Month: November 2017

E-mini S&P (December)

Yesterday’s close: Settled at 2601.75 gaining less than a point.

Fundamentals: The next Fed Chair Powell’s confirmation hearing in front of the Senate Banking Committee comes into focus today and should begin at 8:45 am CT. He did release his prepared remarks yesterday after the close and said that he will follow the path started by his predecessor Yellen; hiking rates gradually while allowing the balance sheet to shrink. Also, today is a key Senate committee vote as they try to get their bill to the full Senate for a vote Thursday. Two Republicans speaking out against the bill bring a hurdle in today’s vote. President Trump addresses Republican Senators today on tax-reform at a luncheon. These two events alone should bring a more volatile session than yesterday, however, we also have Goods Trade Balance and Wholesale Inventories at 7:30 am CT, Case Shiller at 8:00 and Consumer Confidence at 9:00. Fed Presidents Dudley and Harker speak at 8:15 am CT and 9:15. Treasury Secretary Mnuchin speaks at 2:45 pm CT.

Technicals: Price action traded to a new all-time high of 2605 yesterday before backing off through the close. Key support remains at 2594.50-2596 and the market traded to a low of 2597.50 overnight before bouncing back to retest the highs. We maintain that last week’s close above that level signals a bullish breakout with the next leg signaling 2633.50. A close below 2594.50-2596 though will begin to neutralize the tape in the immediate-term.

Bias: Bullish

Resistance –2616**, 2633.50***

Pivot – 2600

Support – 2594.50-2596**, 2585.75-2589.50**, 2576.50**, 2567.75*, 2561.75-2562.25**, 2555*, 2539.25-2543***

 

Crude Oil (January)

Yesterday’s close: Settled at 58.11 losing about 1.5%

Fundamentals: Prices were under pressure yesterday as Thursday’s OPEC Meeting nears. This is exactly why we said on Sunday’s Tradable Events as well as yesterday’s Morning Express that we like positioning short heading into this meeting; because it has priced in perfection. With lingering doubt that an extension would last through the rest of 2018, bulls in the largest long position since February have begun to jump ship. Adding to the selling pressure is TransCanada turning back on the 590,000 bpd pipeline two to three days earlier than initially said. Coming into focus today will be the API report after the bell.

Technicals: Price action held support at 58.09-58.14 on settlement but has continued lower into this morning and is now testing the 57.50 level. It is now clear that the key 56.94-57.02 level will come into play today, this level is about as close to a three-star as you could get and a close below here should open the doors to further selling. The only reason it is not a three-star is because we don’t expect it to ultimately hold.

Bias: Bearish/Neutral

Resistance – 58.97***, 59.96***, 62.58**

Pivot – 58.09-58.14

Support – 57.50*, 56.94-57.02**, 56.54*, 55.00-55.25***

 

Gold (February)

Yesterday’s close: Traded a high of 1303.4 before settling at 1298.9

Fundamentals: Gold has held extremely well given that equity markets continue to make new all-time highs on what seems like a daily basis. The metal backed away once again from the psychological 1300 level, but this also came as the Dollar began to stabilize on promising news for tax-reform. Though tremendous doubt lingers, the ultimate gut feeling for most traders is that they will get something done, as Senator Hatch said yesterday, “by Christmas”. Senators will put the bill to a committee vote today which will open the door for a full vote before the end of the week, however, two Republicans present an immediate hurdle. President Trump speaks with Republican Senators at a luncheon today to discuss the tax bill. The next Fed Chair Powell’s confirmation hearing in front of the Senate Banking Committee comes into focus today as well and should begin at 8:45 am CT. He did release his prepared remarks yesterday after the close and said that he will follow the path started by his predecessor Yellen; hiking rates gradually while allowing the balance sheet to shrink. Both events will bring volatility to the metal, but it doesn’t end here; Goods Trade Balance and Wholesale Inventories are at 7:30 am CT, Case Shiller is at 8:00 and Consumer Confidence is at 9:00. We also have regional manufacturing data from Richmond and Dallas. Fed Presidents Dudley and Harker speak at 8:15 and 9:15 am CT. Treasury Secretary Mnuchin speaks at 2:45 pm CT.

Technicals: Price action in Gold remains extremely constructive despite its failure to get out above major three-star resistance yesterday in the February contract 1304.7. In the December contract this level comes in at 1298.4-1300. After yesterday’s session high, support was then created at 1296.5; it is very often that our levels and bias evolve through the trading day, another reason to stay in touch with our trade desk. This first key support level has held into the morning and sets up the metal for a second attack on major three-star resistance. We have seen a higher low each session for a week now, continuing this trend should set up for a move out above that resistance level.

