"For clients with the necessary capital and the desire for a professional manager with a regulated track record, there's no better solution than Managed Futures."
– Kurt Pfafflin
Futures & Options Broker
July 26, 2005
The Insights of Swing Trading
by Scott Hoffman, Senior Broker & CTA
S&P
S&Ps had a choppy end to the week last week, but closed into fresh 4-year highs on Friday and made new highs on Monday. Along with ideas that economic growth will remain robust, earnings numbers have been good enough to keep feeding the bull. For the coming week, a move over 1242 in the S&Ps could allow a rally to 1244 and then an intermediate objective at 1250. On the downside, support is at 1233 and then at the weekly low of 1224. A move under 1224 could dent the bulls for the time being.
NASDAQ
The NASDAQ had a good week last week in spite of earnings misses by some tech bellwethers (Google, Microsoft). Recent action leaves the NASDAQ primed for a breakout move. The next upside objective is the 2004 high at 1645.
Bonds
Bonds saw volatility midweek as traders tried to decide whether the Yuan revaluation meant the Chinese would buy more or fewer US bonds. In addition, continued strong economic numbers have weighed on bonds. Bonds have been following a downtrend line for the past few weeks. Will next week bring more of the same? The Fed’s Beige Book is out on Wednesday and may give some indication as to whether we're reaching the end of the tightening cycle. In addition, Friday brings us the preliminary indication for second quarter GDP and the Chicago ISM (Institute for Supply Management) report on manufacturing strength in the Midwest.
Yen
The Yen staged a huge rally last Thursday, as Japan stands to benefit from the Yuan revaluation. Thursday’s rally was tipped off by the hammer candlestick on Wednesday, as the mid session break in price was rejected and the market closed nearly unchanged. MACD has been bullish since midweek, reinforcing the bullish outlook. The one negative for the Yen this week was Friday’s failure to close above the previous week’s high of 9089. Key off the 9090 to 9100 area for an idea as to whether there’s more upside. Further resistance is a 9180 (a 38% retracement of the last selloff), then 9300. The bullish MACD pattern should reinforce rallies.
Eurocurrency
The Euro pulled back on Thursday and Friday, both on selling against the Yen cross and weak economic numbers out of Europe. In addition, the inability of the Euro to take out the 40-day moving average at 12177 led to selling. However, the Euro should be well supported on breaks to the low 120 area, and I expect range-bound trade during early August.
British Pound
The Pound is threatening to negate a double bottom in the mid 172 area, as the new terror attacks on Thursday/Friday raise new political and security concerns. A move under the double bottom can take the Pound to the 171 area. On the upside, resistance is at Thursday’s high of 17587 and then at 17750.
Gold
Gold prices rallied last week, as the terror attacks in London and the Yuan revaluation aided precious metals. Gold advanced roughly $5 and ended with a narrow range day breakout setup for Monday. MACD is hinting a possible bullish crossover, and a move over the last rally high at $428 should get another upleg going. $420 is critical support for this week.
Silver
Silver rallied about 20 cents last week. The big day for silver was Wednesday, as prices rallied over the important 700 area. We remain long, with stops just under the 700 area. Resistance for the coming week comes in at this week’s high of 720 and then at the 40 day moving average at 724.
Copper
Copper made new highs on Monday, negating a potential bearish reversal last Thursday. Copper prices were roiled by the Yuan news, as the Chinese are major copper consumers. For the upcoming week, support is at 15800. It’s tough to find upside objectives/resistance, as this is an all time high price for copper.
Cocoa
Cocoa remained range-bound last week, as low prices appear to be discouraging aggressive selling, but the market lacks a catalyst to rally. For the coming week, look for a breakout of the 1425 to 1375 range (basis September) to provide a clue as to the next trend. Monday’s attempted rally failed at 1440 resistance, pushing cocoa back into the channel.
Sugar
October Sugar meandered lower early last week, giving a bearish MACD crossover on Wednesday. This was negated by the massive upside reversal on Thursday. Thursday’s volatility was tipped off by the drop in the volatility ratio, which fell to a 3 month low. Thursday’s rally pushed sugar into a new contract high. For the coming week, holding the breakout area at 960 is the key to a further advance, with 1010 as the next upside objective.
Coffee
High levels of deliverable NY stocks have been weighing on coffee prices. Tuesday’s plunge broke under recent lows around 104. By Friday, Sept coffee filled in a downside gap, but prices remain vulnerable to further selloffs unless they can muster a close back over 104.
Crude Oil
Crude oil sold off midweek last week as the weekly inventory reports were bearish, and questions arose over the effect the Yuan revaluation would have on Chinese crude demand. In spite of Friday’s bounce, the path of least resistance for crude oil appears to be lower, although there has been talk of demand surfacing in the $56 area. I’m taking a “wait and see" attitude on buying crude and will be looking to sell rallies over $59 for the time being.
Cattle
October Cattle are forming a triangle on the daily charts. I’m standing aside for now. Traders should look for a break out of the triangle for an indication of the next move for cattle.
Hogs
October Hogs were range-bound last week, with good resistance around 5900 and support around 5775. Friday’s weak close leaves the market vulnerable to a break down next week, with 5700 and 5650 as downside targets. A move over 5900 would target 6000 and 6050.
Soybeans
Enough of the Bean Belt saw rain that the funds dumped long positions this week. In addition, long-term weather forecasts show a return to a more normal pattern for August, which would give time to make the crop. The trend for beans remains down, with support at this week’s low of 666 and then at the June low of 660.5. Major resistance is at 705 and then 720.
Corn
As with soybeans, we had weak prices in spite of weather problems. Much of the selloff and fund selling is riding on a return to more normal weather in August, so more heat could push prices up as we move into August. Funds are estimated to still have a long position of 80,000 contracts, which could hamper the bulls. For this week, Dec Corn partially filled in a gap that runs from 242 to 236-4 basis Dec. MACD had a bearish crossover on Thursday, and I’m looking for further downside on a violation of 242, with a target of 230. This week’s resistance is at 250.
PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH OPTION CONTRACTS. OPTIONS TRADING IS NOT SUITABLE FOR ALL INVESTORS. OPTIONS CAN AND DO EXPIRE WORTHLESS. IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIMUM AND OF ALL TRANSACTION COSTS.
