Orange Juice Futures
Orange juice futures in the May contract is currently trading higher by 20 points at 111.20 in a very quiet non-volatile trading manor this Thursday in New York.
At the present time, volatility has come to a crawl because prices historically speaking are depressed as we continually bounce off the critical 110 level, as it certainly looks to me that a bottoming out pattern is at hand. I have been recommending a bullish position from around the 110 level. If you took that trade, continue to place the stop loss under the multi-year low standing at 90 as an exit strategy as we're awaiting some fresh fundamental news to put some volatility back into this commodity.
Juice prices have gone nowhere over the last six weeks, continually bouncing around as prices are still trading below their 20 and 100-day moving average as the trend is to the downside as this was a counter-trend recommendation. I still believe the risk/reward is in your favor to the upside as the downside in price is limited, in my opinion.
I also have bullish recommendations in coffee and cotton as I think the commodity market downturn over the last several weeks is overextended. I think we will start to rally, especially with all the quantitative easing that the federal government continues to create, which should be a supportive factor just like it was in 2011, so stay long.
TREND: MIXED - LOWER
CHART STRUCTURE: EXCELLENT
Sugar futures in the May contract are currently trading up 12 points at 14.89 a pound as prices continue their short-term bearish momentum this week as we're hovering right near a three-month low.
I'm sitting on the sidelines looking to be a buyer soon. I think the downside will be limited at these depressed prices, with the major support standing at 14.50, which could be touched this week. You also have to remember we are closed on Friday due to the Good Friday holiday as it will be a shortened trading week.
Sugar is trading below its 20 and 100-day moving average as the trend is to the downside. However, the risk/reward is increasing to take a bullish position soon as I would love to see a little further weakness as I will be recommending a bullish counter-trend trade.
Fundamentally speaking, sugar prices remain under pressure from demand concerns and abundant supplies. Brazil reported a record of 3,650 COVID deaths on Friday, which may prompt the government to extend lockdowns. That would crimp fuel demand and force Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.
Signs of abundant global sugar production are negative for prices. Unica reported last Thursday that Brazil's Center-South sugar production from Oct through mid-Mar was up +44% y/y to 38.287 MMT. The U.S. dollar is continuing its bullish momentum and is right near a 6-month high. That has been a negative factor towards all commodities coupled with the fact that the 10-year note is also yielding 1.72%, which is the highest in over a year, but these situations could change quickly as I think they are also overdone.
CHART STRUCTURE: SOLID
Natural Gas Futures
Natural gas futures in the May contract is trading lower by 1 point this Thursday afternoon in New York in a relatively quiet trading manor, currently at 2.60, looking for some fresh news to push prices in either direction.
If you have been following my previous blogs, you understand that I am looking to be a buyer around the 2.40 level. I don't see much further weakness after that point, so be patient as we could be involved soon, especially if some type of weekly inventory report is construed bearish.
Currently, prices are still trading below their 20 and 100-day moving average as the trend remains to the downside, coupled with the fact that many commodities also remain bearish in the short-term. Still, I think this situation will change very soon, so be nimble as we could be involved any day. Prices are right near a 3 week high filling the gap created on March 15th as the longer we hold the 2.40 level, the higher percentage that a bottom will be at hand.
Fundamentally speaking, the Commodity Weather Group on Tuesday said the U.S. is poised to see above-average temperatures across most of the country from April 3-7, which will curb heating demand for gas. Weak domestic nat-gas demand is also bearish for prices after nat-gas demand in the lower 48 U.S. states on Tuesday fell -8.6% y/y to 64.9 bcf.
TREND: LOWER - MIXED
CHART STRUCTURE: SOLID
Cotton futures in the May contract is currently trading unchanged at 80.88 as we await the highly-anticipated acres report was considered neutral and probably will not dictate short-term price action.
I have been recommending a bullish position from the 79.00 level, and if you took that trade, continue to place the stop loss at 66.40 as an exit strategy. This trade should only be taken with a large trading account as the risk is substantial as I want to give this trade some room.
The volatility in this commodity will expand as we enter the summer months. I still believe the 95 level will not be the high in 2021. I think prices look cheap as I think the downside is very limited. The next major level of support is at the 75.00 level, and for that to be touched, this report would have to be bearish, in my opinion. Predicting what a report states is fools gold, so wait for the report to be released, and we'll go from there.
