Futures: All Eyes On This Week's Crop Report

Cotton

Cotton futures in the May contract settled last Friday in New York at 84.68 while ending the week on a positive note up 145 points, breaking a 7-day losing streak currently at 79.89, down nearly 500 points for the week as prices hit a 3 month low.

I have been recommending a bullish position from the 79.00 level, and if you took that trade, continue to place the stop loss below the September 29 low of 66.28 as an exit strategy. This is a high-risk trade as the volatility remains incredibly high as that situation is not going to change anytime soon, especially as we enter the summer season.

Cotton prices are trading below their 20 and 100-day moving average as this recommendation was a counter-trend trade. I believe prices have become too cheap as we topped out on February 25 at 95.68, dropping about 1,800 points in a matter of weeks from today's low. The commodity markets have run into trouble over the last several weeks because U.S. treasuries have hit a 1 year high in yields, pushing the U.S dollar higher, which are two bearish fundamental factors.

I remain bullish across the board. I believe this is just a retracement in a giant secular bullish trend that should continue due to massive quantitative easing from the U.S. government. Traders are keeping a close eye on next week's crop report, which will show the number of acres planted in the United States as that will certainly dictate short-term price action.

TREND: MIXED - LOWER
CHART STRUCTURE: POOR
VOLATILITY: HIGHOW

Coffee

Coffee futures in the May contract is ending the week on a positive note, up 225 points or 1.78% at 128.85 after settling last Friday in New York at 129.00, basically unchanged for the week bouncing off major support around the 125 level as I think prices look very cheap.

I'm looking at a bullish position and will not go short as I still believe we are squeezing blood out of a turnip, and I don't think the 140 level will hold, which was hit on February 25, and if you are a long-term investor, I would just buy and hold. Coffee prices are still trading below their 20-day moving average and above the 100-day as the trend is mixed. However, I believe the risk/reward is in your favor to the upside as we just need a spark of bullish fundamental news to create some short-covering, therefore, pushing prices higher, so look to be a buyer.

Fundamentally speaking, demand concerns continue to weigh on coffee prices after Germany, France, and Italy recently widened their pandemic lockdown measures, which will undercut coffee demand as restaurants and coffee shops will have reduced hours or be forced to close. Another negative factor for arabica is the Brazilian real weakness, which fell on Thursday to a 2-week low against the dollar, which gives Brazil's coffee producers incentive to increase export selling.

TREND: MIXED - LOWER
CHART STRUCTURE: EXCELLENT
VOLATILITY: AVERAGE

10-Year Note

The 10-year note in the June contract settled last Friday in Chicago at 131/09 while currently trading at 131/24 as yields are still hovering right near a 1 year high at 1.68%. That has caused many commodity sectors to sell-off over the last couple of weeks on concerns that yields could soon hit the 2% level.

I'm keeping a close eye on this market as I believe prices are near the bottom as the U.S. government most likely will not allow interest rates to continue to climb. We are nearly 30 trillion dollars in debt currently as the United States economy is doing very well despite all the negative news you hear on the political channels. That is why you see higher rates.

The 10-year note is trading below its 20, and 100-day moving average as the trend remains negative as; the downside is limited, in my opinion. I will be looking at buying on further weakness ahead. Higher rates, in my opinion, are favorable for the U.S. economy as you don't want to see rates near 0% as that generally means there is massive concern about a slow down. However, the Coronavirus in the United States is certainly on its heels as vaccines are in full steam, as that is why you see a rise in rates as the flight to quality situation has ended. Look to be a buyer as the risk/reward is in your favor, especially if the yields can hit 1.80% in the coming days ahead.

TREND: LOWER
CHART STRUCTURE: SOLID
VOLATILITY: AVERAGE

Silver

Silver futures in the May contract settled last Friday in New York at 26.32 an ounce while currently trading at 25.10, down over $1.00 for the trading week as prices are hovering near a 3 month low as the commodity markets continue their short-term decline this week.

I'm sitting on the sidelines as I think there's a possibility prices could trade down to the 24.00 level in the coming days ahead. Silver is now trading below its 20 and 10-day moving average for the first time in several months as the U.S. dollar continues to rise daily, coupled with the fact that interest rates in the United States are right near a 1-year high as those are both bearish fundamental factors towards silver prices.

The volatility at the current time remains high as that situation is not going to change anytime soon. Historically speaking, this is one of the most volatile commodities globally. If you are trading this market, make sure that you only risk 2% of your account balance on any given trade while also maintaining the proper amount of contracts.

Silver, in my opinion, is still in a secular longer-term bullish trend as I believe this is just a pullback in price. I don't think the $30 level will hold, which was hit on February 1, so be patient as we could be involved soon, especially on some type of severe pullback. At the current time, I do not have any precious metal recommendations as my only two trades are involved in the soft commodities, which are orange juice and cotton. However, when the trend does develop in silver, this commodity will move very fast to be the upside.

