Sugar gave us a swing high on the 24th and closed well below the 10 DMA on Friday. I was hesitant to take this trade at the time as not many shorting opportunities have presented themselves in 2021, commodities have been increasing in value ignoring all seasonal and historical price tendencies. I believe rising bond yields will put an end to that, at least temporarily.
Moore's has a May sugar short trade on 3/3 that has been profitable 13 of the last 15 years.
This coincides well with seasonal data as we are right in the time of year that has not faired well for sugar prices.
Sugar sentiment hit 81 this past month, that is the highest sentiment has been for sugar since 2009 and a clear indication price is bound for a correction. Comparing sugar sentiment to a sugar chart over the past 10 years you can see high sentiment coincides well with large price corrections. At no point in the chart below has sentiment been as high as it is now.
We will be looking to enter May sugar at it's current price of 1645. The sugar market opens at 3:30 AM ET so we will set limit orders to execute at open. Our price target will be the 2020 high of 1464. Each tick movement in sugar is worth $11.20, a drop from 1645 to 1464 would be worth $2,027. We will place stops above the Thursday high at 1737 risking $1,030. That is a 2:1 risk reward ratio. Margins for sugar are currently $1,109 per contract on RJObrien.
We were stopped out of all stock positions over the past few days. Yesterday the Nasdaq fell right to our stops at 135000 and turned back up. We were hoping to not get stopped out as we were expecting an HCL and then a continue in trend up but it does not always go as planned. As we stated in our post Preparing for Upcoming ICL, on 2/17, we were waiting for the 3 day RSI to hit oversold levels to confirm an HCL. The 3 day RSI reached those levels in the Nasdaq and Russell. The S&P and Nasdaq are currently in the process of completing a swing low and all indexes are trading up.
We are recommending getting back in stock positions with stops just below the low of the index, 13460 in the Nasdaq, 3880 in the S&P, and 2200 in the Russell. If you enter now you can get in the Nasdaq at 13700, the S&P at 3925, and the Russell at 2240.
We do need to keep in mind we are still in the timing band for an Intermediate Cycle Low. These are usually much larger drops then the dip we just saw and provide amazing buying opportunities. We will look to tighten stops to our buy in price quickly in preparation for the ICL, which we are anticipating but may or may not come in strongly trending markets like this.
It wasn't even a month ago we recommended a long bond trade. We did not reach our target, our target was to make $3500 because bonds were in their timing band for an Intermediate cycle low. Bonds just could not break through the Intermediate cycle trend line. Today, the intermediate cycle is even more stretched.
After 7 consecutive down days, the Intermediate cycle likely bottomed today. We are recommending again that you buy the 30 year bond, this time using the June contract. As March futures trade into expiration, June futures have the tendency to rise and close up their discount to March. Intermediate bond cycles usually last 18-26 weeks. We are currently on week 34.
One reason to have confidence that this will be a profitable trade is history. This particular trade has been profitable 14 of the past 15 years when bought February 13 and held through April 13. That is a long time to hold the trade for us. The average profit on the trade has been $2708. We would be entering the trade a bit early, but we must enter on the swing to buy as close to the bottom as we can.
The optimism index shows bonds have reached extreme bearish levels signaling the market is running out of sellers.
The weekly chart is showing extreme oversold levels as well. While I believe bonds are now in a bear market, we should have a bounce here that lasts 4-5 weeks...... just long enough to get through that IC Trend line.
The continuous chart of the 30 year bond shows we have had a 7 consecutive down days. Today was the first day with a higher close. Because sentiment is near zero, there just are not a lot of bears left to sell it any further. The downside is limited. All we need now to be safe taking a position here is a swing low. That could happen at any moment.
As with last month's bond trade, we should expect to see the 30 year break above the IC Trend Line at a minimum which would be around 171'16 on the continuous chart. The swing on the continuous chart would be at 167'12 which would be a 4 point move. We will be trading the June bond contract however and the swing there will be at 165'23. That is where we will buy.
The margin on the 30 year bond is $4400. We recommend buying the June 30 year bond with an entry at 165'23 and a stop at 164'15 which is risking 1'08 points, or $1250. The gap that was left on the June chart at the beginning of the year is near our target which is actually 4'28 points away from our entry point. I am not sure we get there but that would be the max target. The bottom edge of that gap is probably more realistic, and is just over 4 points away. Each point on the bond is worth $1000, so you are risking $1250 for the opportunity to make $4000, good for a 3.2:1 risk reward ratio.
Continuing the trend of switching things up we are looking into another soft, orange juice. As you can see from the chart below, OJ has been on a major decline after a sharp rally in November and January. We received a swing low in OJ today giving us our entry signal. With price well below the 10 DMA, 50 DMA, 200 DMA and current oversold conditions, we should be looking at a decent price rally.
