fundamental news.
Cocoa: December cocoa has seen a steady climb higher since bottoming at 1830 in mid August. So far 2100-2120 has held rallies in check but futures respond higher of late each time they approach the 2000 level. I will be watching March cocoa now for a long time bottom as Ivory Coast deliveries have been lighter and this market in general has no problem rebounding sharply, usually the same day, after corrections.
Cotton: In mid August December cotton bottomed just above 6650. During the early hurricane threats in September the idea of severe damage in the Southwest enabled a rise to 7575 in just weeks. When the damage was not as severe as expected futures fell below 7000 and since then has bounced up and down between 6700 and 7000. We are back to 6755 now and with a little more patience I believe you may have a chance to purchase close to 6625-6650.
Orange Juice: November juice was trading down near 13000 in early September. As Irma approached we did see a speedy rise to 16100 anticipating much damage. Apparently the lessening of storm strength once it made landfall and moved north was enough to stop the rise. Futures fell back to 14100 and renewed the upside as Maria hit Puerto Rico. Once that storm stayed in the Atlantic the move slowed again and the last USDA report showed higher supplies than anticipated. With that November juice quickly fell back to 15000 where now it seems to be biding time awaiting further fundamental news. With the volatility I would only use options for juice as opposed to futures and if 150 continues to hold, a long call option for March juice might account for both unknown damage and possible freeze threats through the coming winter.
Coffee: December coffee appeared to bottom last month near 12800 and managed a run to 14400. Apparently the bottom was not in yet as futures made it back to 12300 and we need to watch the 12200-12300 level for a possible bottom. If so a buy, risking below 11900 may pay off.

Livestock: Strong cash prices have kept front month hogs moving higher and cattle may be slowing and set for a break after a nice rise during the past month.

Live Cattle: December cattle have seen a perfect technical rise since bottoming in mid August at 10700. Last week brought a triple top at 11900 and this market may not be able to sustain the rise without a healthy correction. The breakout higher was seen at 11300 and from the current 11725 I expect a slide back to 11300 which not only was the upper breakout but also a 50 % correction of the move for the nonstop rally from 10700 to 11900.
Feeder Cattle: The same time frame brought a move from 13900 to 15800 for august feeders. Solid demand pickup carried futures higher and while we may see more upside, a correction is necessary here as well. So far futures held at 15300 but if broken a drop to 15100 and possibly 14900 might get longs back into a buying mode. Wait for at least 15100 – 15000 from the current 15420 if looking to buy.
Lean Hogs: Usually when we see a large discount for futures against the cash market, it is temporary and cash tends to slow down to match up closer to the closest in futures month. This hasn’t been the case here and instead of cash dropping December futures have continued their rise to match up to higher cash values. Strong exports to Japan is one reason as well as future months projecting less hogs coming to market. December hogs bottomed at 5610 less than a month ago on September 25. We have pushed to 6450 now and the highs above 6550 from mid June are approaching. We may make it there but this market is vulnerable to a hefty correction after the sharp push higher. This might be volatile and I would not buy the December hogs unless we see a correction to at least 6050

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The post The Windy City Trader. 10/17/17 appeared first on Market Insights.

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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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