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

Orange Juice

Orange juice futures in the May contract settled last Friday in New York at 115.65 while currently trading at 111.40, down over 400 points for the trading week as prices are near a 1 year low.

I have been recommending a bullish position from the 110 level, and if you took that trade, continue to place the stop loss at the multi-year low around the 90 level. Prices are historically cheap and are limited to the downside as I also have a bullish cotton recommendation as the soft commodities continue to bleed in this week's trade.

Orange juice is trading below its 20 and 100-day moving average as the trend is lower. This was a counter-trend recommendation because the risk/reward is in your favor as the downside looks limited, in my opinion. The volatility at the current time remains average, as seasonably speaking. We are in the slow season for orange juice as there is no possible frost situation that could occur in the state of Florida. However, I believe that the massive stimulus programs that the U.S. government continues to harvest will prop up prices, so play this to the upside with the next major resistance level around the 120 level. If that is broken, the bullish trend will start to accelerate.

TREND: LOWER - MIXED
CHART STRUCTURE: EXCELLENT
VOLATILITY: AVERAGE

Natural Gas

Natural gas futures in the May contract settled last Friday in New York at 2.56 while currently trading at 2.62, up slightly for the trading week as prices look to be bottoming out, in my opinion.

I'm looking at a possible bullish position from around the 2.40 level as last week prices hit the 2.43 level very briefly. I think the downside is very limited as we filled the price gap that was created two weeks ago in today's trade.

Gas prices are still trading below their 20 and 100-day moving average as the trend remains negative, coupled with the fact that the downtrend line remains intact just by the skin of its teeth. Fundamentally speaking, the tide might be turning as strong foreign demand for U.S. nat-gas supplies is bullish for prices as gas flows to the U.S LNG export terminals on Thursday rose +24% y/y to 11.6 bcf. Last Saturday, gas flows to U.S LNG export terminals climbed to a record 11.92 bcf (data from 2014) according to BNEF.

The energy sector as a whole has remained in a bullish trend in 2021 despite the recent setback in price. I think this entire sector will move higher in the coming year, so look to be a buyer as I remain bullish on the entire commodity sector. I have witnessed quantitative easing in the past, and I think history will repeat itself once again.

TREND: LOWER
CHART STRUCTURE: IMPROVING
VOLATILITY: AVERAGE

Corn

Corn futures in the May contract settled last Friday in Chicago at 5.57 a bushel while currently trading at 5.47, down about 10 cents for the trading week. Prices are stuck in an 8-week consolidation pattern waiting for next week's acreage report to dictate short-term price action, in my opinion.

Fundamentally speaking, a Bloomberg survey shows the average trade guess for corn planting intentions in next week's report is 93.13m acres. Analysts surveyed ahead of the Quarterly Grain Stocks on average expect USDA to show 7.750 bbu of corn inventory as of March 1. I realized that would be 201 mbu (2.53%) tighter yr/yr. USDA's latest WASDE forecast was for carryout to be 417 mbu (21.7%) tighter by September.

At the current time, I'm sitting on the sidelines. However, it looks to me that prices may have gotten a little ahead of themselves and look a little pricey especially compared to the rest of the commodity markets. So if you are bearish, I would sell it at today's price while placing the stop-loss above the February 9th high of 5.72. The risk would be around $1,350 per contract plus slippage and commission; however, I am currently sitting on the sidelines, as I have stated.

My consolidation rule states the longer the consolidation, the stronger the breakout as something will develop here soon as prices are trading right at their 20-day but far above their 100-day moving average. You have to remember corn prices were trading around the 3.75 level in September, as that's how far prices have come. Still, they look a little long in the tooth. If you look at the daily chart, the 5.60 level has held on a half dozen occasions as the chart structure is outstanding. I will wait for the crop report to come out before initiating a bullish or bearish position.

TREND: MIXED
CHART STRUCTURE: EXCELLENT
VOLATILITY: HIGH

Copper

Copper futures in the May contract settled last Friday in New York at 411.30 while currently trading at 4.0480, ending the week on a positive note even though we were down about 700 points this week as prices are near a 3 week low.

There was panic in the commodity markets this week as most sectors are sharply lower once again because the Coronavirus is popping its ugly head out in Europe. Massive shutdowns are taking place even though the United States has this pandemic under control as vaccinations are working, but it's a risk-off trade today.

At the current time, I'm sitting on the sidelines, and if you had read my previous blogs, you understood that I thought copper prices could go to 4.00 and actually went to 4.40, but at the current time, I think prices could trade a little lower so sit on the sidelines as the risk/reward is not your favor to take a bullish or bearish position. However, I do think this panic will end soon. The U.S. dollar continues to climb higher up another 20 points as that is a fundamental bearish factor towards prices coupled with the fact that the housing market has hit a 9-month low as investors are selling everything across the board at the current time.

Copper is trading below its 20-day moving average for the first time in 3 months, but still far above its 100-day. It wouldn't surprise me to see a consolidation pattern over the next 4-6 weeks due to the recent run-up in price, so look at another market that is beginning to trend.

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
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