Hello Fellow Traders,
If I cared at all about the NBA I would probably be upset about a bunch of multi multi millionaire owners and multi millionaire players not being able to come to an agreement about making even more multi millions for playing a game. You know who is paying for this folks. It costs about $400 on average to take a family of 4 to an NBA game now so start saving, put your house and car repairs on hold, wait another year for the kids to go to college and you too, may be able to afford an NBA game.
William Frejlich
312.264.4356
855-264-2455
wfrejlich@pricegroup.com
This Week’s Commentary
Metals: This commentary is listed under metals but really applies to all groups as the never ending Euro saga continues into its 30 or 40th week. The official report will be known Wednesday but some of the particulars have been leaking out. The main gist of the plan is to salvage Greece but knowing that others are soon to follow, the idea is to also address coming problems throughout Europe. It is estimated that at least 1.5 to 2 trillion Euros (2.1 trillion to 2.8 trillion US Dollars) are necessary immediately and drastic measures must be taken or that could still be well short. For this plan to have a chance to succeed, the two main factors being addressed are growth prospects and wage reduction. The amount talked about assumes a healthy growth rate and this is the main concern. It is estimated that each 10 % rise in Brent crude reduces growth by .02 %. It is estimated that each 10 % rise for the Euro currency reduces growth in Europe by .07 %. These are unknown factors which markets have little control over. Additionally wage reductions are vital. In Ireland which lopped 10 % off wages, they are already operating with a surplus. It is estimated that Spain would have to reduce wages by 11 % and Italy by 5 % for these measures to help since they comprise collectively roughly 28 % of Europe’s economy. So far they are very resistant to any wage reduction. And we are all seeing the rioting in the streets of Greece whenever austerity measures are discussed. Markets are often times very psychological and if the package is big enough and traders buy into it, it may at least give us a few months of relative calm in the region. In many ways, this is merely the beginning in Europe, not the end.
Gold: December gold stopped just shy of $1700 yesterday and quickly retreated. There is some support at 1660 but I feel it will easily break that and test $1630. If $1630 doesn’t hold, first $1600 then recent lows at $1585 would be the likely targets. Above the market, only a close over $1720 sparks any significant upside. Last week’s words came close as December gold reached $1604 just last Thursday. The profound US stock market rebound last week enabled gold to hold the $1600 level. I still see a fairly wide, volatile range for gold, likely in the $1575 to $1725 range for at least the next couple of weeks. By then we should know if markets are buying the European plan.
Silver: December silver also recovered since the $30.00 low last Thursday. It has moved back above $32 and much like gold, I see a wide range between $28.50 below and $33.50 to perhaps $35 on top. I see little reason for any explosive moves higher here. Or lower either for that matter at this time.
Copper: December copper remains in the range from 300 to 350 and there is little reason for much upside now. I look for futures to drift lower from the current 338 and test the 300 area again by late this week or early next week. Most of the industry’s using copper are quite slow and if China continues to slow, at least 275 and possibly 250 is possible by year end. Last week’s words also hit the spot as December copper made it to 303 last week from its high at 345. In just three sessions since the 303 low, futures have soared back to 347 as they take aim at the strong 350 resistance. If broken, 370 may come quickly but an untested plan may not allow for much more on top. Consider a put if futures fail again at 350.
Currencies and Financials: The Europe plan seems to have buoyed all in the sector which are not the US Dollar. Our buck has fallen over 400 points since late September and must hold near the old breakout point at 7580. If not, 7500 would be the next obvious target. Most others in the group have pushed to recent highs coming into this week’s announcements.
British Pound: The December Pound was one of the many recipients of the vaunted bailout plan pushing through most resistance all the way to 16000 yesterday. The next major support is at 16100 and since it has come all the way from a low at 15179 as recently as October 12, we may be seeing, for all currencies, a “buy the rumor, sell the fact” mentality emerge soon afterwards. Cheap November puts might be a way to capitalize if the trade doesn’t feel this highly anticipated plan isn’t all it has already been cracked up to be.
Swiss Franc: The December Swiss has moved up but at a snail’s pace compared to others in this group. Most likely it is because even at 10800 that was still well over previous lifetime highs after crashing from the ridiculous 142 levels we saw in early August. The 11400 – 11500 resistance will be tough to beat here and I wouldn’t be surprised to see a quick flush back towards 11000 once Wednesday comes and goes.
Japanese Yen: The December Yen refuses to budge lately. For a while it would rise as Europe received another bout of bad news and fall as Europe talked of a rescue plan. Now it has continued to rise whichever direction the European winds may be blowing that day. 13200 will now be tough to beat on top and a hard break below 12900 might start further downside. I would look for at least 12500 and possibly 12150 if this market ever begins to falter.
