A positive monthly unemployment number which added 271,000 jobs sent many commodities lower on Friday all due to a very strong U.S dollar. So we have asked our trading partner Mike Seery back to give our us a recap of this weeks trading and help us put together a plan for the upcoming week.
Natural gas futures in the December contract settled last Friday at 2.32 while currently trading at 2.38 as I’ve been recommending a short position over the last several months and if you took that trade continue to place your stop loss above the 10 day high which has been lowered to 2.42 as the trend may have bottomed out in the short term. If you take a look at the daily chart there is a price gap at 2.46 as it looks to me that prices want to fill that gap as weather in the Midwest has put pressure on prices in the short term as we are way above normal average temperatures therefore lowering demand and therefore putting pressure on prices. Natural gas prices are still trading below their 20 and 100 day moving average telling you that the short term trend is lower as many of the commodity markets were lower once again today due to a strong U.S dollar but natural gas is a domestic product which is not influenced by the dollar but by weather conditions as we are starting to enter the winter months, but continue to place your stop at the proper level and if we are stopped out look at other markets that are beginning to trend as this trade worked very well.
Chart Structure: Outstanding
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Gold futures in the December contract settled last Friday in New York at 1,141 while currently trading at 1,087 an ounce down $17 this Friday afternoon all due to a very strong U.S dollar which is up over 100 points today on a positive monthly unemployment number which added 271,000 jobs sending many commodities lower. Gold prices are trading below their 20 and 100 day moving average telling you that the short-term trend is to the downside as prices hit a three week low; however the chart structure is terrible as prices have collapsed over the last couple weeks as I’m sitting on the sidelines waiting for the risk/reward to improve. The next major level of support is at 1,080 which is the contract low as you have to think that gold prices are headed lower as I’m currently bullish the stock market and I do believe that will continue to move higher taking money out of the precious metals therefore continuing to put pressure on prices as I see no reason to own gold. The unemployment rate is 5% as investors are now thinking that the Federal Reserve will raise interest rates which are another negative influence towards gold and commodity prices.
Chart Structure: Poor
Silver futures are trading below their 20 and 100 day moving average settling last Friday at 15.56 while currently trading at 14.77 an ounce hitting a 4 week low as the trend in silver is to the downside, however it also has poor chart structure so I’m sitting on the sidelines at the current time. The next level of support in silver is 14/14.50 as I do think prices are headed lower due to a strong U.S dollar which should continue to move higher for the rest of 2015 in my opinion as the commodity markets look to head lower. At the current time I’m recommending a short position in copper as I think silver and gold will continue to put pressure on copper as I see no reason to own the precious metals. Silver prices have been very choppy over the last several months with many false breakouts so be patient as the risk/reward is not in your favor presently, but I’m definitely not recommending any type of bullish position as the path of least resistance is to the downside.
Chart Structure: Poor
Copper futures in the December contract settled last Friday in New York at 231.75 a pound while currently trading at 224.40 down about 700 points for the trading week as I have been recommending a short position from around 231 and if you took that trade continue to place your stop loss above the 10 day high which currently stands at 2.38 as the chart structure will tighten up in next week’s trade. Copper futures are trading below their 20 and 100 day moving average telling you that the short-term trend is to the downside hitting a five week low with the next major level of resistance at 2.20/2.22 and if that level is broken I think prices could test 2.00 in the next several weeks as the U.S dollar continues to put pressure on many commodity prices including copper. The precious metals continued their bearish momentum with gold and silver sharply lower this week keeping a lid on copper prices. I think this trend is just beginning so take advantage of any price rally as I think lower prices are ahead as we could possibly be adding to this position as the risk/reward is in your favor in my opinion as copper is a very large contract which can experience huge volatility with high risk which is what we look for as a trader as long as you risk 2% of your account balance on any given trade. Copper has traded lower for the last 3 trading sessions as volatility is relatively high as the long term trend line is still intact so continue to play this to the downside.
Chart Structure: Solid
Corn futures in the December contract settled last Friday in Chicago at 3.82 a bushel while currently trading at 3.72 down $.10 for the trading week as I’ve been recommending a short position from around 3.79 if you took the original trade continue to place your stop loss above the 10 day high which stands at 3.88 as the chart structure will start to improve in next week’s trade. Corn prices are trading below their 20 and 100 day moving average telling you that the trend is to the downside with the next major level of support at the contract low of 3.60 which could be tested next week off of the USDA crop report which should send high volatility back into this market. Volatility in corn at the current time is relatively low as I expect that to continue until next spring as there is very little fundamental news to put high volatility into the market, but I do think the trend will continue to the downside as expectations are of higher production numbers in the upcoming report and extremely high carryover numbers which should keep a lid on prices. Corn prices hit an 8 week low as the one reason I took this trade was the fact of excellent chart structure at the time of the recommendation with the original risk of 8 cents or $400 as I still see lower prices ahead due to a very strong U.S dollar which is up sharply this Friday afternoon.
Chart Structure: Solid
What does Mike mean when he talks about chart structure and why does he think it’s so important when deciding to enter or exit a trade?
Mike tells us "I define chart structure as a slow grinding up or down trend with low volatility and no chart gaps. Many of the great trends that develop have very good chart structure with many low percentage daily moves over a course of at least 4 weeks thus allowing you to enter a market allowing you to place a stop loss relatively close due to small moves thus reducing risk. Charts that have violent up and down swings are not considered to have solid chart structure as I like to place my stops at 10 day highs or 10 day lows and if the charts have a tight pattern that will allow the trader to minimize risk which is what trading is all about and if the chart has big swings your stop will be further away allowing the possibility of larger monetary loss."
Mike has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. Get more of Mike's calls on this Weeks Commodity Markets
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