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.
Time to switch things up. We have been focusing out trading on metals and stocks the past month as they really do have the most potential this year but with the volatility in those markets we are switching our focus to some other commodities that give a seasonal advantage. We had great success with cocoa and the softs market as a whole last year despite the harsh trading conditions. We recommended a cocoa trade in July, August, and September and made money on every trade. We are coming up on another good buying opportunity. Cocoa gave us a swing low today, our signal to enter.
As you can see above, cocoa has been consolidating for about 2 months after a strong rally in November. This is coiled up and ready to break. Moore's data tells us that cocoa has been a profitable buy 12 of the last 15 years when bought on 2/5. According to Moore's this is a longer term trade which ends in early May, but we do not intend to ride this trade that long.
The reason cocoa tends to rally this time of year is cocoa is harvested in two crops. The main crop, which can account for as much as 80% of the total, is harvested October through March. The mid crop which accounts for the remainder is harvested May-August. The market has tended to rally modestly into mid February, trade sideways/lower into early April, but then begin a seasonal uptrend through the end of the month often on its way higher to July expiry. We would like to exit during the February uptrend should it hit our price target before the price consolidation.
We will look to enter cocoa near 2520 with a stop placed below the consolidated range at 2460. We will be risking $600. Our target will be 2662, that rally would be worth $1,420. This is a little more than a 2:1 risk reward ratio. Moore's suggests the July contract but because the volume is low in that contract and we do not intend to hold until May I suggest using the March. If we need to roll contracts we can because expiration for the March contract is months away.
Price has the possibility of rallying to 2800 though I feel more confident in a 2662 price rally. Though this is a consistently profitable trade this time of year, seasonal data does not show this rally is strong in February.
We still believe in the stock market, and we believe stocks broke out today into the melt up phase we described previously in our videos. The NASDAQ and S&P had monster days. The Russell 2000 which has led the bull market to this point has failed yet to have a clear break out but should follow.
We usually see rotation around between the banking sector, tech stocks and the small caps. We could see some consolidation the next few days in the NQ and ES while the other indexes catch up. You know stocks can be volatile using the leverage we use in futures. Of the 5 indexes we follow, the RTY will probably be the easiest index to buy the rest of this week.
Is is too late to buy? I think we are seeing that we get volatility and consolidation now where we would normally get daily cycle lows. Instead of buying at cycle lows, we need to be buying the breakouts. These are not easy to trade, but going forward there should still be 2500 points to capture in a 2-3 month window on the NASDAQ using the lower estimates. That would still be a move worth $50,000 if you can stay on board and not get stopped out. I think top end we could see the NQ move near 18,000 which is still nearly 5000 points away. I seriously doubt we could stay on that long however.
If you want to view the videos we produced explaining this melt up, I have provided the links below:
Major Market Shifts Happening Part 1
Major Market Shifts Happening Part 2
Just to be clear, we would recommend buying March contracts in the ES at 3840 with a stop at 3800, the NQ at 13300 with a stop at 13000, and the Russell at 2150 with the stop at 2100.
We jumped the gun on our last metals trade. We hopped in as we thought the cycle had ended a few days early, then Sunday gold and silver dropped again and negated the DCL we thought we had. Those who set your stops based on our recommendation were stopped out of both gold and silver.
Once again we are at an actionable point to enter a metals trade. I have no doubt metals will have a huge year with all time highs in gold, silver, and platinum. There are certain events that can trigger the next daily cycle, one of them being inauguration day. Biden will be pushing government spending as a focal point in his administration. He has made it clear a $1.9 trillion dollar spending plan is his first priority in office. I am sure you all are tired of hearing me say this but increased spending will drop the dollar and push metals up.
We have not yet received a swing low in gold which could be as soon as this evening. That will be our buy signal. We should be preparing ourselves emotionally to be ready to enter this trade once we get the swing.
The 5 day RSI has been oversold now for over a week. The last time gold was oversold on the 5 day RSI, the price of gold rocketed into a new daily cycle which took gold from 1800 to 1960. Gold is on day 33 of this daily cycle. Metals cycles typically last 30-45 days.
Many of you have reached out to me with concerns regarding the inauguration and the effect it will have on the market. Some of you are concerned about the protests and some are concerned that maybe Trump has something up his sleeve he plans to use before he leaves office. While your concerns could be warranted, these are all things that none of us know. After the year we have had anything seems possible. I think once we get a swing low tonight or tomorrow we enter a metals trade with a small position. Once the price breaks above the 10 DMA, then I will personally look to add more positions.
I think in this new cycle, we will see the price of gold break above the 1966 resistance level and from there I suspect the rally to take us to 2000. The swing low will happen once price breaks above 1845. This will be the buy signal. From 1845 to 2000, the rally would be worth $15,500. We will place gold stops below the current DCL at 1800 risking about $4,500. We will be trading the February gold contract.
We will look to enter silver near 25.5 which is right where a swing low would be confirmed. This rally should take silver to 29 for a $17,500 profit. We will place stops at 24 below the DCL meaning we are risking about $7,500. We will be trading the March silver contract.
