I know it has been a rough ride for traders the past few days. Coming into this week their was much optimism for stocks and stimulus was on everyone's mind. The week starts out with a new COVID strain impacting the market negatively and then the $2.3 trillion spending bill which includes the $900 billion relief package took and unexpected turn last night. Despite all this news the market is trending back up today.
The Russell 2000 is making new all time highs this morning breaking 2000 and the NASDAQ never fell below the 10 DMA. The market took an unexpected turn but their is nothing to suggest stocks aren't going to trend higher. We are in the timing band for a half cycle low and early in the daily cycle still. There is still a $2.3 trillion dollar spending bill on the table that needs to be signed by the 28th and it has not been vetoed.
The dollar is dropping hard today and earlier fell below yesterdays open price. Silver and gold today already recovered half of their loss from the last 2 days.
If you are still hesitant to enter stock trades go back and review our post from 11/24 on "Buying Stocks". We also have a 2 part video series on our thoughts on the direction of the market and why we are so optimistic on stocks, click the text to see "Part 1" and "Part 2". We suggest entering the March Russell at 2005 with a stop at 1950 and March NASDAQ at 12680 with the stop at 12250. We just recommended "Buying Platinum" on 12/18. If you followed our lead and placed stop at 10000 you were stopped out the next day. We recommend you re-establish the Platinum positions we lost in the April contract this time at 1023 with the stop at 1000. A dropping dollar is good for stocks and metals. A huge government spending bill like the one waiting to be approved, which is the second largest in American history, is not good for the dollar but it is great for metals and stocks.
You could almost argue that Platinum has led the metals given it began a rally off the lows in October. Since topping in early December near the January high, Platinum has been in a sideways chop. This should end soon and PL should be poised soon for a good January,
When platinum breaks out of this chop zone, there is no resistance until price reaches the 2016 high at 1200.
Platinum is one of Moore's Research's favorite commodities for December and January. They had a buy recommendation November 30 with a 15 of past 15 year successful track record and they also have another recommendation for December with a 15 of the past 15 year successful track record beginning December 22 and lasting till January 26. The average gain for this second PL trade is $4569.
January and February are the two best months of the year seasonally speaking for Platinum.
So yes we like Platinum a lot as a shorter term trade over the next month but we do not recommend platinum over silver. Silver is trading into a bubble that is fueled by a greed fueled euphoria. I don't think that kind of enthusiasm will spill over into Platinum. We do believe in Platinum as a good trade which stands on its own and will probably perform better than normal because maybe a little bit of enthusiasm in the other metals will spill over. Platinum does have some advantages, such as smaller margin requirements. Margin on a platinum contract is only $3630 compared to $15400 for a silver. You could buy 4 platinum contracts for what one silver would cost.
We recommend you buy 1 April Platinum contract at 1050. According to Moore's research, an average move on this trade is 91 points. Moore's also shows 3 trades of 150 points or more. Because there will be no resistance when price breaks out of the chop zone, and because of the euphoria in the gold and metals markets, we think platinum should have no trouble moving 150 points to the 2016 high. We would place the stop at 1000, giving this trade a 3:1 Risk Reward Ratio. Every point is worth $50, so you would be risking $2500 on the trade for the opportunity to make $7500.
As the 10 day moving average has already caught up to price, we could see the price advance begin moving ahead of the December 22 Moore's date. I would get on board sooner than later.
Tyler and I are working very hard to help find ways for you to diversify your futures portfolio. We realize we have been focusing on the stock indexes and metals lately, but as your accounts continue to grow, we would like to see you putting more of your excess margin into other assets as well as taking short positions in some things.
Cotton has made a strong and steady run higher since the April low. Cotton, along with many of the ag commodities is enjoying a new bull market. Cotton has stayed neatly within this channel and is now pressing into the top of the channel. If it behaves this time as it has the previous three times, it should at least have reached a short term peak.
The weekly chart also shows extreme overbought conditions. In strong bull markets, the oscillators can remain overbought for long stretches of time. The RSI and Stochastics have been overbought now for months.
The optimism index shows that cotton has reached extreme bullish optimism. Cotton is running out of buyers.
The bull run that cotton is in is getting very long in the tooth without a major correction. We have extreme bullish optimism, we have price at the top of a channel, we have price very near a longer term resistance area of 7950. I think cotton is due at least a short term corrective move and perhaps even a deeper correction.
