Several commodity markets are poised for well-defined up-trends this year. I plan to write about these markets on a bi-weekly basis as the views presented here are more thematic and longer term in nature. Updates to the trading strategies published here will be provided on an ongoing basis.
A quick update on my existing trading strategies ….. Gold is still considered a long and we may see a retrace into 1300 before we see higher prices. I am already 2/3s in profit at 1328 and plan to hold the last 1/3 to full target. On a break of the monthly pivot I plan to exit the remaining 1/3 if seen. Corn and Natural Gas are still holds as I am still expecting turns in both. The bracketing strategy using options is helping in managing risk and I may be exiting the short calls in Natural this week for a small profit and hold the puts and futures. On Coffee I am still a hold as I am expecting support this week at 101s. Same plan as Natural Gas on the short calls. On a break of 101s, the trade in Coffee is invalidated and I will exit. This week we will look at short trade in Live Cattle.
Live Cattle
Cattle prices have rallied 24% since the 18 month cycle low in April of 2018 and put in a key reversal on January 31st. Due to the government shutdown, it is difficult to see how the increase in open interest has transpired. Likely in high in open interest at 348,000 contracts may be from fund traders adding longs into the high which is a typical reversal pattern with commercials being short. As the CFTC catches up, we will see more information on the setup of this turn. I am expecting a 50% retracement in price into the April time frame based on my cycle work with Hurst Cycles. Chances are that we will see the 200DMA in that area. At this point on the Daily chart we have nice negative divergence set up and likely commercials short below 10% and retail above 90% which is a nice short COT setup.
On the hourly chart, there is a nice rejection as mentioned to the rising support trend line and a three back which appears to be a flag. Chances are we will see the trend line break this week and I am expecting lower prices into April watching for the 50% back area as a target.
Trading Strategy
The setup is strong so I am choosing in this case to not bracket the trade with a put and to just use a stop. I am short April futures at 127.075 risking the trade to 128.40. I plan to take profit in 1/3s on the way to the objective of $120.
Wrap Up
This is my third consecutive week of posting the Commodity Advisory Newsletter. I plan to now proceed with bi-weekly editions as the trades discussed are longer term in nature. In two weeks I’ll be posting updates on these trading strategies and discussing the Cocoa market which is poised for a bullish year in 2019.
Trade Well and Trade Smart.
Trading Strategy Review
Disclaimer: Trading futures contracts and commodity options involves substantial risk of loss, and may not be appropriate for all investors. By reading this report, you acknowledge and accept that all trading decisions are your sole responsibility. Trading strategies referenced in this document are only suggestions, no representation is being made that they will achieve profits or losses. Past performance is no guarantee of future results.
10th Feb 2019