We’ve asked Michael Seery of SEERYFUTURES.COM to give our INO readers a weekly recap of the Futures market. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.
Michael frequently appears on multiple business networks including Bloomberg news, Fox Business, CNBC Worldwide, CNN Business, and Bloomberg TV. He is also a guest on First Business, which is a national and internationally syndicated business show.
Livestock Futures--- Livestock futures are under pressure today with live cattle in the April contract down another 230 points today trading at 125.70 a pound hitting a fresh 11month low trading far below its 20 and 100 day moving average and now looking to retest support at 125 which was hit on 4/27/12 and in my opinion will break those lows and possibly head down to 120 a pound. Feeder cattle prices have been plummeting in recent weeks down another 220 points in the May contract at 141.00 a pound continuing its bear market hitting a 1 year low as traders are thinking prices are still historically too high. Lean hog futures for the June contract are down 130 points 89.25 trading lower also hitting an 9 month low now looking at support around the 86-88 level with traders selling livestock futures in recent weeks and in my opinion I do believe prices are headed lower but remember to place a stop loss in case the trend turns around trying to minimize your risk because there is extreme volatility. Live cattle prices in my opinion can head all the way back down the low 120s with feeder cattle going on way down possibly 135 a pound here in the next couple of weeks. The commodity markets in recent weeks except for the energy sector have been continuing to the downside with grains, softs, precious metals, and the livestock sector lower almost every single day. Last year many of the commodity markets bottomed after steep declines in the early spring bottoming around mid-June and then that’s when the drought started here in the Midwest when prices of most of the commodities skyrocketed to the upside and in my opinion it starting to look like the same type of pattern which is lower in February ,March, and April and then possibly bottoming out on the fact that there is demand for these products locally and around the world and with easy monetary policies throughout the world commodity prices have a floor in my opinion on how low they can go. TREND: LOWER –CHART STRUCTURE: EXCELLENT
Sugar Futures--- Sugar futures in New York are up 5 points trading higher for the 2nd consecutive trading session at 18.89 hitting an 8 week high selling off from session highs blamed on profit taking with excellent chart structure breaking their 100 day moving average at 19.00 and I still remain bullish with news coming out this week reported by the Wall Street Journal that the USDA may bailout many U.S companies that have borrowed $862 million to finance their sugar purchases but some of the borrowers are underwater on their loans because of a nearly at 20% slide in domestic sugar prices so the USDA is likely to purchase 400,000 tons of sugar to help prevent loan defaults trying to prop up prices. The trend in sugar in the last several weeks has been higher so this might be the classic buy the rumor and sell the fact but with the USDA coming into a sugar bailout I am now more secure in stating that sugar prices have bottomed in the short term remembering that sugar prices just a year ago were at about $.25 a pound and have dropped pretty significantly but historically speaking are still relatively expensive if you go back to 2005 sugar prices were trading at 5.00 a pound but the U.S government will not allow anybody to lose money including banks and candy companies. Sugar prices have been unable to break 19.00 which is right at the 100 day moving average and in my opinion if that level is broken which I think it as a chance to go higher here in the next couple of days you will see a lot of buy stops which could propel prices to 19.50 here in the short term and now the fact that the U.S government is trying to prop up sugar prices that tells me you want to be on that side just like the U.S has pushed up stock prices now it’s starting to try to push up sugar prices which is ridiculous in my opinion. TREND: HIGHER –CHART STRUCTURE: EXCELLENT
Cotton Futures-- Cotton futures in the May contract continue to make new highs today up another 185 points trading at 92.75 up nearly 500 points in the last 2 trading sessions with yesterday’s great export sales and tight supplies pushing prices to 1 year highs and as I’ve stated in many previous blogs I believe cotton prices are headed higher possibly breaking the 100 level here by spring or early summer all due to the fact of less acreage being planted with great chart structure continuing to grind higher and remembering the fact that in 2010 cotton prices traded as high as 175 which were all-time highs since the Civil War and I’m not saying that prices will retest those levels but prices in my opinion cotton is headed higher. Cotton futures for the May delivery are trading far above their 20 and 100 day moving average which is always a very solid trend indicator in my opinion hitting a 1 year high with the next resistance at 100 but at this point I would start to offset some of your long positions just to lock in some great profits in recent days but I do believe they will head higher unless grain prices completely fall out of bed which could rise the acres in cotton with planting intentions coming out at the end of the month which will be interesting to see what the actual planted acres will be and as I’ve also stated in previous blogs I’m bullish the old crop cotton all due to major demand coming out of China. TREND: HIGHER –CHART STRUCTURE: EXCELLENT