Price has remained oversold on the 5 day RSI since mid January and has hit extreme oversold levels multiple times in that period and gave a buy signal today in the RSI.
Below I have posted a chart of OJ with the commodity channel index indicator (CCI). As you can see from the chart, oversold conditions in the CCI have a strong correlation with price rallies in OJ. Prices are the lowest they have been since September of last year, right before the strong year end rally. I do not expect a similar rally in OJ as it had in November but I do think their will be a good gain on this trade.
Looking at the previous price rallies out of oversold conditions we can see the average rally is near 250 ticks. That would put us near a target price range of 118.5.
We are looking at trading the March orange juice contract. Margins for OJ are $1,386. Price per point for OJ is $150. If price rallies 250 ticks to 118.5 from current trading price at 109 we are looking at a $1,425 profit. We will place stops below the swing low at 106 risking $450, that is more than a 3:1 risk reward ratio.
Oil and gasoline have been consolidating after huge runs following the election. The Democrats are in control now, and cheap fossil fuels are not in their DNA. It is difficult to get people to buy solar panels and electric cars when gasoline is under $2.00 per gallon. Shutting down the Keystone Pipeline and ending fracking is just what the oil and gasoline needed to create a new bull market.
After working inventories of crude oil down to minimal levels in December in order to avoid year-end state taxes, many refiners need to replenish supplies for the upcoming vacation and driving season. Thus, crude has tended to rally during February and to continue higher generally into April when refiners will have switched over to maximizing production of gasoline and operate at capacity to meet accelerating demand. Sentiment Trader shows that peak price appreciation is in the late winter and spring months.
More specifically, Moore's Research shows that the spring rally usually begins January 15. We did not recommend at that time as gasoline was already weeks into a very strong rally. After allowing the price to consolidate a bit, I think you could step into the trade now. According to Moore's, the July gasoline contract would peak around April 11.
Except for the late summer and fall seasonal decline, these price consolidations into the 10 day moving averages have been buying opportunities. With the seasonal demand coming and a LARGE summer driving season expected, I think this could be one of your last opportunities to buy gasoline at these levels. You can see from the chart below, there is no resistance from these levels at 1.62 to the previous cycle high last winter of 1.80.
The energy sector looks strong here. Looking at the weekly chart, oil and gasoline both are just breaking above the 200 week moving average. This could be a sustainable long term move.
The plan would be to buy the July gasoline contract which coincides with Moore's recommendation. The July contract should best capture the summer driving season. We recommend you buy the July unleaded contract at 1.70 with a target of 1.90 capturing 20 cents. A 20 cent move into summer driving season seems pretty conservative.
Gasoline contracts are based on tractor trailer quantities of 42,000 gallons, so each penny gasoline moves is worth $420. A 20 cent move would be worth $8,400. We would set the stop just below the 10 DMA at 1.64, risking 6 cents. This gives us a little better than a 3:1 risk to reward ratio. Unleaded gasoline margins are $4,950.
We believe your best way to manage your emotions through these volatile markets is to be spread out across as many asset classes as you can be. Silver may have had the bulk of its movement. If you like this energy trade but do not have the capital in your account to take it, the prudent thing to do would probably be to lighten up on the silver for now and move some margin money into gasoline. You can buy 3 gasoline contracts with the same margin from 1 full silver.
We received a swing low this afternoon in stocks after a strong rally throughout the day. The swing indicates the start of a new daily cycle which should run the next 30-45 days. The last daily cycle lasted 62 days, much longer than usual but I suspect the rally continued following the inauguration with optimism of the new administrations views on stimulus, government spending, inflation, etc.
This run-up in stocks should of course continue the trend of daily all time high's. We have spoke numerous times of what we believe is a bubble forming, specifically in the Nasdaq which should take it to 17000-18000. Picking an expected price range in other indexes is hard since of course we are already at all time high's. I do expect a rally in all indexes but have the highest expectations for the Nasdaq. This trade is going to be ongoing throughout the year, I do not suspect the Nasdaq to hit this level by March. It is a long term trade that will require us to hold contracts for a long period of time and roll contracts as price continues to rally thought-out the year. We have explained our strategy and why we expect this rally in our videos major market shifts happening - part 1 and market shifts happening - part 2. As we have learned it is not easy to hold though the volatility but it is the best strategy. When we made these videos in early December price in the Nasdaq was at 125000, in that time span it has already rallied to 135000 before the recent drop in prices.
I suggest entering the Nasdaq now at it's current price near 13300 and placing stops below the 50 DMA at 12700 . You can enter the S&P now near 3785 with a stop below the 50 DMA at 3715. Also look to enter the Russell near 2130 with a stop below its recent DCL at 2028. We will be trading the March contracts of all.
This trade coincides well with the Moore's data. Moore's has a March Nasdaq buy recommendation on 2/8, profitable 14 of the last 15 years.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.