Will Valentine's Day Spoil Cocoa Futures?

Cocoa Futures

Cocoa futures in the May contract settled last Friday in New York at 2472 while currently trading at 2450, down slightly for the week still stuck in an 8-week consolidation pattern looking to break out on some from fresh fundamental news.

Fundamentally speaking, the concern that global cocoa demand will remain weak despite the Ivory Coast government's action to cut prices to boost sales.

Global chocolate demand concerns are negative for cocoa prices. Concerns have increased that Valentine's Day chocolate sales could fall from last year as tighter social distancing rules from the Covid pandemic delay a recovery in chocolate demand.

Cocoa prices are trading slightly below their 20 and 100-day moving average as the trend has turned to the downside. I think prices are just digesting the massive run up in price that we witnessed in November. Cocoa and coffee are the weakest commodities unable to join the rest of the agricultural markets to the upside, so be patient and wait for a trend to develop as trading in a choppy market is extremely difficult over time, so sit on the sidelines.

TREND: MIXED
CHART STRUCTURE: SOLID
VOLATILITY: AVERAGE

S&P 500 Futures

The S&P 500 in the March contract is currently trading lower by 4 points at 3908 after settling last Friday in Chicago at 3880, continuing its bullish momentum. This is a strong demand market as investors continue to put money into the entire equity market, especially the Nasdaq-100, which is at an all-time high once again.

The S&P 500 is trading far above its 20 and 100-day moving average as the trend is very strong to the upside. I've talked about it in many previous blogs; I think prices will hit 4000 level in the next couple of weeks as I see absolutely no reason to be short due to the fact of massive stimulus packages, which means that money has to go somewhere and it's going into the S&P 500.

Fundamentally speaking, better-than-expected company quarterly earnings results are a supportive factor for equities as 81% of the S&P 500 companies that have reported quarterly earnings results through Wednesday have exceeded estimates. The pandemic in the U.S. continues to ease, which is positive for the economy after 95,862 new Covid infections were reported in the U.S. on Wednesday, the fewest in 3-1/4 months. The volatility remains average even though we are at all-time highs as we continually grind higher daily. The technology sector is absolutely on fire with all of the new inventions coupled with the fact that the car industry is on fire due to autonomous driving and lidar inventions.

TREND: HIGHER
CHART STRUCTURE: SOLID
VOLATILITY: AVERAGE

Sugar Futures

Sugar futures in the March contract is currently trading at 16.40 a pound. I have been recommending a bullish position from the 15.88 level. It is time to roll over due to expiration and enter into the May contract, which is currently trading at 15.66 as the bullish trend continues, in my opinion.

If you take the May recommendation, place the stop-loss at 14.91 as an exit strategy. The chart structure is excellent at the current time as the volatility is relatively low even at these elevated prices. For the bullish momentum to continue, prices have to break the February 10th high of 16.12, in my opinion. That could happen next week as we are looking for some fresh fundamental news to push prices higher as I still believe that the 20 level is in the cards in the coming weeks ahead.

If you look at the daily chart, the uptrend line remains intact as prices are still trading above their 20 and 100-day moving average, which tells you that the trend is to the upside, so stay long. I see no reason to be short as this commodity is riding the crude oil market higher, which has hit an 11 month high.

TREND: HIGHER
CHART STRUCTURE: SOLID
VOLATILITY: AVERAGE

Coffee Futures

Coffee futures in the March contract is trading lower for the 5th consecutive session, currently trading at 120.50 a pound. I have been recommending a position from the 127 level as it is time to roll over into the May contract, which is currently trading at 122.30 as prices are right near a 4 week low.

In many previous blogs, I have talked about a counter-trend trade, which is probably the weakest commodity out of all sectors and unable to rally. Fundamentally speaking, prices are under pressure on concern that weak demand is boosting coffee stockpiles after ICE arabica coffee inventories on Wednesday rose to an 8-month high of 1.688 mln bags. Arabica coffee prices are also being undercut by easing dry conditions in Brazil. Somar Meteorlogia reported that rainfall in Minas Gerais, Brazil's largest arabica-coffee growing region, was 78.5 mm in the past week, or 160% of the historical average.

If you take the trade place, the stop loss under the contract low, which was hit on November 4th at 106.55. You have to remember this trade should only be taken with large trading accounts as the risk is extremely high. I wanted to trade some room as, eventually, it will join the rest of the agricultural sector.

At the current time, prices are trading below their 20 and 100-day moving average as the trend has turned to the downside as prices are right near major support around the 120 level as the volatility remains low. However, I don't think that situation is going to last much longer, so stay long.

TREND: LOWER
CHART STRUCTURE: SOLID
VOLATILITY: AVERAGE

Copper Futures

Copper futures in the March contract has traded higher 5 out of the last 6 trading sessions, hitting a 9-year high, continuing its bullish momentum as strong demand continues to fuel prices higher.