Coffee Futures--- Coffee futures hit a fresh 2 1/2 year low this week breaking contract lows and are now 35% from their highs that were just hit last year on 4/4/12 at 205.80 currently trading at 137.50 a pound down for the 5th consecutive trading session after settling last Friday at 141.25 closing 400 points lower for the trading week. Coffee is still trading far below its 20 and 100 day moving average with excellent chart structure allowing you place tight stops in case you are wrong on the trade minimizing risk and at this point when contract lows are broken you have to think that the trend will continue with the possibility of coffee prices going as low as 130 here in the next couple of weeks due to the fact of a large harvest in Central America and Brazil putting pressure on prices in the short term. The rumors of rust on the leaves and trees in Central America possibly affecting 30% of the crop next year is not supporting the price at this time because that is strictly speculation and it has not actually happened so prices in the short term still look reasonably weak. I have been wrong on the coffee market because I thought we possibly bottomed in the last couple of weeks but sometimes you just have to admit you are wrong and you get out minimizing risk and at this point the trend is to the downside. TREND: LOWER –CHART STRUCTURE: EXCELLENT
5 Common Mistakes Of Commodity Trading
1—I will start with the number 1 answer first because if you follow this rule you will have a chance of being successful over the course of time, if you don’t follow this rule you will be sure to lose your money quickly. This rule is simple Do Not OVERTRADE EVER for this is an easy way to lose all your capital quickly. My definition of over trading is risking too much money on any given trade, for example if you are trading a $100,000 dollar account and you place a gold trade today you should limit your loses to 2% of the account value which in this case is $2,000 which allows you to be wrong on many trades and still be around to play another day. In futures and option trading you will have losing trades that is for certain so make sure you manage those loses and move on to another trade.
2—Trade with the short term trend, as the saying goes in futures trading the trend is your friend. Sometimes you will be a market that is trending higher and then has a false breakout to the upside and then suddenly sells off causing you a 2% loss on your equity and you say to yourself that was a bad trade and should I do something different on my next trade. If it was up to me I would continue to buy strength and sell weakness because in the long run commodity trading is about percentages of success in the long run, and if you go with the path of least resistance more often than not you will have the probabilities of success on your side. I define a trend as a commodity hitting a 20 day high or low as a trendy market, if the market is in a consolidation stay away from it and find something that is trending up or down and go in that direction remembering the money management rules of 2% maximum loss if you are wrong.
3—The next rule is extremely important and I witness it being abused constantly creating tremendous loses that are sometimes difficult to come back from. Never add to a losing position because if the position continues to go against you and now you have added even more contracts which are all losing money your account will suffer loses much more than 2% and in some case adding positions and never getting out of a losing trade has wiped peoples trading accounts down to zero because of 1 or 2 bad trades. Remember always play for another day you will have losing trades and the good traders manage loses and move on to the next possible trade.
4—If you follow the first 3 rules than this rule will never apply to you because if you are not over trading and risking more than 2% on any given trade. Never answer a margin call because you are probably overtrading and most likely the position is going against you and probably have lost much more than 2% on that trade. Never allow this to happen to you because you always want to have sufficient margin in your trading account just in case the exchange raises margin and that will not force you out of the position. A great rule is to keep 50% of your total portfolio in cash and the other 50% in trades that way if something crazy happens and it does sometimes this helps in managing risk in a huge way.
5—The last rule is very simple and it states that one must have a game plan and use it consistently even during periods of loses which will happen to you over the course of time. Do not suddenly start to risk 5-10% because you have to catch up and get your loses back quickly, stick with the game plan and over the course of time this will help improve your percentages of success. If you have an unproven system that has not been tested then I would look to paper trade the account until you see success and you are comfortable with loses and daily volatility.
If you are looking for a futures broker feel free to contact Michael Seery at 800-615-7649 and he will be more than happy to help you with your trading or visit www.seeryfutures.com
There is a substantial risk of loss in futures, futures option and forex trading. Furthermore, Seery Futures is not responsible for the accuracy of the information contained on linked sites. Trading futures and options is Not appropriate for every investor.
Michael Seery, President
Phone # (800) 615-7649