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The Windy City Trader. 11/06/17

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As we approach the end of 2017 I was thinking of my resolutions for the year. My first and biggest one was to lose 15 pounds. Only 25 more to go.
Metals: Gold and silver finally held near expected technical lows. Copper looks set to rise after correction and platinum will go the way of gold.

Gold; Now that December gold broke the 1280 level I would expect to see at least 1260 and possibly 1240. As long as the prospect for a rate hike in December continues we would need some sort of major world event to see much upside other than short covering for gold.
The words from last time held true to form as December futures held twice between 1262 and 1263 and so far has rebounded back to 1285 last week before sliding below 1270 again. I don’t expect much more than 1295-1300 on top and if we are still waffling near 1270 when the Fed raises rates next month, a quick drop to 1240-1225 may ensue. Other than some sort of world conflict there is little reason for much upside right now.
Silver: December silver has held above the 16.80 support so far with the low currently at 16.89 but that isn’t likely to hold. 16.80 may offer minor support but more likely we will see 16.60 once 16.80 is broken. The strong stock market will give some fundamental support but gold is likely to drag silver down along with it.
There is no reason to change the words from last time. December silver dropped exactly to 16.60, rebounded to 17.25 and fell back below 16.80, all within a week. As with gold there is little reason for strong upside right now. Perhaps trading the range of 16.60 to 17.25 may offer some trading possibilities but if gold breaks 1260 down to the 1225 area, silver likely crashes through 16.60 on the way to at least 16.20 and possibly 15.80. Again this is based on the market being near 16.80 and assuming that the Fed raises rates at the December 12/13 meeting.
Copper: After the temporary blow off top at 32590 last week December copper has seen dips to 31400 both last Thursday and Friday. We are still overbought as the move occurred too quickly I believe so I would hold out for at least 31000 and possibly even 30500 if looking to buy.
As with gold and silver there is no reason to change the discussion. December copper did slide into that 305-310 level with lows at 30730 early last week. It so far has come back over 31800 and I am looking for a break above the 32590 highs up to at least 33000 this week from the current 31550.

Currencies and Financials: The pattern remains the same for most here as the US Dollar continues its climb while non US $ currencies continue to drift to new lows for this move.

British Pound: The December Pound held the 13050 support and failed at the 13350 resistance since last week. The rallies come easier than the breaks here and with England now free from their Euro zone shackles the BOE was even able to raise interest rates last week. The path of least resistance is higher for the Pound and a buy between 13100 and 13050, risking below 12950 may pay off. That may be a recommendation this week be it a long futures contract or buying a call. I’ll keep all posted.
Swiss Franc: As expected the Swiss continues to slide lower. There was no reason for this market to trade near 10300, let alone the 10700 level seen in early September. So far we have seen a few forays below 10000 and subsequent pops back to 10080 but if 10000 fails first 9950 then 9800 should come quickly. If we see another test of 10000-10150, look for a bearish opportunity.
Japanese Yen: The December Yen has not been able to mount any serious rally threats since cracking below 8800 recently. We see little blip corrections to 8830 but the drop to 8730 is showing that we have more down to go. I am expecting at least 8650 moving forward and possibly 8600 which would be the next major support level. Even with a nice equities rise the low rates in Japan and strong US Dollar likely prevent much more than token corrections on the way down.
Euro Currency: The December Euro has a LOT more downside to come. They haven’t even stopped the stimulus QE program there let alone start to raise rates from the negative territory where Euro zone rates reside now. It was a joke for the weakest of the currencies to be trading above 12000 and so far we have only come back to 11600. We may try to hold 11500-11550 for a bit but I see nothing to keep the Euro from dropping to 10800-11000 during the first quarter of 2018.
Canadian Dollar: The December Canadian Dollar made one last attempt to break through 8050 last week but fell short. It broke major support at 7950 and from the current 7912 further down to at least 7850 is expected. If 7850 fails to support 7775-7800 is likely shortly after. I would not buy before 7775 and would consider a short on a pop back to the lower breakout point of 7950.
The words from last time remain intact as the December futures visited the 7750 level three times last week before bouncing back to 7870 last Friday. From the current 7835 I would use another test of 7900-7925 to look for a short sale. The weak metals market has been no friend to this currency either.
US Dollar: Reverse all Euro commentary and you have the US Dollar. The Dollar is also released from the shackles of the terrible economic policies of the past 8 years and our GDP has seen two straight quarters above 3.0 % as opposed to ZERO quarters of even 2.0% growth from 2008-2016. Keep in mind that in addition to the 875 billion political payola scheme (falsely called stimulus) in 2009, we had 4 years of 75 billion a month in (that’s almost 4 trillion folks) QE “stimulus” and 8 years of ZERO interest rates and still couldn’t get a measly 2.0 % growth in any quarter. Where did all of our tax dollars go? And why did so many people join the ranks of the impoverished with all of that “stimulus”? That was a small taste of socialism folks and thank God it was stopped before we ran out of other people’s money. Anyway this explains the rally for the past 4 months and why it shows little sign of abating. Once 9500 is bested there is little to stop the Dollar before 9700-9750 and I fully expect to see the Dollar at 10000 during the first quarter of 2018.
Eurodollar: This market remains locked in a tight range where 9847 has capped the down side while now 9853 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: In early September the Dec. bonds peaked above 15810 as the Fed held off on rate hikes. As rate hike talk ratcheted up it took less than two months to bottom at 15010 by October 27. We have moved back to 15412 now as the Fed did nothing in this past meeting. From the current 15408 I would use further upside to 15424-15500 to either short futures or buy a put option coming into the December FOMC meeting where it is highly anticipated the Fed will raise another ¼ %.
S&P 500: After rising to lifetime highs above 2560 The December S&P saw a one morning 20 point correction to 2542 with the Spain/Catalonia drama last week. This is yet another Euro Zone problem as the UN and progressive push for worldwide globalism continues to be defeated at most turns. By the end of the correction day last week futures were right back at 2560 again and made it to new highs the next day above 2577. I see nothing short of a world conflict to stop futures from rising to and through 2600 in the weeks ahead. We probably see support at 2560 now without any unexpected shocks.
The words from last time still apply as we did hold twice at 2560 since then and reached lifetime highs with today’s rise to 2589 so far. We likely see 2600 this week and potentially 2625 as US corporations look to have the shackles of one of the highest tax rates in the world taken off soon.
Dow: The December Dow also climbed to lifetime highs after the one day correction and pushed over 23300. We probably won’t see 23100 tested again but if so consider a long. For now 23400 should be no problem and if momentum builds we may see 23500 by year-end.
The words from last time also apply and it didn’t take until year-end to see the aforementioned 23500 as the rise continues unabated. I would not be surprised to see 23750 tested now and that likely happens before year-end as well.

