I don't trade hogs very often, but I am liking what I am seeing with hogs. This is no April Fools Joke! This is the continuous hog chart going back the past year and you can see the price is stretched about as far below the 200 day moving average as it gets. Hogs are now re-testing the lows made earlier this month. I think this bottom will hold.
Moore's Research likes hogs also. They suggest that buying hogs March 31 is a profitable trade 12 out of 15 years when sold by April 11. This trade should be over by the end of next week. The average profit on the winning trades is $1190.
Seasonally speaking, April is the best month for hogs.
Sentiment readings are at a bearish extreme.
Moore's suggest buying the December hogs. Looking at the December hog chart, I would have to say they don't get any uglier than that. There is a gap that was left at 63.30....nearly $10 away. The chart also shows a swing low here on March 31.
What I really like about this set up is that we have a swing low on a day when hogs likely completed an ICL on the very day that Moore's has a buy recommendation heading into the most profitable season for hogs.
Hog contracts are 40,000 pounds in size and require a $3,000 margin. Every dollar hogs move are worth $400. A 9 point move from 54 to 63 would be worth $3,600. With a protective stop at $51 you would be risking 3 points, or $1200 for the chance to make $3600. That is a 3 to 1 reward to risk. Considering this should be done in by the end of next week, that is a very fast turn on that much money.
I will be buying at the open on April 1.
Scenario 2 it is. The ES Futures have clearly breached the IC Trend line now. This is our confirmation that a new Intermediate Cycle began on March 23.
I am not saying we should go all in. I think it would be OK to place an order to start a S&P 500 Futures Index at 2600. I am anticipating we will add more positions through out the week if we keep getting more follow through.
There will be an employment report out Friday. This has me pondering if this market can really get anywhere until after that report is released. If mass panic does happen and we have some sort of selling into that report, I think we could get stopped out and buy back in after that report Friday. It is my hope for now that we can get enough pop in the market tomorrow and Wednesday that we can get our stops raised high enough that we can make enough on the trade to cover the commissions and have some pizza money left over.
This is why I don't want to go all in tonight. Lets begin small and try to protect ourselves quickly from the volatility. If we go straight up from here.
Again, the order is to buy the June ES Emini or the micro Emini at 2600 with a stop at 2550. You could also make it a market order if you want to be dang sure to get in.
Most of the traders in my group were in stock positions and all made money before getting stopped out Friday. We are still on board with scenario 1 that I suggested on Thursday. But what if? What if some sort of news event triggers buying Sunday night or Monday? We should at least have a plan now should that happen.
As it stands we are on track for scenario 1 to happen. A drop to around 2300 would give us a higher low. A swing there is our indicator to re-enter.
But what if price breaks out above the intermediate trend line Sunday or Monday? For that to happen, it would mean price would break back above the 200 week moving average which, along with the IC trendline halted the S&P on Friday.
If this happens, it means now we need to trade like we will have a V shape recovery instead of one of those more complicated bottoms we usually seem to have to endure. A move above the IC trend line and above the 200 WMA means the trading for now becomes much easier. Before this Intermediate Cycle is finished, the weekly RSI and Stochastics will be back to overbought levels.
If Scenario 1 plays out there is nothing to do, but if Scenario 2 plays out we should be ready to buy. Your trading will be much less emotional if you can think about this today and tomorrow before the market opens and think what you are willing to risk. Are you going to want to trade the S&P 500 index, the NASDAQ or the Dow? Are you going to want to trade the new Micro Mini contracts, or just stick with the regular contracts? Think about these things now. The market will open at 6:00 tomorrow evening. If I am buying the indexes for myself I will let you know. Have your decision made by then.
By the way, the margins are all updated in the last Futures Specs document I sent out. Remember the Micro mini contracts are 10 percent of what the regular index contracts are.
We have come within a whisker of a swing low on the S&P 500 futures. A break above this level, 2386, is the first confirmation that we have a daily cycle low, intermediate cycle low, yearly cycle low, and a 4 year cycle low.
We already have a swing low in the NASDAQ, Dow Jones and the Nikkei but the standard bearer for the stock market it the S&P 500.