Euro Currency: The December Euro has recovered nicely from September’s bludgeoning down to 13142 by October 4. We saw 13954 overnight and I believe 14000-14050 will stifle the upside. Markets usually rise or fall into perceived positive or negative news and after an 800 point climb there may not be much momentum left once the plan is announced. As noted however if the trade feels it is worthy the bleeding may be stopped for a few months. If so, a wide range from 13500- 14050 is likely. We may eke out a trade to 14200 on top immediately after but I expect 135-140 to be the zone for the next 6-8 weeks.
Canadian Dollar: The December Canadian Dollar pretty much rises and falls with the metals and energies. December crude oil has screamed from $75 on October 4 to this morning’s high above $99. Enough said if you don’t feel the CD follows crude oil. I expect 10000 to hold for a time as crude is very overbought now, and as with the currencies and US stocks for that matter, the entire move may have already occurred before the fact.
US Dollar: As has been the pattern when news from Europe is bad, the US Dollar has been rising. Conversely, now that the perception is that Europe is “saved”, the Dollar had rolled over to the tune of over 400 points. The first area at 7580 may hold as I do believe that once Europe announces their plan, we will see a quick spike up for most currencies and down for the Dollar, but I also believe that feeling will be short lived and is already in the market and I expect each to reverse once the news is absorbed. Don’t misconstrue, I don’t expect a crash for currencies or US stocks but a pull back then a consolidation period where markets trade in volatile ranges.
Eurodollar: Continue to short December 2012 Eurodollar futures or perhaps March 2013 futures.. Or purchase Dec. 2012 9850 puts for 8 ($200) points or 9875 puts for 12 points ($250). We have already dropped 34 points from 9957 to 9923 and I expect to see 9800 at the least by the middle of next year. December 2012 futures have seen a slight correction to 9933 which may be a short selling opportunity.
Ten Year Note: The December notes held a triple bottom area at 12716. That area was the upper breakout point back in August and did hold as notes retreated. This seems to be telling us that this market wants to advance and also could be a harbinger of things to come as far as currencies and stock indices trading going forward. Usually the notes rise as stocks and currencies retreat and the notes are showing signs of a near term bottom at 12716.
S&P 500: Overlay an S&P chart on just about any market which could be helped by a Europe solution and they are nearly carbon copies. Look at crude, most currencies, grains and softs as well as livestock. Tell me, what will be left when Europe comes out with their plan with the huge buying we have seen already Or will they delay it another week or two. I believe most markets and especially this HIGHLY overbought index must correct soon or the breaks afterwards will be much more severe. We need to unscrew that pressure cooker a bit to release some of the steam. We saw the December S&P reach a high near 1255 this morning and a rise from 1068 to 1255 in just 3 weeks with the economy struggling big time was WAY overdone. I expect at least 1190 by the end of the week and possibly 1160 once the Europe news is absorbed Wednesday.
Dow: The December Dow made it above 11900 and is also highly overbought right now. This is not healthy action. A 2 steps up 1 step back or 3 up 2 back market action would sustain momentum but when everything soars unabated and is followed by the huge sucking noise as markets crash, investors get spooked. That said I look for 11200 this week and maybe 10800 if downward momentum builds.
Energies: This market is also very sensitive to developments overseas and I expect breaks for crude and heating oil but little change for no lead and natural gas,
Heating Oil: In a mere 9 trading sessions the December heating oil exploded from below 270 to 309. This one is a good example of what I mean when I say to buy the rumor, sell the fact as it relates to Europe. We are wallowing near 305 as of this writing and if the announcement pushed futures to 316, it would seem to be a big favor to sell or at the very least buy put options.
Unleaded (RBOB) Gas: No lead also rose nearly 40 cents during the past couple of weeks but fell hard afterwards, unlike the crude and heating oil. December gas flew from 242 to 282 and is below 262 now. It has already corrected so if we see further weakness to 252, I’d consider a buy for this one.
Crude Oil: To keep this broken record playing, December crude advanced sharply from $75 just a couple of weeks ago to just under $95 this morning. Much like the stock market this is extremely overbought relative to the last few somewhat bearish weekly API reports. I look for at least $88 this week with a good shot at $85 by early next week.
Natural Gas: For the past two weeks natural gas has been quietly stair stepping higher, making higher highs and lower lows. December futures show solid support at 3.75, last week’s inventory report showed a draw of supplies which was more than forecast and we are expecting another horrible Midwest winter if the La Nina pattern holds true to form. If not already long I would buy December natural gas and/or January or February call options.
Grains: Grains have all stalled as they await tomorrow’s report. Beans and wheat seem to have the most upside potential as they were slammed much harder than corn and have not recovered as much as corn. I still like the long December wheat short December corn trade which held near 20 cents corn over wheat and has slid to only 9 cents over now.
Corn: December corn has stalled just below the major resistance at $6.75. There is a chart gap at 6.85 and I feel that would be a high point for corn but I expect a range of 6.65 on top down to 6.25 underneath. I think we can sell higher call options for December or January now.
