Yes, I know we just bought the Euro a couple weeks ago, and the reason we bought the euro was because we knew that the dollar was going to have a blood bath decline into an intermediate cycle low.  I am not good at picking tops as I have said many times, but I am not bad at picking bottoms.  Once the dollar makes a daily cycle low, we should short the euro.  

The dollar is now in day 7 of a blood bath phase.  The end of this cycle will mark the end of a daily, intermediate and yearly cycle.  Daily Cycles usually last 18-25 Days, Intermediate Cycles usually last 15-24 Weeks and yearly cycles tend to last 8-15 Months.  Do you remember how the stock market rallied back in March?  This is the type of reaction I expect the dollar to make out of it's intermediate cycle low.

Because this will be a major low for the dollar after an ICL, we should expect a strong counter rally.  Rallies out of intermediate cycle lows tend to recover 6-10% in the first 16-18 days.  The dollar will probably rally through the end of August.  This means that the Euro is going to have to have a steep decline of a similar magnitude that the dollar is rallying.  

Dollar optimism has not been this negative since 2011.  This means the market is full of dollar bears.  The dollar should be running out of sellers very soon.

Likewise, the euro which trades inverse to the dollar has reached excessively bullish levels.  The euro should be running out of buyers very soon.

Currency does have seasonal tendencies.  August is typically not a good month for the euro

And August tends to be a decent month for the dollar.

The extreme nature of this ICL is going to trigger a buy signal on the CCI in a day or two.

Likewise, the CCI will also trigger a sell signal on the euro.

Looking at the weekly chart, the euro has reached extreme bullish levels.  Levels this high are consistent with intermediate cycle tops.

The dollar chart shows similar extreme oversold conditions.  You get the idea.

Shorting the euro is as easy as buying the euro.  Every cent the euro moves is worth $1,250.  For example, if the euro drops from $1.17 to $1.16, you would make $1,250.  A drop from extreme overbought conditions over the next month will probably bring the euro back to the 200 day moving average.  By the end of August, this should be around the $1.13 area.

Sell Sell Sell!  That is what they will be screaming in the pit tomorrow!

Not really but Orange Juice Futures are ready to drop.  First, let's look at the technicals.  Conny warned me yesterday that Orange Juice was breaking down.  She noticed price was consolidating into a tight triangle (red triangle).  Today the price broke down below the triangle and today is on the verge of breaking long term support at 121'70.​

Historically speaking, Moore's Research says orange juice has dropped 13 of the past 15 years between July 27 and August 19 by an average of $1319.42 per contract.

The topping pattern with orange juice would indicate the price of orange juice should drop down to the $113.60 level.

The margin on an OJ futures contract is $1,386 for a contract of $15,000.  Every full point is worth $150.  A drop from 121'70 to 113'60 would be 8.1 points.  8.1 points X  $150 = $1,215.  We recommend shorting at the 121'70 level with a stop at 123, risking 1.3 points, or $195.  This would be a 6 to 1 risk reward ratio.  

Once the blood bath stage in the dollar ends, it should also correlate with a peak in the stock market.  A drop in stocks should create a surge in bonds. Until recently, bonds moved inversely to stocks

The reason bonds and stocks have risen together recently is likely because at the last FOMC on June 10, the fed announced they will keep interest rates low in an effort to stimulate the economy. There is always a correlation between bonds and interest rates.  Declining interest rates means higher bond prices, therefore bonds were increasing at the same time as stocks.  We expect a more normal correlation going forward.
 
We are just now entering peak bond season. According to Moore's Research, July 24 is a buy date with a 14 out of 15 year positive return over the next 2 weeks.

Seasonally speaking, the 30 year bond performs better in August than any other month of the year. The reason bonds usually perform well this time of year is because market-driven interest rates traditionally peak in April/May as income tax payments drain financial assets from out of the private and into the public sector.  As that money works its way back into the economy, rates normally ease. 

Bonds may look a little high here, but keep the big picture in mind.  Bonds still have room to move higher before the weekly oscillators will reach overbought levels.  This should fall in line with the dates suggested by Moore's Research.

Cycle trading works from the bottom to the bottom of each cycle but it is not a good tool for picking tops.   Every now and then, a shorting opportunity will happen when certain oscillators show extreme overbought conditions.  Soybean oil has become a candidate that shows shorting potential.

Soybean Oil (ZL) was brought to my attention by my wife Conny who has an eye for spotting things.  We look at charts as a part of our morning ritual.  She was going through the FINVIZ charts and said "Soybean Oil looks like it is trading in a channel".  I looked in my charts and saw that she was right.  Soybean oil has since broken above the 200 day moving average and peaked today.  Tonight, Soybean Oil showed a swing high and has also given a CCI sell signal.