Bias: Bullish

Resistance – 1304.7***, 1312.7-1316.4**, 1328-1329.4**

Support – 1296.4**, 1289.8-1289.9**, 1268.1-1276***

 

Natural Gas (January)

Yesterday’s close: Settled at 3.017

Fundamentals: The flop in developing weather patterns combined with exacerbated selling in low volume holiday hours has led to sharp reversal in price action into this morning. Last week’s weather and the early part of this week is already in the books and we are likely to see soft storage draws. However, weather developments that begin a week out has reinvigorated the bull camp and opens the door for higher price action immediately.

Technicals: As we discussed on yesterday’s Midday Market Minute, the 3.05/3.06 area will be a key hurdle that we must close out above in order to encourage further buying from both the bulls and covering from the bears. We are out above here this morning and the next resistance comes in at 3.112-3.12. Today’s session low comes in at 3.017-3.028 and a close below here will signal a near-term failure.

Bias: Neutral/Bullish

Resistance – 3.059-3.063**, 3.112-3.12**, 3.163**, 3.201-3.245**, 3.321-3.36****

Support – 3.017-3.028**, 2.981***, 2.929**, 2.847-2.861**, 2.753-2.7565***, 2.486-2.522****

 

10-year (December)

Yesterday’s close: Settled at 125’04

Fundamentals: Yesterday was a choppy trade following much better than expected New Home Sales. Prices finished on the high of the range for the session but has yet to breakout above resistance. Traders await today’s hearing with the next Fed Chair Powell, tomorrow’s testimony from Yellen and a crucial day and week for tax-reform in the Senate. Data today will also be crucial see above for the schedule. A 7-year auction today will also be in focus.

Technicals: Price action has nudged above resistance but has not done so convincingly nor has it remained out above. The chart remains very constructive, building higher lows, however, with equity markets making new all-time highs daily and a crucial week just getting under way, the bulls await a true catalyst to take prices higher. A move back below first support at 124’27 will encourage further selling.

Bias: Neutral/Bullish

Resistance – 125’015-125’03**, 125’07*, 125’19**, 125’255**, 126’01**, 126’15***

Support – 124’27**, 124’16-124’19**, 124’00**, 122’22-122’29*** 

 

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

The Evolving Economics of Bitcoin, Gold and Fiat Currencies

  • By CME Group

An inherent tension exists between the two major purposes of money.  Currencies that are perceived as great stores of value, such as gold and bitcoin, make for poor mediums of exchange.  By contrast, currencies that are effective mediums of exchange, such as fiat currencies used the world over, can make for dubious stores of value. Where a currency falls on the store of value versus medium of exchange spectrum influences its usefulness as a unit of account and a standard of deferred payment.

Supply Scarcity and Stores of Value

As stores of value, many investors perceive gold and, more recently, bitcoin as second to none.  Since 1971, gold has appreciated from $35 per ounce to around $1,300 at the time of this writing, a gain of over 3,500%.  Bitcoins have done even better.  On July 19, 2010, a bitcoin was worth $0.08.  At the time of this writing, it’s priced close to $5,300 per bitcoin, a gain of over 6,000,000% in seven years.  Not bad!

Figure 1: Gold and Bitcoin Have Been Great Stores of Value.

Figure 1: Gold and Bitcoin Have Been Great Stores of Value.

Whether gold and bitcoin really are stores of value is not universally accepted. Viewed from a fiat currency perspective, such as that of the U.S. dollar, bitcoin and gold are, to say the least, not without risk.  Over the past 12 months, the annualized standard deviation of gold has been 12%. Gold had a 70% drawdown between 1980 and 1998. Compared to bitcoin, the gold market looks sleepy.  Bitcoin owners experienced a 60% annualized standard deviation over the past 12 months and in the past, it has achieved a mind boggling 175% annualized risk (Figure 2).  Moreover, in its short life, it has already had drawdowns of 93% and 84% (Figure 3).

Drawdowns of such magnitude do sound crazy yet investors still allocate funds to other markets which have experienced large drawdowns. The U.S. equity market, which experienced an 89% drawdown between 1929 and 1933, from which it took until 1954 to recover. Since then, it has experienced a 47% drawdown in 1973-74, a 50% drawdown in 2000-2002 and a 60% drawdown from October 2007 to March 2009.  Crude oil prices are currently 67% off their 2008 highs.  The difference being, of course, that few investors would argue that stocks and crude oil are stores of value.  Rather, investors perceive them as being risky investments.

Figure 2: Stores of Value are Not Without Risk When Viewed from a USD Perspective.

Figure 2: Stores of Value are Not Without Risk When Viewed from a USD Perspective.

