Hello Fellow Traders,
I know the networks aren’t crazy about not having any New York, Boston, Chicago or L.A teams in the World Series but I love it. It is nice to see other baseball teams in the mix so congrats to the Texas Rangers for their second WS appearance in a row and especially to the St. Louis Cards for coming from 10 games back in early September to make it to the Fall Classic.
William Frejlich
312.264.4356
855-264-2455
wfrejlich@pricegroup.com
This Week’s Commentary
Metals: As news from Europe seemed better and it appeared a long term solution was in place, U.S. stocks and nearly all commodities moved sharply higher last week, regaining and some actually surpassing most of the hefty losses from the week before. I felt that the relative calm might keep most markets in dependable wide ranges and for the most part, almost all commodities pushed from the low end of the range to the high end or slightly above the upper end. This was before Chancellor Merkel of Germany stated on Monday that there was no 100 % guarantee that proposed measures would entirely solve the problems. This was no surprise to anyone except for possibly the fact that it was refreshing for a politician to actually tell the truth. All measures so far are merely window dressing and Germany doesn’t want to be left holding the bag. That said look for lower action this week for the entire group.
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.
Silver: I don’t expect any sharp break for silver as we saw with the $9 drop in two sessions from a few weeks ago but likewise don’t expect any serious up moves either. The bottom support is $28.50 – $30.00 for December silver which has not seen any major upside action since mid April. The pattern right now is similar to the rise we experienced in late August, just before the market began to trend lower, then ultimately crashed. To break that pattern December silver would have to push through 33.50, 35.00 and test 37.50. With the weak US economy and with Europe hurting as bad as us that seems like a long shot. This is one where I see the range to continue and if it does break out it would be below 28.50 as things stand right now.
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.
Currencies and Financials: Most currencies came to the top of, or slightly higher than the upper edge of the ranges we described in last week’s letter. As has been the pattern, when bad news emerges from Europe, the US Dollar and Japanese Yen advance while all others retreat. This sort of action doesn’t show signs of ending anytime soon as there is no quick or easy solution to Europe’s problems.
British Pound: The December Pound inched up to the low end break out point at 15850 and has slid back to 15750. There is some minor support at 15550 but most likely further weakness from Europe generates more down to at least 15450 and possibly 15350.
Swiss Franc: The range for the December Swiss should settle in at 10800 down under while 11400 should cap the top. I would consider a short near 11400 or sell a higher call option at that point. If 11400 is bested, 11750 is a possibility while the more likely scenario to occur first, a drop through 10800 could start an immediate flush to 10400. The words from last week still apply so no changes on this one.
Japanese Yen: The December Yen continues to stall just over 13050 while we have seen support at 12920 during the past week. The 12900 area is major support going back until early August so a trade through that price starts a more serious break to at least 12750. If Bank of Japan intervention is responsible 12500 would be the target.
Euro Currency: The December Euro looks to settle into a top area near 13800 and the bottom near 13200. I don’t expect big moves higher or lower so you could actually trade both long and short here, buying near 13200 and shorting near 13800 and looking for 200-300 points after entry. These words from last week still apply and like the Pound action, the Euro did exceed 13800 to 13905 yesterday morning but fell like a stone after Mrs. Merkel’s comments down to13700. The first solid support is at 13500-13550 and if bested the major support would be 13200.
Canadian Dollar: The December Canadian Dollar pretty much rises and falls with the metals and energies. As they were lambasted two weeks ago, so to was the CD down almost 500 points in a week from 9850 to 9375. As equities and most commodities reversed course last week the Canadian shot all the way to 9941 yesterday morning before sinking to 9780 after the German chancellor’s words. I like a sell at 9845.
US Dollar: As most other currencies pushed slightly over their resistance the Dollar fell a bit through its 7740 support down to 7670. It has recovered to 7745 as of this writing and I expect another test of 7840 soon and possibly 7940 by the end of the week.