The CCI is an important oscillator for certain commodities we trade, but I don't believe it correlates with any commodity more perfectly than it does with soybean meal.  If you bought and sold soybean meal just using the CCI as your buy and sell indicator, you would make a lot of money.  It's not perfect but it is close enough that you sure as heck need to pay attention to it.

It is not just the daily oscillators that are overbought but also the weekly oscillators.  Both the 5 week RSI and weekly Stochastic indicators are showing overbought conditions.  This market is running out of steam and it is doing so just as price has touched the 200 week moving average.  

I am recommending that we short October soybean oil.  The margin requirements for Soybean Oil are currently $1100 per contract.  The October Soybean Oil contract is presently at $30.12.  If price drops to the 50% retracement level of 28.16, it would be a full 2 point drop.  Each point is worth $600 so a 2 point drop would be worth $1,200 per contract.  If you can short Soybean Oil at 30.12 and use a stop at 30.75, you would be risking .54 points or $324.  This gives the trade a 3.7 to 1 risk reward ratio.  

To think about it another way, for what the margin on one gold contract is ($9020), you could buy 8 Soybean Oil Contracts.  8 soybean oil contracts dropping $2.00 would yield a $9600 return.  If gold made that kind of return you would probably be very happy.

Let us know if you would like to participate!​

The stock and metals trades are growing long in the tooth but there is always something to trade.  Today we are looking at cocoa which has struggled since February.  Today cocoa had a swing low at a time when sentiment readings were extreme.  Prices tend to rally at these moments.   

Sentiment readings are at 25 which are as low as we have seen since the bottom of the pandemic sell off back in March. ​ In fact, sentiment readings are the lowest they have been since October 2018.

Looing at the weekly charts, both the stochastic and 5 day RSI are indicating cocoa is currently oversold.  We should be expecting a rally soon.  In fact, the candle this week is showing a bullish reversal hammer candle.

Cocoa did give a swing low today.  This is the first confirmation of a trend reversal.  I believe a reversal from this point should take price back to the 50 day moving average as a minimum.  The 50 DMA should be around 2300 by the time the price reaches it.  That will be the target.  

The margin requirements for cocoa are currently $2,090 per contract.  If price can rally to the 50 day moving average at 2300, it would be a 150 point increase.  Each point is worth $10, so 150 X 10 = $1500 per contract.  If you can buy cocoa at 2150 and use a stop at 2100, you would be risking 50 points or $500.  This gives the trade a 3 to 1 risk reward ratio.  

As you know, we have become cautious as it pertains to trading because many of the cycles we trade are becoming mature.  Stocks for example exploded out of a daily cycle low as you should expect but hit a wall today as yesterdays gap fill seems to also be resistance.  We triggered stops on the Nikkei and almost did on the NASDAQ. 

Gold finally had a solid close above 1800.  This was resistance that had held in place since October of 2012.  There is little to no resistance between 1800 and the all time high of 1923.7

The line in the sand has been crossed and traders are smelling blood.  The bullion banks will need to exit their enormous number of shorts and to do this they have to buy.  This will create a phenomenon called a short squeeze.  If they do not exit they must pay enormous amounts in margin calls.  This creates a lot of fuel for an explosive rally.  The gold cycle peak today is on day 21.  This locks in a right translated cycle which is bullish.  This cycle could still run another 29 days to give us a 50 day cycle by early August.  Gold could be at 1900 in a week or two.

I like all the metals but my favorite has to be silver.  Late in intermediate cycles, silver tends to overshoot gold.  When looking at the 10 year chart of silver, you can see that silver is in a long term basing pattern.  Hard to believe silver was over $50 just 9 years ago.  I think it is very possible we could see silver reach this area of congestion in the 21 area as gold approaches the all time highs.  That would be a $3 return on an $18 asset verses a 100 point gain on a 1800 asset.  That is a 16.6% return for silver vs a 5.5% return for gold.  Multiply that by the leverage of futures and silver gains could be enormous.

Silver can be much more explosive than gold.  It tends to multiply the magnitude of gold's moves.  Silver could reach 21 in a week or two.  It has done this twice since March.

Margin on gold is 9020.  Every dollar gold moves is worth $100.  A 100 point move would be worth $10000.  I recommend placing the stop 30 points below where gold is trading, risking $3000.  This still gives better than a 3-1 risk reward ratio on the trade.  If gold opens at 1810, the stop would be at 1780.

Silver margins are $8,800.  Every penny silver moves is worth $50.  A $2.30 move in silver is 230 cents X $50 or $11,500.  If you buy silver at 18.70 with a stop at 18, you will be risking 70 cents X $50 or $3500.  A move from $18.70 to 21 is a 230 cent move worth $11,500, again a 3-1 risk reward ratio.

I will be focusing on gold and silver but I will probably pick up a platinum as well for good measure.  Platinum margins are only $4,400.  I think platinum could move 150 points or more in this move.  Each dollar platinum moves is worth $50, so a 150 point move would be worth $7500.  You could pick up two platinums for what one silver costs.