"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
November 22, 2005
The Insights of Swing Trading
by Scott Hoffman, Senior Broker & CTA
Traders
It’s a light week for reports this week. The most important is the release of the minutes from the Nov. 1 FOMC meeting, which are released on Tuesday. With the Thanksgiving holiday on Thursday, expect thin trade for the end of the week.
S&P
S&Ps had a strong midweek rally last week. They held support at 1230 and then saw a big rally on Thursday, clearing resistance at the Sept. highs around 1240. The market still looks bullish, although a drop back under 1250 may lead to some profit taking in this holiday week. Only a move back under 1240 dents the bulls.
NASDAQ
As with the S&Ps, NASDAQ futures had a strong breakout rally on Thursday, clearing the top of consolidation at 1666 on the way to nearly four year highs. This week may see an early correction in the NAZ as momentum is at a level indicating more downside is possible.
Bonds
Bonds had a strong week last week as the strength in the Dollar and safe haven buying continue to drive bond demand. Thursday’s naked close may have marked a short-term top, but with a narrow range/inside day breakout setup for Monday, look for a directional move early in the week.
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Yen
The Yen traded in a narrow channel for most of the week last week; as long as it remains under 8500, expect continued choppy trade. On the downside, a move under last week’s low at 8406 should see downside follow-through. On the up side, a move over 8500 and then trend line resistance at 8850 should put in a bottom and lead to a bigger rally.
EuroFX
The Euro may be near a bottom as 117 held last week, and Friday saw a move above the recent down trendline. ECB President Trichet made comments over the weekend that the ECB is ready to raise interest rates, which helped the Euro on Monday. Failure to hold 11750 should lead to a retest of the 117 support.
Canadian Dollar
The Canadian Dollar may be trying to bottom around 8400, although I'd wait for a close over 8450 before I get interested in the long side. Further resistance is at a Fibonacci retracement level at 8480; clearing that should help induce a bullish MACD crossover and extend the rally.
Copper
Last week was a huge week for copper, which gained nearly eight cents per pound as the short squeeze continues. Dec Copper hit its measuring objective of 197.50, but MACD and momentum both show more room to the upside. As this is an all time record high for copper prices, it’s hard to pick further upside objectives. A move back under 193.50 should hurt the bullish picture.
Gold
We made money on the long side of the gold last Wednesday, as the market broke out of a breakout pattern and cleared the 40 day MA. Note Momentum on Thursday: it reached a two month high, gave a good sell short signal, and the market proceeded to break on Friday. We'll look for a selloff to re-establish long positions as gold appears to have more upside potential
Silver
Completing the sweep for the metals, silver gained 40 cents last week. Last Wednesday’s move over the double top (and contract high) at 7.95 contributed to the advance. As with gold, the extreme high in momentum on Thursday tipped us off to Friday’s correction. Holding $8.00 should lead to further advances.
Cocoa
Cocoa broke out of a small triangle on Friday in emphatic fashion, clearing resistance at 1400 and the 40 day MA at 1404. There was no concrete fundamental news for Friday’s run-up, although there are concerns about the Ivory Coast, both the supply and the political situation. The next upside objective is a gap between 1440 and 1447 basis March. MACD shows this market to be in the early stages of a rally, but the extreme high in momentum warns of a correction in the vertical move.
Sugar
Sugar had a strong week, rallying 50 points as the market followed through on last Friday’s breakout setup. We bought the breakout last Monday, and took profits at round number resistance of 1200. We're flat the sugar now, but the bullish MACD posture keeps me interested in the long side.
Coffee
The coffee market fell apart last Monday, succumbing to big producer selling. Last Tuesday’s trade drove coffee under the 40 day MA and down to test the November low at 9950 basis March on both Tuesday and Thursday. Rallies have been well contained by the 40 day MA. This Monday’s trade saw an open below the 9950 double bottom but the quick recovery indicates there may be more upside in the short term. Only a move over 103.00 starts to put in a bottom.
Crude Oil
Crude lost $1 last week in spite of a surprising drop in inventories and the arrival of cold temperatures. Last Thursday’s inability to clear the down trendline (see chart) pushed crude into new lows for the break. Oscillators continue to hint that a bottom may be near. Look for a breach of trend line resistance at 58.40 to lead to a test of broken support around 59.50. With winter coming, I still think there’s going to be a winter rally driven by heating oil.
Live Hogs
We're currently short February Hogs, selling Thursday’s break as MACD had a bearish crossover. This Monday’s downside breakout of the triangle and breach of the 40 day MA at 65.75 helped accelerate the selloff. The next downside objective is 64.75.
Soybeans
Ample supplies, weak export demand, and concerns about the effect of avian flu on soymeal consumption all weighed heavily on beans last week. It’s hard to believe that Jan beans started last week over $6. I'd use any rallies as an opportunity to get short, with an initial objective of $5.50 basis January. The short side of soymeal also looks good; for now I'd sell a break under last Thursday’s low in Jan soymeal (172.80).
Wheat
Last week’s inability to clear the down trendline helped drive wheat to new contract lows by the end of the week. Expect more downside here, with the potential for $3 to serve as psychological support for Dec Chicago Wheat.
Corn
Although I’m normally not too keen on selling corn under $2, I'll make an exception here, as there looks to be no end to the selloff. The only caveat is it could very well take corn a month to end up ten cents lower. Don’t buy until it can regain $2.
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.