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: Europe goes up. Notes and bonds come down. Europe comes down, notes and bonds go up. I always like to keep things simple. A buy at 12716 from the current 12800 may pay off as that was the breakout point to the upside and should provide support. Last week’s words still apply as the ten year notes came to 127.16 last Wednesday and have risen all the way back to 12824 now. Why The opening commentary from last week for ten years explains it simply. Europe comes down notes and bonds go up. I would expect at least 13000 this week and possibly 13016 if momentum builds.
S&P 500: The December S&P came down to its August lows when it flushed to 1068 last week. It has moved back to 1190 now and so it needs to close above 1190 for some additional upside to 1210-1215. Use those numbers for now and don’t fear a sell or purchase of a put option if we see 1210. If you did this one futures did see a high last week at 1220 and overnight Sunday we saw 1230 as the equities did exactly as the currencies to rise a bit more than the resistance. The pain was short lived however and the December S&P has fallen to 1192 as of this writing. I look for at least 1160 this week and possibly 1110 by later next week.
Dow: The December Dow futures have seen a range from 10400 with last week’s break to 11650 from a few weeks ago. Today we are back near 11400 and seem to be taking aim at recent highs. If Europe remains calm for a bit I think we could easily see 11650 but not much more so, as with the S&P, I would not fear a sell at those levels. This one was on the money as the December Dow pushed to 11658 and is back at 11320 as of this writing. I look for at least 10900 soon and possibly 10400 by early next week.
Energies: I think we can also use last week’s words for bonds and notes here. Europe comes down, energies come down. Europe goes up, energies go up.
Heating Oil: November heating oil exceeded most upper resistance levels last week, soaring to 310 from lows at 270 two weeks ago. We have come back down to 302 as of this writing and further weakness to at least 288 is likely this week and 282, if not 278 by early next week.
Unleaded (RBOB) Gas: November gas also flew higher last week up to 287 and is back at 277 now. Markets frequently focus on a reason to rise or fall and Europe is the catalyst de jour’ recently. I look for 262 this week and possibly 254 by early next week.
Crude Oil: November crude dropped to the support at $75 and has recovered back to $86 along with most other futures rising. We are likely to see $88 and it is painfully obvious that fundamentally futures are too high and other factors are in control. We may look at a short if $88 cannot be penetrated. Last week’s words held up here as crude did not overshoot its upper objectives and reached a high at 88.18 for the week. We are back at 86.50 now and $83 seems to be a given this week. If $83 doesn’t stem the tide, $80 will come quickly by early next week.
Natural Gas: As I have mentioned for some time now, this is the one market in the energy sector which has an ACTUAL reason to rise. It is about 1.00 off of lows not seen for some time as we enter into what is forecast to be a brutal Midwest winter. November futures broke below 3.50 last week, recovered to 3.77 last Friday and are holding near 3.69 as of this writing. We may see another test of 3.60 but I do expect to see seasonal tendencies kick in and this market to diverge from the others going forward.
Grains: I would like to say that grains continuing to show good demand and being well off of their highs from a little more than a month ago would and should lend support, but as with all commodities now, they are taking their cue from whatever news comes from Europe that day or that week. To put it simply once again, Europe goes up, grains go up. Europe comes down, grains come down.
Corn: Last Tuesday which was the day before the major USDA report corn pushed from 6.05 to 6.45 or its limit of 40 cents higher. The report showed a lower per bushel yield and a lower carryover of stocks on hand. However, futures could not push past 6.55 on this news and wallowed from 6.35 to 6.50 until yesterday’s news that Europe’s measures may very well not stop the hemorrhaging there. We may see support at 6.25 from the current 6.40 but outside markets are in control here and confidence must return or we may slide back to 6.05 once again. On top a rise past 6.55 means Europe news has been put on the backburner and a further advance to 6.75 is very possible.
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. The 315 area may prove supportive and if bested a further slide to 308 – 310 is likely. On top a push and close above 330 generates potential further upside to 342.
Soy Meal: December meal bounced off of 300 twice last week and as with most futures, it has rebounded very nicely. The breakout point lower was at 330 so that will be the first target on top. If the USDA numbers are friendly for beans and 330 is bested, a run to at least 342 and possibly 352 is possible. Last week’s words came close as the December meal made it to 330.5 after the numbers and has pulled back to 322 right now. The 315 area may prove supportive and if bested a further slide to 308 – 310 is likely. On top a push and close above 330 generates potential further upside to 342.
