Swing Trader's Insight Update

by Scott Hoffman, Senior Broker & CTA

In spite of the pre-holiday conditions, this past week was an interesting one for the markets. The biggest day for economic news was Wednesday. A surprising upward revision to Third Quarter GDP was announced, and the energy inventory reports shocked with rises in crude and heating oil stocks. For this week, the economic calendar is relatively light. Wednesday has weekly energy inventories and existing home sales, as well as the release of the quarterly Hog and Pig Crop report from the USDA. Thursday will have the Chicago Purchasing Manager's Index report. The national Purchasing Manager's report will be released next week on Monday, January 3rd.

Stock Index Futures Markets

S&P 500 Futures

As I said at the beginning of last week, 1200 and 1210 were important resistances for the S&P market. We took out both of these resistance areas on Tuesday. On Wednesday, the rally was aided by the GDP number and decline in energy prices.

For the coming week, look for the markets to key off Christmas sales for market direction. Expectations for Christmas sales have been so beaten down that any surprises in the retail sectors may be positive. Energy prices were a plus for stocks last week, expect them to provide help early this week.

Look for S&P's to advance this week, as long as we maintain trade above 1210. Resistance is 1219, with objectives at 1230 and 1250. A drop under 1210 could take us back to 1200. S&P 500 Futures Quotes + Charts

Interest Rate Futures Markets

Treasury Bond & Treasury Note Futures

Strong economic numbers and the decline in energy prices put Treasuries under pressure last week. Look for continued pressure on Treasuries with strong economic numbers. The next downside objective for the March T Note is 111-09, which is a fibonacci percent retracement of the December rally. Potential rally catalysts would be a decline in energy stocks in Wednesday's report, or flight to quality buying if the dollar selloff turns into a rout. Treasury Bond & Treasury Note Futures Quotes + Charts

Currency Futures Markets

US Dollar Index Futures

In spite of good US economic news, the Dollar remained under pressure last week - this highlighted how negative Dollar sentiment is. Eurocurrency Futures Quotes + Charts

Eurocurrency Futures

In the Eurocurrency, the small flag formation early in the week led to an upside breakout on Thursday, closing into new contract highs. Eurocurrency Futures Quotes + Charts

Japanese Yen Futures

The Yen has been forming a rising wedge pattern over the past weeks; a breakout will occur over 9725, with an initial objective of 9900. Japanese Yen Futures Quotes + Charts

Risks to a continued advance in the currencies are:

A reappraisal of US economic strength.
The (unlikely) prospect of intervention if the Dollar's fall continues.

Metal Commodity Futures Markets

Gold Futures

Gold appears to be ready to advance, with a move above $445 accelerating the rally. Resistance this week is at $445, then $450, basis February. $440 will be critical support this week. Gold Futures Quotes + Charts

Silver Futures

March Silver will turn bullish with trade above $7.00. Upside objectives are $7.25 and $7.40. Silver Futures Quotes + Charts

New York Soft Commodity Futures Markets

Coffee Futures

Prospects for strong consumption have aided the coffee market. Last Wednesday was a critical one for coffee - the market broke and tested the $1.00 area, and managed to close above it. For this week, look for resistance at last week's high, 10870 and support at 10400. Coffee Futures Quotes + Charts

Sugar Futures

In sugar, concerns over Cuba's crop and news that India expects to be a net importer of sugar for 2005 are supporting prices. Sugar has had a tough time maintaining prices above 900 this year - I will continue to key off this price for trend indication. Sugar Futures Quotes + Charts

Cocoa Futures

Cocoa continues its drive lower. 1550 is offering some support; a failure under 1550 targets 1500, then 1450. Look for an acceleration of the selloff with a break under 1550. Cocoa Futures Quotes + Charts

Energy Commodity Futures Markets

Heating Oil Futures

Energy traders were reassured about ample heating oil supplies after last week's jump in crude and heating oil inventories. In addition, expectations for warmer weather this week softened the demand side of the equation. Heating Oil Futures Quotes + Charts

Crude Oil Futures

This week's action will center on Wednesday's inventory reports. Barring a bullish surprise, look for crude oil to drift toward $40. The breakout selloff in crude oil was well forecasted by the narrow range day setup on Tuesday.Crude Oil Futures Quotes + Charts

Natural Gas Futures

Natural gas continues to be pressured by warm weather and high supplies, look for a decline to long term support at $6.50. Natural Gas Futures Quotes + Charts

Meat Commodity Futures Markets

Cattle Futures

Cattle rallied last week as the weather in the Plains turned nasty, hurting feedlot conditions. February Cattle are facing an overbought condition, and have had a hard time breaking through recent highs. Expect consolidation this week, as warmer weather should improve feedlot conditions. Cattle Futures Quotes + Charts

Hog Futures

The Hog market had a sharp rally last week. Some profit taking may be in order ahead of the important Hog and Pig Crop report due out from the USDA after Wednesday's close. I'm generally bullish on Hogs, but would recommend going into the report with an open mind. Hog Futures Quotes + Charts

Grain Commodity Futures Markets

Soybean Futures

Soybeans had a strong week last week. In spite of a record bean crop, farmer sales have been slow, possibly reflecting the desire of farmer's to defer sales (and income) of this year's crop until next year. Export sales have been strong, exacerbating the tight cash situation. $5.50 remains an important pivot area for beans. I like the long side of beans, looking for a rally toward $5.70, basis March. It will be interesting to see if farmer selling picks up in early 2005.Soybean Futures Quotes + Charts

Corn Futures

Corn is weighted down by a record crop and slow export sales. The inability of March Corn to push under $2.00 is encouraging, but it will take a move over $2.10 to extend the rally. Corn Futures Quotes + Charts

Wheat Futures

Wheat continued its rally from the $3.00 support area. The funds have a big short position, and an inability to press the market lower soon may bring in fund short covering. A move over $3.13 targets $3.20 and $3.30. Wheat Futures Quotes + Charts

About the Author

Scott Hoffman is a Senior Broker and CTA with Daniels Trading. After graduating from the University of Chicago in 1986 with a degree in Economics, Scott worked on the floor of the Chicago Mercantile Exchange. Following his time at the CME, Scott went to work off the floor, serving as the personal broker to a former chairman of the Chicago Board of Trade. Here Scott learned the trading and brokering business, a process that he continues to expand and refine.

Scott is the publisher of Swing Trader’s Insight, a comprehensive swing trading advisory service covering all of the major futures markets. In addition to a nightly newsletter, Swing Trader’s Insight provides in-depth client education complete with specific trade recommendations and market analysis, including an S&P Morning Insight commentary, Midday Updates and Trade Management Updates. Although Scott specializes in swing trading, he has years of brokerage experience that is available to all of his clients, regardless of their individual trading styles.

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