Margin Limits are now $13,200 for S&P Futures and $16,500 for NASDAQ futures. Don't forget, there are the new Micro Mini Futures which trade at 1/5 the size of the standard indexes and the margin for those is 1/5 the margin.
Not saying this will be an easy ride but that is the situation. Let me know if you want to try.
The last time I recommended buying cotton on March 4 we were stopped out for a small loss just before all markets fell off the edge of the earth. Since then cotton has endured a steep decline. All other softs such as cocoa, sugar, orange juice and coffee have already begun nice rallies. This morning Cotton has given us a swing.
Most of the reasons for taking a cotton trade were outlined in that March 4 post. This time around, the trade would be even more enticing. It helps somewhat that most other assets are green across the board. Cotton sentiment is at extreme bearish levels.
Cotton has just this morning given us a swing low.
Cotton futures trades in 50,000 pound contracts and requires $2915 in margin. Every point it moves is worth $500. An average move according to Moore's is almost 2 points but in an extreme oversold situation with sentiment cleansed, I think we could see cotton reach the consolidation area of 62. If we bought CT at 53, we should have at least a 9 point gain which would be worth $4,500. With a stop at 62, you would be risking 2 points.....$1,000. My recommendation is to put in an order to buy July cotton at 53 with a stop at 51.
Lumber has given signals that it has bottomed. Lumber shows a hammer and a swing low which are two very good signs. I expect lumber will give us a buy signal on the CCI when it opens this morning.
The weekly chart clearly shows a hammer also. Weekly indicators are slower to develop but are truer to giving market direction. The weekly chart also shows extreme oversold levels on the RSI and Stochastics as well.
The optimism index shows extreme bearish pessimism which is the fuel lumber needs to create a strong rally.
Lumber futures contracts are 110,000 nominal board feet in size. The reason for this size is that it will fill a 73 foot rail car. Every dollar it moves is worth $110. The margin on a lumber contract is $3,240. If we can get into a contract at 315 and the price rallies to $350, you would make $3850. We would put the stop at 300 initially, risking $1650. The hope would be to quickly get the stop back to $315.
I am a contrarian trader. I like to buy when everybody else is selling, and that to me is what I see when I look at the beat down gasoline has taken the past few weeks...…. down well over 50%.
This is the May gasoline chart. I bought gasoline already at .6855 cents a gallon. What I really like most about the trade is how easy it is to manage the risk on it. Now, I could get stopped out, but if you bought it right now around 68 cents, you could manage the risk with a stop at 63 cents. You would be risking 5 cents per gallon X 42,000 contract size for a total of $2,100. That does not sound cheap but you have to consider the potential reward. At a minimum, I see gasoline getting back to 90 cents. This would be a gain of 22 cents. .22 X 42,000 is $9,240. That is a 4 to 1 risk reward ratio. But, it could get even better.
First though, check out this gasoline chart. The things that really catch my eye is 1. The relative ease of managing the risk. 2. The Commodity Channel Index Buy signal we are about to have, and 3. The enormous gap that was left at $1.38. If this gap gets filled on this first daily cycle, that would make you 70 cents. .7 X 42,000 = $29,400.
Looking at the Weekly chart, you can see that oversold conditions on the stochastic and RSI are followed by strong rallies every time.
Trading the past 2 months has been pretty much a wash. The cycles, seasonals and historicals all got washed out pretty much. One trade we normally would have taken in February was Gasoline. As spring arrives and driving conditions improve, gasoline consumption rises. Furthermore, the industry must accumulate inventories for the upcoming summer vacation and driving season. This combination normally drives price higher into May. We can still catch the tail end of this event. The historical record for this trade has been 14 of the past 15 years. I think by stretching the purchase out to now, we will still be able to profit from buying gasoline now.
Seasonally speaking, March is the strongest month of the year for price appreciation.
Sentiment Trader shows that gasoline has the most extreme bearish sentiment since 2017. This really does show that all the traders have run to one side of the boat. The gasoline market is about to run out of sellers.