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.
Wheat: A higher carryover from the USDA numbers put pressure on wheat last week as it fell hard from 6.67 to the current 6.25. Dry conditions in the US Northwest may give support unless of course the main market mover right now, economic conditions in Europe worsen. If so, a test of recent lows from 5.95 to 6.00 is possible. On top a close over 6.50 starts another test of stronger resistance at 6.70.
Softs: OK I am starting to bore myself now but the fact is that the markets were crushed when Greece seemed on the verge of collapse and most have come back nicely as Europe used a stronger butterfly bandage this time meaning it will hold a little longer before it pops off. These were last week’s words and guess what. I’m still boring myself and the band aid apparently popped off. It is much more enlightening to discuss each market’s own set of technical and fundamental factors but unfortunately all markets, including US equities do not make a move without seeing the latest news from across the pond that day.
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.If beaten 2480 would be the next target. On top a close above 2688 is needed for additional upside to 2740, then 2780.
Sugar: March sugar easily soared past 2720 resistance last week to make it all the way to 2840 which was a much tougher area to break through. I would wait for a pull back to at least 2660 from the current 2800 to reenter the long side.
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.
Orange Juice: After rallying from 149 to 174 within two weeks the November juice has moved into overbought territory. This is especially so given the tepid demand recently. Florida saw no major hurricane action and is still about 2 months from potential frost season so I do expect another test of 150 soon from the current 170. In fact, a sell at 17000 risking over 18000 may pay off for a drop to 145 – 149.
Coffee: The move to 220 a few weeks ago pushed coffee into quite oversold conditions. Fundamentals and demand never warranted a trade above 290 as we saw less than two months ago and probably not even the 266 from mid September. I look for a range now with 220 holding down below while 242 caps the top. If 242 is bested a rise to a chart gap for December futures at 252 would be the next area to watch.
Rice: November rice was not immune and crashed from 1850 to 1603 in less than 2 weeks. If we see additional weakness down to 1550-1570, I’d be a buyer. Ask and you shall receive. November rice reached 1551 yesterday and 1555 today and has already climbed sharply higher all the way to 1597. 1550 is now support and I look for additional strength to at least 1670 this week. Oh my, a market which actually has followed a technical and fundamental pattern. We did see 1680 on Monday and futures may now pull back along with the rest. 1600 will now be supportive from the current 1660 and if 1600 doesn’t hold, another test of 1550 is likely.
Livestock: This group somewhat broke tradition and actually managed to climb a bit while most other sectors were being pummeled. The words from last time can be repeated as hogs and cattle both moved to recent highs last week.
Live Cattle: December cattle advanced from 11550 to 12375 in a mere 6 sessions, aided by a surprise bullish cattle on feed report. The 12000 level is supportive and if it continues to hold, futures may test 12500 from the current 12175. If 12000 is broken however 11800 offers some help but 11550 would be a decent possibility. Last week’s words still apply as December futures pushed to 12450 and closed at 12410 on Monday. The old highs from April above 12600 would be the next target due to a bullish cattle on feed report last month and surprisingly good demand which have sustained the push higher. Use a correction to 12200 to consider a buy.
Feeder Cattle: The contract high for November feeders is 14600 and this market is trying hard to get there. We saw 14525 Monday and I believe we will see a push to 14600 and if beaten further strength to 14800 to clean out most short positions is a possibility. Since this group seems to be the most immune to the European situation, it may really soar if Europe improves.
Lean Hogs: December hogs have risen from a low at 8187 on September 27 to Monday’s high at 9112. It is said that pork exports have risen 43 % since last year and that along with futures trading to 10400 for prior month contracts gives us a base line to guess at further upside. I think 9200 is a given and if beaten 9400 will come quickly. Use a correction to 8875 to consider a long.
Questions Ask William Frejlich today at 312-264-4356
