Crude oil futures in the December contract are trading below its 20 and 100 day moving average hitting an eight week low in Tuesdays trade only to rebound in Wednesdays trade off of a bullish API report as prices remain choppy as I’m currently sitting on the sidelines just like I have been in many different markets as there are very few trends that are currently developing.
Crude oil prices settled last Friday in New York at 44.60 while currently trading at 46.18 slightly higher for the trading week as the U.S dollar is at an eight week high putting pressure on many commodities especially the precious metals over the last several days, but it looks to me that crude oil prices are stabilizing around the mid-40 level.
Gasoline prices have fallen dramatically over the last several months and has put pressure on crude oil prices as I paid $2.14 in the suburb of Chicago yesterday for gas which was the lowest price since 2009 but at the current time this market remains choppy, but the chart structure still remains very solid as there could be a possible trade in the next week or two.
Trend: Mixed
Chart Structure: Solid
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Natural gas futures in the December contract are trading lower for the 8th consecutive trading session finishing down 25 points for the trading week hitting a 3 ½ year low currently trading at 2.25 as I’ve been recommending a short position for the last eight weeks and if you took that trade congratulations as this market has completely collapsed due to the fact of extremely warm weather in the Midwestern part of the United States. Natural gas prices are trading far below their 20 and 100 day moving average telling you that the trend is sharply lower as the November contract right before expiration actually traded below 2.00 as the next level of support on the December contract is this Fridays low of 2.18 and if that is broken I think we can retest 2.00 once again as the forecast of warmer weather continues.
The chart structure will start to improve dramatically in Wednesdays trade as the 10 day high currently stands at 2.70 but that will be lowered on a daily basis so be patient as the risk will come down so accept the monetary risk. Many of the commodity markets are dictated by a strong or weak U.S dollar, but natural gas is a domestic product as price fluctuations depend on weather conditions as the weather in the Midwest has been extremely warm therefore depressing demand lowering prices as well so remain short in my opinion, however if you have missed this trade move on as you have missed the boat.
Trend: Lower
Chart Structure: Poor
Silver futures in the December contract settled the trading week on a sour note closing around 15.55 an ounce unchanged this Friday afternoon after hitting a 4 month high in Wednesdays trade, but then the Federal Reserve stated that they will possibly raise interest rates in the month of December sending silver prices sharply lower hitting a three week low in today’s trade.
I was recommending a long position from around 16.25 while getting stopped out around 15.60 taking a small loss as I can’t remember the last time the Federal Reserve actually benefited my trades which is very frustrating as I just wish they would raise interest rates and get it over with.
At the current time I’m sitting on the sidelines waiting for another trend to develop as gold prices look very weak in my opinion as I’m sitting on the sidelines in that market as well while focusing at other markets that are beginning to trend as silver prices remain extremely choppy despite the recent bullish momentum.
Ttend: Mixed
Chart Structure: Solid
The U.S dollar is trading above its 20 and 100 day moving average in a very volatile trading week surging higher in Wednesdays trade as the Federal Reserve stated that they might possibly raise interest rates in the month of December, however prices have fallen back 100 points in the last two trading days finishing down on the week by about 50 points. The dollar hit a 10 week high in Wednesday’s trade as I’ve been sitting on the sidelines in this market as well as this remains extremely choppy as the 10 day low is over 200 points away therefore not meeting my risk criteria.
The problem with many of the commodity markets at the current time is that they remain choppy as the U.S dollar is sharply higher one day and then sharply lower the next day so be patient. I’m still looking at a possible bullish position but the chart structure has to improve and that’s going to take another five days so keep a close eye on this market to the upside, but at this point in time look at other markets that are beginning to trend. One bullish fundamental factor that could prop up the dollar is fact that the U.S will raise interest rates it’s just a matter of time while Europe and many other foreign countries continue to lower interest rates.
Trend: Higher - Mixed
Chart Structure: Poor
Coffee futures in the December contract settled last Friday in New York at 118.45 a pound while currently trading at 121.15 as I’m currently sitting on the sidelines waiting for another trend to develop. I was recommending a bullish position several weeks ago when prices traded as high as 138 on concerns about dry weather in Brazil but adequate rains hit key coffee growing regions sending prices to today’s levels.
Major support in coffee is at the contract low around 115 which was hit in the month of September as I think I will be on the sidelines for quite some time as the chart structure is very poor which means that the monetary risk is too high to enter into the trade so look at other markets that are beginning to trend. Volatility in coffee is relatively high as that’s not surprising as coffee historically speaking is one of the most volatile commodities as in 2014 a drought hit Brazil sending prices up about 80% very quickly, but at the current time there are no weather problems existing.
In my opinion I do believe coffee prices are bottoming out as it would surprise me if we headed much lower and if you are a producer I would still be buying at today’s prices as I think the downside is limited.
Trend: Mixed - Lower
Chart Structure: Poor
Sugar futures in the March contract settled last Friday in New York at 14.28 a pound while currently trading at 14.68 up 40 points for the trading week continuing its bullish momentum hitting a 5 1/2 month high. Sugar prices are trading far above their 20 and 100 day moving average telling you that the short term trend is to the upside as I have missed this trade due to the fact that the chart structure was poor at the time of the breakout, but my recommendation would be if you are currently long a futures contract place your stop loss below the 10 day low which stands at 13.94 as the chart structure will start to improve in next week’s trade therefore lowering monetary risk.
The next major level of resistance is at 15.00 as prices bottomed out around 11.50 in September due to less production coming out of Brazil due to heavy rains as well as strong demand changing the supply/demand table very quickly as we will not produce a record crop in 2016 like we have over the last several growing seasons.
As a trader you must have an exit strategy as I had many short positions in sugar over the last year, however I always use the 10 day high if I am short as an exit strategy because holding on and never getting out is a very dangerous way to trade because commodity prices can change very quickly.
Trend: Higher
Chart Structure: Improving
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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