We took a hit on the last metals trade. We entered that trade based on a swing low. We were stopped out for a loss on that trade which happens. Once again, we are recommending a trade based on a swing low. If this makes you uncomfortable, you could take a smaller position size using micro contracts, or you could wait for a second confirmation when the price moves above the 10 day moving average. You could also wait for the 10 day moving average to turn up which is another confirmation. Just realize the profit potential of the trade shrinks as you wait for more confirmations. Waiting for the price to cross above the 10 dma will cost $3000 on the gold trade and $3500 on the silver. We tend to take the trade sooner than later which can make more money, but the consequence is that it could be the wrong signal. This is what happened the last trade.
The Nikkei index has broken out to new all time highs today and the Russell 2000 just made a new all time high moments ago. We should be good to get back into the stock market on any index you like. I am personally in all indexes except the Dow. For our purposes here we are recommending the NQ but you might want to try a few different ones if you have enough excess margin.
So we are recommending you buy the March NQ at 12980 with a stop at 12860 risking 120 points. Each point is worth $20, so you will be risking $2400. We still believe stocks are on the cusp of a melt up which could take the NQ to 15500 or higher over the next 2-3 months, so the Risk Reward Ratio is unbelievably high at this point. Risking 120 points to gain 2500 points is crazy but that is our expectation. Margin requirements are $17,600 or $1760 for a micro.
You may have noticed it has been a while since we recommended a bond trade. The bond IC topped on 8/6 and formed an extreme left translated cycle. This IC most likely bottomed Monday as bonds look to have completed a 6 day blood bath. I am marking today as day 1 of a new daily, intermediate and yearly cycle.
The present environment is not wildly bullish for bonds but this early in a new cycle we should see bonds rally for 2-3 weeks minimum. We should expect to see the 30 year break above the IC Trend Line at a minimum which would be around 172 here in this first daily cycle. That would be good for 3.5 points, or $3500.
The margin on the 30 year bond is $4400. We recommend buying the March 30 year bond with an entry at 168'16 and a stop at 167'16 which is risking 1 point. Each point on the bond is worth $1000, so you are risking $1000 for the opportunity to make $3500/, good for a 3.5:1 risk reward ratio.
We received a swing low in gold and silver today. Gold was unable to close below the 200 DMA and silver was unable to close below the 50 DMA at any point over the past 4 days the metals market dropped. This is the first sign we need to know the daily cycle low is over and a new daily cycle has begun which should run up for the next 30-45 days. The previous daily cycle ended on day 28.
The 5 day RSI has remained oversold for both gold and silver for 3 consecutive days. This is another confirmation we look for in a daily cycle low when looking for re-entry.
The dollar has yet to confirm a reversal but we came about as close as we could. Once the dollar drops below 90.027 it will form a swing high. With a swing confirmed in both silver and gold I feel comfortable with entering at this time.
Though we did not hit new record high's in metals in our first daily cycle, we did hit the price range we originally projected. When we recommended the metals trade on 12/1/2020 we stated silver would get to the 26-27 range and gold would rally to the previous daily cycle high near 1966, both of these occurred. This new rally should break us through the resistance level in gold at 1966 and from there I suspect the rally to take us to 2000. From the current price in gold near 1850 the rally would be worth $15,000. We will place gold stops below the current DCL at 1815 risking about $4,000. That is nearly a 4:1 risk reward ratio. We will be trading the February gold contract.
Silver is also a buy on Moore's on 1/9 as an 80% profitable trade.
We will look to enter silver near 25.5. This metals rally should take silver to 29 equaling a $17,500 profit. We will place stops at 24.35 below the DCL meaning we are risking about $5,750. We will be trading the March silver contract.
Platinum has also given us a swing low. Platinum also like silver typically follows gold so I suspect it to continue its upward trend following the swing low today.
This last rally saw platinum increase nearly 400 points from the low. I suspect this new daily cycle will take platinum as high as 1200. We will look to enter at 1080. A rally this large would bring a $6,000 profit. We will place stops below the DCL at 1010. We are risking $3,500 per contract. That is nearly a 2:1 risk reward ratio. We will trade the April platinum contract.
I suspect 2021 to be a bull market for gold and all dollar safe havens as our government focuses on economic recovery and inflation runs rampant. Optimism in the market is extremely high, we have a new political party coming to office with a large focus on COVID relief and little concern for our national deficit. This points to a seemingly endless supply of government bailouts, stimulus, and money printing. All this will plummet the dollar further and prop up metals and stocks.
Things are moving fast this morning, and many of the indexes are already posting new all time highs.
It is also worth noting that Bonds and the VIX are crashing. This signals fear leaving the market.
We believe this will be your best opportunity to re-enter stocks and catch a ride on the bubble! We recommend entering the March stock positions for the NASDAQ at 12,725 and/or the Russell 2000 at 2030. We will place Nasdaq stops at 121000 and Russel 200 stops at 1915.
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.