Cotton prices are trading below their 20 and 100-day moving average as the short-term trend is to the downside. This was a counter-trend trade as I also have bullish recommendations in coffee and orange juice. I think the whole sector is becoming very cheap and attractive as the risk/reward is to the upside, in my opinion.
CHART STRUCTURE: SOLID
Live Cattle Futures
Cattle futures in the June contract is currently trading higher by 67 points at 122.90 in the relatively quiet trade this Thursday afternoon in Chicago. The agricultural crop report was considered bullish yesterday, which could send short-term price direction for this commodity.
If you have been following my previous blogs, you understand that I have a bullish bias towards cattle as this is the strongest commodity at the current time while many other sectors have sold off; this market is right near a fresh contract high.
If you are long a futures contract, I would continue to place the stop loss under the 10-day low, which was hit on March 19th at 118.10 as an exit strategy. The chart structure will start to improve daily; therefore, the monetary risk will also be reduced.
Cattle prices are trading above their 20 and 100-day moving average as this trend remains strong to the upside. I still believe the 130 level could be touched in the coming weeks ahead, so stay long as I see no reason to be short cattle or the livestock market as a whole as they are experiencing a longer-term secular bullish trend.
The next major level of resistance stands at the 127 area, and if that is broken, this market could move substantially higher as the volatility certainly would increase as the long-term bottom is at hand, which was a hit in May of 2020
CHART STRUCTURE: SOLID
Coffee futures in the May contract reversed earlier losses, and now it's trading higher by 75 points at 124.20 a pound as it looks to me that a possible bottom may have occurred in today's trade.
Suppose you take a look at many of the commodity sectors. In that case, they are sharply higher today as a bullish crop report came about as bottom-feeding has also circulated as investors believe prices may have become too cheap.
I have been recommending a bullish position from around the 106 level. If you took that trade, continue to place the stop loss on a closing basis only at 106 as an exit strategy. However, I am still bullish even at today's price level as the risk right now is around $5,700 per contract plus slippage and commission.
Coffee prices are still trading below their 20 and 100-day moving average as the trend remains to the downside as this was a counter-trend recommendation. However, I do not believe that the high at 140, which was hit in late February, will be the high in 2021 as longer-term bottoms are being formed at this time. Fundamentally speaking, the U.S. Federal Reserve continues to implement massive quantitative easing, which should prop up prices. If you look at late 2010/2011, many commodities hit all-time highs as I think that situation will come about once again. It's just a matter of when, in my opinion, as I see no reason to be short anything.
CHART STRUCTURE: SOLID
Corn futures in the May contract skyrocketed higher, finishing up $0.25 yesterday at 5.64 a bushel while now trading at 5.80, up another 15 cents. The crop report was construed extremely bullish, so look for higher prices as a multi-year high will be touched once again.
If you have been following my previous blogs, you understand that I had a bearish bias towards prices. Still, I was not involved as I don't like to go into reports as anything can happen, just like what happened today as I will continue to sit on the sidelines. However, if you are long a futures contract, I would stay long as we broke out of a tight 9-week consolidation pattern.
Corn prices are trading above their 20 and 100-day moving average as the trend continues to flip flop, but that report will probably send prices near the $6 level in the coming days ahead. Spring planting is right around the bend as the volatility certainly is going to continue to be very high, so make sure you place the proper amount of contracts risking only 2% of your account balance on any given trade. Fundamentally speaking, the USDA reported quarterly corn stocks at 7.701 bbu on March 1st. That is below the trade average guess of 7.77 bbu and down 251 mbu from last year's stockpile. This implies Q2 demand at 3.621 bbu or 32% of supply. In Q2 of 2019/20, implied demand was 3.375 bbu for 30% of supply.
For new crop, USDA reported 91.1 million acres intended for corn. The average pre-report guess was to see 93.13 million and the Feb Outlook Forum's 92 million acres. Last season USDA reported 96.99m acres intended for corn in March, with the final planted acreage ending up at 90.82m.
TREND: MIXED - HIGHER
CHART STRUCTURE: EXCELLENT
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.
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