Energies: Most in the group had been advancing and we stayed range bound for a while albeit at higher levels. Last week OPEC announced that they actually are going to keep production cuts in place which is not usually their norm. Additionally US producers usually crank up production once we passed $50 a barrel and we have seen no indication of that so far on this move. That said, most here except for natural gas are in the upper overbought regions so we are susceptible to seeing a harsh break for crude, no lead, and heating oil at any time.

Heating Oil: Since bottoming at 17200 on October 9 December heating oil has seen a steady climb to highs today at 19328 so far. We are extremely overbought with Stochastics reading at 99.17 % but futures may be trying for 19500 and possibly a blow off to 20000 before we break. I would maybe try a put option here unless you wish to sell near 19500 and risk over $2000 a contract by having a buy stop above 20000.
Unleaded (RBOB) Gas: December no lead has joined the energy party also, rising from lows on October 9 at 15275 to new highs for the move at 18388 today. This is much like the heating oil where no lead shows Stochastics readings above 95 % so this market is vulnerable to a profit taking drop at any time. From the current 18317 we might crawl a bit more to 18500 and an extreme move to 19000 but fundamentals do not warrant these prices for any in the group.
Crude Oil: As did heating oil and no lead, crude oil has more than surpassed my expectations. As mentioned earlier OPEC actually conforming to production cuts and the strong US stock market are responsible. When corporate rates are slashed this will lead to much more demand as businesses expand so this no doubt is a large part of the current rise. Since bottoming at 52.00 on October 26 December crude has soared to highs at 57.33 so far today. While not quite as overbought as the others here crude is also looking very much like a market having a temporary blow off top so I would not chase this rally on the long side but wait for at least 53.50-53.00 on a correction to reassess the situation as all in this group are well oversupply.
Natural Gas: Since the blow off to take out stops break to 2850 for December natural gas last week futures have already rebounded back over 3100. As I have said many times supply is not an issue here but various seasonal factors generate short-term spikes. Futures left a small chart gap below 3000 at 2998 last week and from the current 3106 I would consider the long side if that gap is filled.

Grains: This Thursday’s USDA report may give this complex a reason to actually move. Beans are the one here which shows a bit of bullishness, wheat is showing signs that last week’s crash was a lower blow off move and corn is so slow-moving it is hard to generate enthusiasm one way or the other.

