Will The Futures Market Heat Up?

Natural Gas Futures

Natural gas futures in the March contract are currently trading at 2.44 after settling last Friday at 2.69 continuing its bearish momentum. Forecasts for warmer U.S. weather will curb heating demand for nat-gas continue to weigh on nat-gas prices.

On Thursday, the Weather Commodity Group said that the U.S. South and Midwest should see higher-than-normal temperatures predominantly over the next 2 weeks and that prior forecasts for a polar vortex in the Arctic to drop down into the U.S. later this month is not going to materialize. I'm not involved as I keep a close eye on a possible counter-trend trade. I think the spike bottom, which was created on December 28th around the 2.26 level, will hold as a possible Head Shoulders bottom pattern could be forming, in my opinion.

Natural gas prices are trading below their 20 and 100-day moving average as this trend remains lower to choppy. Still, I think this commodity will join the rest of the energy sector to the upside; it's just a matter of when the risk/reward will become more in your favor, especially if cheaper prices come about, so be patient and sit on the sidelines.

TREND: HIGHER
CHART STRUCTURE: POOR
VOLATILITY: HIGH

Copper Futures

Copper futures in the March contract is currently trading lower by 260 points at 3.6215 a pound after settling last Friday in New York at 3.6020, up about 200 points for the week still stuck in a tight 6-week consolidation pattern.

Copper prices continually bounce off the 3.57 level only to rally every time, which happened earlier in the trading session. The chart structure is outstanding; therefore, the risk/reward is in your favor as we are awaiting some fresh news to push prices above the contract high, which was hit on January 8th at 3.7340 as I remain bullish.

Copper prices are trading above their 20 and 100-day moving average. The trend remains to the upside as the housing market remains very strong; therefore, demand for copper should continue for the foreseeable future as I still think the 4.00 level is in the cards in the coming weeks ahead. The U.S equity market continues to hit all-time highs this week as copper prices have been riding the coattails of that market. Still, it has stalled out in recent weeks as the entire precious metal sector is taking a breather at the current time, but I see absolutely no reason to be short.

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

Sugar Futures

Sugar futures in the March contract settled last Friday in New York at 16.45 a pound while currently trading at 15.88, down about 57 points for the trading week as prices hit a one-week low. I am now recommending a bullish position while placing the stop-loss under the December 15th low of 14.09. The risk is around $2,000 per contract plus slippage and commission as I want to give this trade some room due to the increasing volatility.

Sugar prices are still trading above their 20 and 100-day moving average as the trend remains higher despite the recent setback. If you take a look at the daily chart, the uptrend line remains intact as I believe the risk/reward remains in your favor to take a bullish position. Fundamentally speaking, prices have underlying support from Brazil's dry conditions that may curb sugarcane yields and reduce Brazil's sugar production. Irregular rain in Brazil's sugar-growing areas is keeping soil moisture levels below normal. The U.S. Climate Prediction Center said last Thursday that a La Nina weather pattern would likely last at least until March and possibly beyond, leading to prolonged excessive dryness in Brazil that cuts sugarcane yields.

TREND: HIGHER
CHART STRUCTURE: EXCELLENT
VOLATILITY: HIGH

Coffee Futures

Coffee futures in the March contract settled last Friday in New York at 128.15 a pound while currently trading at 125.00, down over 300 points even though prices hit a 4 month high in last week's trade.

I have been recommending a bullish position from around the 127 level. If you took that trade, continue to place the stop loss under the September 4th low of 104.85 as an exit strategy as the risk is around $10,000 per contract plus slippage and commission. This trade should only be taken with a large trading account.

Coffee prices are still trading above their 20 and 100-day moving average as the trend remains to the upside. However, this market has been very stubborn and has not established a strong trend at this time. After Conab, Brazil's national agricultural statistics agency, prices have remained firm, forecast on Thursday that Brazil's 2021 arabica coffee production will slump -35.7% y/y to a 12-year low of 31.35 mln bags. Conab said coffee output would fall as Brazil's coffee trees are in the lower-yielding half of a biennial cycle. Insufficient rain in key stages of crop development exacerbates the decline in yields.

TREND: HIGHER
CHART STRUCTURE: EXCELLENT
VOLATILITY: AVERAGE

Corn Futures

Corn futures in the March contract, which is considered the old crop and was harvested last October, is currently trading at 5.18 a bushel after settling last Friday in Chicago at 5.31 as prices are at a one-week low.

I am not involved, but I've had a bullish bias towards the grain market for quite some time. However, I am advising farmer clients to sell some of their cash crop as I think prices are getting a little long in the tooth and take advantage of this significant rally, which is around 50% higher from the low which was hit on August 12th.

Corn prices are still trading above their 20 and 100-day moving average as the trend is higher. If you are long a futures contract, I would continue to place the stop under the 10-day low, which stands at 4.89 as the chart structure will improve in 4 trading sessions lowering the monetary risk. I do not have any grain recommendations, but I also think that beans may have topped out as well. However, I'm certainly not recommending any type of short position as I think prices just need to digest the run-up that we have witnessed over the last several months.

Fundamentally speaking, acreage estimates are beginning to surface ahead of the new crop planting cycle as IHS Markit raised their forecast for corn by 3.1m acres from the December forecast to 94.2m. The chart structure at the current time is improving as the U.S farmer will certainly benefit as prices are still right near a 7 year high as that it's a terrific thing to see as the farming community over the last several years has been depressed.

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

Cotton Futures

Cotton futures in the March contract settled last Friday in New York at 80.70 while currently trading at 81.90, up over 100 points for the week, continuing its remarkable, bullish momentum to the upside as prices are hovering right near a 3 year high. I am not involved in this market as prices have run away to the upside due to the higher demand of joining most other agricultural markets.

Fundamentally speaking, new crop cotton planted acres were estimated to be 11.5 million by private firm IHS Markit as that was a 1.5m acre drop from their December forecast. If you are long a futures contract, I would continue to place the stop loss under the 2 week low, which stands at 78.65 as an exit strategy. However, the chart structure will improve in next week's trade; therefore, the monetary risk will also be reduced as it looks to me that higher prices are ahead. Remember, when you trade the commodity markets, trading with the path of least resistance is the most successful way to go over time as picking tops and bottoms are very difficult and unsuccessful, in my opinion.

TREND: HIGHER
CHART STRUCTURE: POOR
VOLATILITY: HIGH

Cocoa Futures

Cocoa futures in the March contract is currently trading at 2492 after settling last week at 2527, down slightly for the week as prices have been stuck in a 6-week consolidation pattern looking for some fresh fundamental news to dictate short-term price action.

If you take a look at the daily chart, prices rallied from $2,300 all the way to slightly above the $2,800 level in just a matter of weeks as prices are now digesting that run-up, but it certainly does look to me that a long-term bottom has taken place. Cocoa prices had traded lower for the 3rd consecutive session blamed on when the European Cocoa Association reported that Q4 European cocoa grindings fell -3.1% y/y to 344,151 MT, a bigger decline than expectations of -1.5% y/y and the weakest report for a fourth-quarter in 4 years.

Cocoa prices are trading slightly below their 20 and 100-day moving average as this trend is mixed. I will be patient and wait for a breakout to occur in the next couple of weeks as you have to remember the longer the consolidation, the stronger the breakout as we could be involved soon.

TREND: 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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Phone #: 630-408-3325
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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. My opinion in this blog are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any futures or option contracts.