In conclusion, gasoline really does check all the boxes. It looks like the perfect trade and we seldom get those. Most of the trades I recommend come with certain compromises. I am sure that demand for gasoline will be curtailed somewhat, but most of this has already been priced in. The function of the market will mean that at some point the traders who shorted gasoline will need to exit their short positions. This means they have to do the opposite of selling which means they will buy just to exit their positions. This short covering or short squeeze will result in massive buying which will make this thing zip higher about as quickly as it dropped.
In light of the volatility, all of the trading margins have increased again. Margin on a gasoline futures contract is now $10,650. This is the price to sit at the table. It does not mean that the risk or reward is any different. It just means that this is what you need in order to back the trade. According to the CME, there is a micro contract you can buy which is 21,000 gallons. The margin for this contract is $3550.
I went long cocoa a couple days ago after it gave a swing. That swing was negated yesterday, but cocoa has since dropped 2200 which has been a support level since March a year ago. The price has already bounced this morning at 2204.
Looking at it from a larger perspective using weekly charts, you can see that we are at levels now where we should be expecting prices to turn. The oscillators are all in oversold territory. Even if it drops a bit from here, we are very close. The market turns at these levels.
Moore's believes mid March into April that Cocoa performs well. Cocoa has made money 12 of the past 15 years when bought on March 15 and sold April 27. The cycles are lining up well with these dates.
Margins on a cocoa futures contract are $2090. Cocoa futures contracts are 10 metric tons in size. Every point cocoa moves is worth $10. My recommendation would be to buy cocoa here....2240ish. The objective would be for cocoa to rally over the coming 6 weeks back to the 2440 level. This would be a gain of 200 points. With a stop below 2200 you would be risking about 50 points.
I think this trade has the potential to make a quick $2000. The risk would be $500. That is a 4 to 1 risk reward ratio which is pretty good. This is why I am recommending that you buy cocoa this week at 2240 or better with a stop at 2190.
Moore's Research noticed that if you bought July cotton on February 20, that if you held that position until April 10 it has been a profitable trade 13 of the past 15 years with an average profit per trade of $958.
Logic would tell you that if February 20 was an ideal time to buy cotton, and cotton subsequentially drops 6.50 points that today would be an even better time to buy cotton. Cotton was at 70.50 on February 20. There looks to have been a head and shoulders top happening which was probably completed early due to the corona virus scare. This pattern looks to have completed at the 61.00 low.
Cotton had a huge up day on Monday giving us a swing low. Since then price has begun a consolidation phase.
Sentiment Trader says that cotton has now reached excessive bearishness.
March and April are strong months seasonally speaking.
Cotton futures trades in 50,000 pound contracts and requires $1500 in margin. Every point it moves is worth $500. An average move according to Moore's is almost 2 points but in an extreme oversold situation with sentiment cleansed, I think we could see cotton reach 66.00 initially, and 68.00 likely. If we bought CT at 38.50, we should have at least a 2.5 point gain which would be worth $1250. A move to 68 would be worth $2250. With a stop at 62, you would be risking 1.5 points.....$750. My recommendation is to put in an order to buy July cotton at 63.50 with a stop at 62.
Events of the past week has skewed the cycles of most of the assets we trade. In this trade, I am relying mostly on technical analysis and the fact that we can put a stop at a fairly tight level to manage the risk. The plan will be to increase stops quickly which I normally do not do at cycle lows.
There was no metal damaged worse over the past month than Platinum. Looking at the daily chart, Platinum has not given us a clear buy signal of a swing low yet but it likely will this week. We will probably also get a buy signal on the commodity channel index which correlates well with Platinum.
The weekly chart also shows signals consistent with Intermediate Cycle Lows. In addition, there is a very large cup and handle sort of pattern which I have found to be one of the more reliable price patterns.
Margin on Platinum futures is $2640. This is roughly half of gold and silver. Every point that PL moves is worth $50. The plan is to buy April Platinum at 870 with a stop at 840. This is risking 21 points, or $1050. I think PL should move to 909 at the very least. 909 is where the 200 day moving average is which would be worth $1950. A more likely bounce should take PL at least to the 38.2% Fibonacci retracement at $922. This 52 point move would be worth $2600. I think there is a reasonable chance PL rallies to the 50% fib which would be worth $3800.
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.