Corn: December corn has seen about a 10 cent range since late September. Crops are expected to be substantial according to many forecasters and this Thursday’s numbers either spur a further dip to 3.40 or maybe pave the way for 3.55 to be beaten which could lead to first 3.62, then 3.74 if there is a slight sign of bullishness. A cheap December call option which expires on November 24 (350 calls ($200, 355 calls, $125) may pay off if the report lowers the corn numbers even slightly.
Soybeans: Beans rallied 40 cents the day that the USDA lowered projected production from 49.8 to 49.4 bushels per acre. Since that October 11 report November beans fell from 10.05 to 9.75 after rising from 9.65 to 10.05 on the report day. In last week’s letter I wrote that the 9.75 price might be a buy. It popped back too quickly afterwards and we are now at 9.81. We must switch to January beans now as November first notice day is October 30. The equivalent price for November at 9.75 would be 9.85 as January beans currently sit at 10 cents above November at 9.92.Harvest pressure may be in play for the beans also so if the 9.85 continues to hold for January beans, we might look at a buy later this week.
Let’s keep the running narrative going as January beans have continued to hold at 9.85. In fact that was today’s low before rising to the current 9.95. If 10.00 is beaten we should see at least 10.14 and possibly 10.25.
Soy Meal: December meal finally held just above 3100 pushed back to 3180 and is settling down near 3160. For now 3200 will be minor resistance and if broken and beans continue to rise 3250 and possibly 3300 would be the next targets. Exports to China have slowed and this has held meal back for now and Thursday’s USDA report may be enough to spur a move above 3200.
Bean Oil: December bean oil continues its rise and pushed above 3460. It was three weeks ago it made lows at 3225. This rise may have a bit more teeth in it but I believe 3500-3520 will be hard to beat on top. In fact that may be a nice short if December oil is unable to dent 3500.
This is another market we can leave as is since futures did make it to 3513, slid back to 3425 and are approaching 3500 once again. A bullish report may be enough to drive December bean oil through 3520 and if so 3600 would be the next target. Meanwhile use a pullback toward 3350 to consider the long side.
Wheat: December wheat fizzled at 4.44 last week and proceeded to crash to new lows at 4.16. We have popped back to the current 4.30 and I expect further up to 4.42-4.45 this week heading into Thursday’s report. If we see another test of 4.22 I would consider the long side be it buying futures or buying a call option.

Softs: Cocoa is the one here in a uptrend while coffee remains iffy and sugar, cotton and OJ continue to chop up and down in tight ranges.

Sugar; Despite what is reputed to be a very large sugar crop this year March sugar refuses to break. I always say what a market doesn’t do tells you more than what it does do. To wit; it is estimated that the sugar crop may be 10-15 % above last year’s crop yet it isn’t breaking. Futures tested 1380 numerous times and large buying would come in at each dip to that level. Last week a stop hunting expedition ran sugar from 1403 to 1479…. On the same day. Numerous stops above 1460 were touched off and quite naturally March futures came right back to 1415 within days and is back in the 1400-1460 range. It is possible that the run up for crude may induce talk of larger ethanol production which may explain the fact that sugar couldn’t break below 1380.
Cocoa: The perfect stair step higher pattern remains for March cocoa since the bottom at 1850 in mid August. After holding at 2040 last week futures made it to 2150. I am watching for a correction to 2060 and will be looking to initiate a long if we see that this week.
The words from last time would have paid off. That is if I followed my own advice. Both December and March cocoa fell back to 2050 which made the technical, pattern show signs that lower trade may follow. Once 2050 held for both, Dec. ran to 2123 today while March soared to 2113. The March highs near 2150 may be tested but if we do falter, I think 2050 would be beaten and we could buy closer to 1990-2000.
Cotton: The hurricane induced rise to 7575 within days and subsequent drop within days are a thing of the past right now for Dec. cotton. The market has settled into a tight 6675-7000 range with little direction. The technical pattern is looking positive and this week’s crop estimates may finally spark a run through 6675 or above 7025.
Orange Juice: March juice appears to be trying to put in a winter freeze low as futures continue to hold just above 15000. So far 16000 has stifled further advances and for another week or two we may stay within that tight range. A break to 15000 may offer another buy chance so let’s watch that area for a possible futures buy or possibly buy a call option for March futures.
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.
Futures did hold at 12300 last week and we did see a nice run to a double top at 12800 as well. December coffee did come back to 12435 so if considering a buy wait for further down to the aforementioned 12200-12300.
Let’s keep the ball rolling here. Last week Dec. coffee made a quick shot down to 12100 and pushed back to nearly 12800 by the next day. We flushed down to 12225 this morning and have already come back to 12640. Ladies and gentlemen Place your bets, place your bets. Until this volatility eases I would buy near the low but not sell near the high as 12100 is a historically low price for coffee going back a number of years.

Livestock: Cattle and hogs saw an impressive rally last week but I believe fundamentals do not warrant the move they made. I am looking for a chance to short and will advise if we see that opportunity arise.

Live Cattle: The last cattle on feed report on October 20 was considered bearish for cattle and they opened the next day down about 150 points at a price of 11500. Within 8 sessions futures ran to 12800 after those “bearish” numbers. We made it to back to 12765 last Friday and I was dumbfounded since cash cattle are trading in the 11000 area. Futures did break today to 12482 but could not make it to limit down and are wallowing near 12520 as of this writing. If fortunate enough to see another test of 12700-12750 I will possibly be suggesting a short position or perhaps buying a put option.
Feeder Cattle: The same time frame brought a move from 14800 to 16200 for January feeders and as with live cattle this was too much too soon and this market needs a break especially with large numbers on the feedlots. We would need huge demand to make up for the large numbers and this isn’t a good seasonal time for that as turkey and ham sales dominate the retail markets now. Let’s see if we test 16150-16200 for a chance to short or hedge January feeders.
Lean Hogs: December hogs went along with the cattle ride making it to 6800 last week. This was from lows at 5600 in early October with huge hog numbers in the pipeline for the March/April period. Higher cash prices and solid exports to Japan drove that market and we are in a possible seasonal buy mode as we approach the holiday season. We should see further down from the current 6480 but I wouldn’t expect more than 6300-6250 on the correction due to the seasonal buying we may see this month.
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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