If you have been following my previous blogs, you understand that I have been bullish copper for months. I think the 4.00 level will be touched soon as I see absolutely no reason to short this commodity as the housing market remains on fire, and that situation is not going to change anytime soon.

Copper prices settled last Friday in New York at 3.6260 a pound while currently trading at 3.700, up significantly for the trading week with the next major level of resistance at 3.90, which I think will be touched next week as a top has not been formed in my opinion. Copper prices are trading far above their 20 and 100-day moving average as this is a very strong trend to the upside. We consolidated over the last couple of months before breaking out sharply this week as the volatility certainly will increase as, historically speaking, copper can have tremendous price swings daily, so stay long as there is still room to run to the upside.

Additional stimulus packages from the federal government should inflate copper and all asset prices. That situation is getting out of control as the amount of money in the system is incredible and needs a place to go, and copper is one of the favorite commodities at this time.

TREND: HIGHER
CHART STRUCTURE: SOLID
VOLATILITY: HIGH

Soybean Futures

Soybean futures in the March contract is trading higher for the second consecutive session, experiencing wild volatility over the last several weeks. Prices settled last Friday in Chicago at 13.66 a bushel while currently trading at 13.68, basically unchanged, digesting the large gains we have witnessed over the last couple of months.

I'm not involved, but I do believe prices look a little choppy in my opinion, as I think we might chop around for the next couple of months until spring planting takes place. I am advising farmer clients to sell some of their old crop soybeans as these prices have rallied about $5 over the last 6 months, which is a terrific thing to see as the U.S. farming community are reaping the rewards because of much higher prices.

Soybean prices are trading right at their 20-day but still above their 100-day moving average as the trend has turned mixed as prices have gone sideways over the last month, topping-out slightly above the $14 level as I will sit on the sidelines and wait for another trend to develop. Traders are keeping a close eye on Brazil's weather conditions, which have improved over the last couple of weeks, receiving some beneficial rain. Still, it will not be a record crop as the fundamental picture for this commodity certainly has changed, and as I've stated in many previous blogs, if we experience any type of drought or flood, this spring prices could hit all-time highs.

TREND: HIGHER - MIXED
CHART STRUCTURE: SOLID
VOLATILITY: HIGH

Live Cattle Futures

Live cattle futures in the April contract is currently trading higher by 75 points at 123.87 after settling last Friday in Chicago at 123.70, basically unchanged as prices are still hovering right near a 1-year high.

I have been recommending a bullish position from the 122 level, and if you took that trade, continue to place the stop loss under the 10-day low, which now stands at 121.25 as an exit strategy. The chart structure is outstanding; therefore, the monetary risk is relatively low for such a historically volatile commodity. For the bullish momentum to continue, prices have to break the February 9th high of 125.67, in my opinion, as that could happen in next week's trade as the livestock sector has entered into bullish trends as hogs move higher daily. I still think cattle prices, historically speaking, look cheap.

Cattle is trading far above its 20 and 100-day moving average, telling you that the trend is to the upside. If the 126 level is broken, I think we could head all the way up to the 130 level rather quickly, as the volatility certainly should increase in the next couple of weeks due to the freezing weather that we are experiencing in the midwestern part of the United States, so stay long as I do not think a top has been formed at this time.

TREND: HIGHER
CHART STRUCTURE: SOLID
VOLATILITY: AVERAGE

Corn Futures

Corn futures in the May contract is currently trading lower by 2 cents at 5.38 a bushel after settling last Friday in Chicago at 5.47, down about $0.10 for the trading week as prices are right near a 3 week low.

At the current time, I'm not involved. Still, I think prices are a little extended to the upside. I am advising farmer clients to sell some old crop corn at these elevated prices as we have experienced a terrific rally over the last couple of months, and there's no reason to get greedy. A spike top may have been created on February 9th at 5.72 as prices dropped rather dramatically. Still, I think the upside is limited at these elevated price levels as I think we will chop around until spring planting, which is still several months away as I remain neutral at this time.

Corn prices are now trading below their 20-day moving average for the first time in months, but still far above their 100-day as the trend remains mixed. This commodity has also been following crude oil, which is at an 11 month high as corn is used as an ethanol product. I think prices may have gone up too fast too quickly, so sit on the sidelines and wait for the chart structure to improve, therefore lowering the monetary risk. I believe the downside is limited as the entire grain market is experiencing a secular bullish trend, which could explode this summer if we have any type of weather problem such as a drought.

TREND: HIGHER - MIXED
CHART STRUCTURE: SOLID
VOLATILITY: HIGH

What do I mean when I talk about chart structure and why do I think it’s so important when deciding to enter or exit a trade? 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.

If you are looking for a futures broker feel free to contact Michael Seery at 630-408-3325 and he will be more than happy to help you with your trading or visit www.seeryfutures.com

Michael Seery, President
Seery Futures
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