A drop to the bottom of the channel would take price around 72.50. This would be a 5 point drop. That would be the minimal target. If we place the stop at 80, just above the April 2019 top you would be risking about 2.5 points. This would give the trade a 2:1 Risk to Reward Ratio on the trade. Probably good enough to try with a small position. I don't know about cotton cycles, but an ICL kind of move for cotton could take prices as low as 68, or a full 50% retracement to 64.5.
Cotton margins are $2915. Each point cotton moves is worth $500. If you short a position at 77.5 with a stop at 80 you are risking 2.5 points. That would be $1250. The potential 5 point move is worth $2,500. We are shorting the March contract (CTH21).
The time has come to buy sugar. Some of you may remember we attempted to sell sugar at the end of October and got out basically where we entered for a miniscule gain. In fact that was the last short trade we have recommended. There has been a flood of buying optimism in the commodities market making it hard to short futures, but the optimism is providing many buying opportunities. The US sugar crop consists of both beets and cane: the harvest of both beginning in autumn. Beets must be in the bin by the first hard freeze, thus prices have tended to decline into early December only to rally after beets are in. Prices can then enjoy a demand rally into January and even February. This demand rally occurs with consistency, 14 of the last 15 years actually as you can see from the chart below.
The July sugar contract swing low yesterday. Looking at the chart below we can also see that price opened right at the the 10 DMA and has closed above it today. The 50 DMA has been providing the price support since mid May as price has been steadily increasing.
Price seems elevated on sugar, and relative to 2020 it is. But looking at the last 10 years sugar price is well below the average. The chart below is a 10 year monthly chart with a 10 year moving average.
Estimating our gain on this trade leaves a lot of potential. The 2020 high on the July contract is at 1434, I believe we will at least get to this level. Using the previous pivot points we can estimate a jump from the bottom of this pivot which occurred on December 14th at 1323 to 1456. All previous jumps from the bottom of the previous pivot points have netted a minimum of a 116 point movement up with the average jump being over 130. If price does break above 1434 I suggest tightening stops to that level quickly as I expect it will provide some strong resistance. From the current trade price at 1350 to the current 2020 high would be worth a $941 profit and a move up to 1456 would net a $1,187 profit. Placing stops at below the 50 DMA at the 1300 price level we would be risking $560.That is a 2:1 risk reward ratio. We would be trading the July sugar contract (SBN21).
We will place stops below the 50 DMA and the trendline at the 1300 price level. We will be risking $560. That is a 2:1 risk reward ratio. We will be trading the July sugar contract (SBN21).
Margin requirements per contract are $1047 on RJO. I want to emphasize the importance of diversifying your portfolio. I wrote this pose back in September about this https://www.wadeassurance.com/speculation/a-new-strategy-in-these-difficult-trading-days.
Gold formed a swing low overnight. Today is day 1 of a new daily, intermediate and yearly cycle for gold.
The weekly gold chart shows more oversold conditions than it has seen in a year. The last time gold was this oversold it had a very nice run.
The daily chart will soon show the first CCI Buy signal of the year.
Gold is in a bull market now. I never expected the optimism index to drop into a sentiment extreme oversold level but my preference would have been to see the optix below 50. It is the lowest is has been in a year which I now believe will be as low as it gets.
We are buying February Gold at 1800. The gold margins are $12,650, or you could buy a mini contract with $1,265. We will be risking 20 points on the trade, or $2000. The first rally out of an intermediate cycle low should be very strong. I would anticipate a move to the previous daily cycle high at a minimum which would be a 60 point move, meaning the rally would be worth $6,000. That would give this trade a 3-1 Risk to Reward Ratio. We will be trading the February contract.
Gold is the driver of the precious metals market, so we do our analysis for the metals sector using gold but you could also buy silver now. Silver margins are $16,500, but you could also use a mini silver contract which is 20% the size with a margin of $3300. You could buy March silver at 23.50 risking 1 point with a stop at $22.50. I would expect a rally to the 26-27 area giving a 2.5-3 to 1 RR Ratio. Each point on silver is worth $5000, so you would be risking $5,000 to make as much as $15,000. We will be trading the March contract for silver.
Platinum looks very strong and I seldom ever suggest buying into strength, but as I commented on the Speculation page Saturday, the nature of the commodities market has changed. Platinum to some degree follows gold and silver. Platinum should reach 1050 pretty quickly which was the January high. Because PL is so near major resistance I am passing on recommending PL for now, but you will want to keep it on your radar.
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.