Soybeans: Same story, different grain. Beans did see a solid rise pushing from 11.50 to 12.77 coming into last week’s report and despite the somewhat bullish nature of the USDA numbers showing lower yields and a lower carryover, have fallen back with most other commodities. We have receded to 12.52 and a push through the 12.50 support may drop November beans to at least 12.25 and maybe 12.10 if 12.25 doesn’t hold. Lately it seems that your best guess as to what is occurring in Europe that day will be your best bet as to market direction for most groups. Last week’s words were very close as November futures flushed to 12.09 1/4 in two days after 12.50 was bested. I look for a range between 12.00 and 12.50 near term. March futures should show support at 12.25 and may test 13.00 if so. Most in the group look to remain in trading ranges with a weak bias until next month’s USDA report.
Soy Meal: December meal is trying to consolidate between 310 and 320. I would consider a long future if we see 310 from the current 319. On top a push through 330 may spark a move to 344 but that would be contingent on a strong USDA report. Otherwise a range of 310-330 looks very possible.
Bean Oil: December oil liked last week’s numbers and tried hard to rise, making it just shy of 5400 from it’s lows two weeks ago at 4900. We have come back to 5290 as of now and I expect further weakness to 5150. If that doesn’t hold look for a bit lower to 5075. This one from last week rang true as well as futures flushed to 5052 last Thursday. We are into resistance between 5250 and 5300 now and a rise through 5300 may be enough to edge futures to 5400 but not much more at this time. I would look for a range of 5300 to 5050 near term.
Wheat: After bottoming just over 6.10 last week December wheat has come back to resistance just below 6.50. If beaten 6.70 would be the next target with an outside shot at 6.90 if momentum is strong enough. 6.30 should cap the lower end for now.
Softs: I like the long side of cotton at these levels and actually like the short side of the others.
Cocoa: December cocoa showed a double top at 2688 as most markets rebounded last week. Futures have come back to 2622 and support still looks to be at 2540. Last week’s numbers still apply as futures saw 2545 last Thursday and made it to 2674 this morning. It is said that the West African nations in the Ivory Coast are seeing a record crop this year so I would use a rise to 2720 to initiate a short sale.
Sugar: Sugar supplies will be no problem this year either and this market is living off of its’ last 4-5 years reputation. 2800 is still very high historically for sugar and I would use a rise to 2840 from the current 2710 to look at a long term short sale for March sugar.
Cotton: It seems the ongoing general weakness for all futures coupled with a slowing China demand wise is keeping cotton from moving much higher. For the past couple of weeks a range of 9800 to 10400 for December futures has prevailed. If most commodities remain weak and 9900 is beaten, then 9800 must hold or a trade to 9500 is possible. On top we need to surpass 10400 to see additional momentum to 10700 then 11100. There is nothing to change from last week. December cotton pushed to 9625 last week and has rebounded to 9850 now. I look for at least 101 – 104 by early next week if not by later this week.
Orange Juice: November juice is off the charts (literally) after making it to 18600 this morning. There were no bullish reports, no hurricane threats, no frost warnings and it seems as if some entity (i.e large fund) is having their way pushing the little guys who are short into a short squeeze. When the funds decide to liquidate, this market will tank 30 cents in 2-3 days. Look for a put option recommendation later today.
Coffee: December coffee huffed and puffed and finally made it to the breakdown level at 252.50 today. Whew, it’s tired now and needs a break. Use a correction to 236 if thinking of buying. If 252 is beaten on top we could see 262 to 266 in a matter of days.
Rice: November rice was already trending up when the flooding hit Thailand, perhaps causing at least a 10 % drop in overall world rice production for the coming year. Futures did bounce off a technical resistance level at 1730 but I do expect that to be beaten to the tune of a trade to 1810-1850 by next week, and perhaps more. Use a pull back to 1680 and look to buy futures or consider a call option strategy.
Livestock: Hogs are showing signs of a possible near term top and cattle saw a somewhat surprising bearish cattle on feed report last Friday.
Live Cattle: December cattle tried hard last week to make it to 12500, stopping at 12450 on three occasions. We are back to 12200 now and a drop through 12100 turns the near term trend down for possible further deterioration to 11850. That area was solid during September and October and if this is merely a correction on a longer term rise 11850 might be a buying level. Due to strong demand and lower feed lot prospects (before last Friday’s numbers) many in the cattle industry were talking a potential 13500 – 14000 trade for live cattle by spring but the numbers may have tempered those ideas. For now I see a range between 118 and 125.
Feeder Cattle: November feeders were taking aim at contract highs at 14600 last week but were rebuffed by the negative tone to the COF report. We have retreated to 14175 now and support is seen first at 14000 then at 13750. As with live futures, if this is merely a correction the 13750 level may be a nice buying opportunity.
Lean Hogs: December hogs made it to 9150 last week and have slid to 8800 this morning. The first strong support is at 8680 and if beaten 8520 may come shortly thereafter. I like the long side near 8525 and would consider a short if we made another push to 9150.
Questions Ask William Frejlich today at 312-264-4356