Figure 3: What’s a 93% Drawdown Among Friends?

Figure 3: What’s a 93% Drawdown Among Friends?

However volatile they may be, the reason why gold and bitcoin are perceived as stores of value is simple: their money supply doesn’t grow quickly and, in the case of bitcoin not at all, some day.  Both gold and bitcoin money supply growth is determined by mining output. Over the past half century, new gold mining supply has added anywhere from 1.1% to 2.4% to the existing stock of previously mined gold (Figure 4) and gold prices tend to vary inversely with the degree of mining supply coming on line.  This is much slower growth than the money supply of the U.S. dollar and credit. Even during the 14 years prior to the 2008 financial crisis, the Federal Reserve’s balance sheet, one of many proxies for the amount of money in the system, grew by 5.6% per annum.  Since the fall of 2008, it has expanded by nearly 20% per year.

Cryptocurrencies such as bitcoin have very specific processes for expanding their money supply – mining by technology with strict limits.  For bitcoin, most of the “mining” activity happens in China.  The strict money supply rules mean that if demand grows, as it has, the price can soar, which it has.  Some observers, such as economist and Nobel laureate Robert Shiller, have suggested that the rapid rise in bitcoin prices resembled a financial bubble.  Nevertheless, Shiller also notes that from his perspective, gold has been in 5,000-year bubble.

Bitcoin’s mining supply grew at an infinite pace in 2009 when the currency burst into existence.  This year it will likely slow to around 4.2% and then drop to below 2% per year after 2020.  Sometime around 2140, the last new bitcoin ever will be mined, bringing the total to 21 million (Figure 5). The bitcoin market anticipates this, hence the extraordinary bull market in the digital currency. This contrasts with gold, whose price has been depressed by 94 million new ounces coming onto the market each year.

Figure 4: Gold Prices Vary Inversely with Mining Supply.

Figure 4: Gold Prices Vary Inversely with Mining Supply.

Figure 5: The Bitcoin Algorithm Reaches a Theoretical Limit of 21 Million.

Figure 5: The Bitcoin Algorithm Reaches a Theoretical Limit of 21 Million.

While bitcoin has delivered its holders spectacular, if highly volatile returns, what’s most amazing is how little it’s worth, even at $5,800 per coin.  If one assumes that there will be 21 million coins in existence by 2140, that means that their aggregate present value comes to $120 billion.  While it is nothing to sneeze at, it pales in comparison to the outstanding value of the nearly 5 billion ounces of previously mined gold whose total worth is over $6 trillion at current prices.  Moreover, the 94 million ounces that will come out of the world’s mines in 2017 have a value of nearly $120 billion at current market prices, about the same theoretical value of all the bitcoins that will ever come into existence.  While there is no logical reason to suppose that bitcoin should have the same value as gold, if it did, each bitcoin should be worth approximately $285,000, 45 times the current market price.  As such, one might wonder: is bitcoin still vastly undervalued even after a 6,000,000% rally?

Bitcoin, Gold and Fiat Currencies Demand and Regulation

While gold and bitcoin supply comes from miners, what drives demand is another story.  Gold’s demand side is mainly as jewelry and as an alternative currency that get stored in vaults, albeit one that pays no interest. As such, when interest rate expectations increase, gold prices tend to fall and vice versa.

By contrast, demand for bitcoin has a reputation of being used for money laundering, tax evasion and avoidance of regulated cross-border money flows.  The motivation is that the transactions are extremely hard to trace, yet they offer considerable security. Proponents of bitcoin and cryptocurrencies would argue that the reputation of cryptocurrencies being used for criminal purposes may not be entirely fair.  After all, fiat currency cash is used by criminal organizations and tax evaders the world over.

A little historical background may be informative.  When the euro was introduced at the end of the 1990s, illegal drug and money laundering transactions in Europe, including Eastern Europe, were often conducted in large denomination Deutsche Mark (DM) paper currency.  The advent of the euro meant that the DM cash notes had to be turned in and exchanged for euros, and the unintended consequence was that large denomination U.S. dollar paper currency filled the void left by the DM.  This switch from DM to U.S. dollars actually helped push the euro lower against the U.S. dollar around the time of the transition.

It is also worth noting that of the $1 trillion or so of U.S. paper currency outstanding, about 50% resides outside the United States.  Unfortunately for drug dealers and money launderers, the digital revolution is rapidly eliminating the need for paper currency and even the ability to use it secretly and discreetly.  Bars, restaurants, and dry cleaners are no long bastions of cash transactions.  This has created a market opportunity, so to speak, for cryptocurrencies that can facilitate secure, yet difficult to trace transactions.

Regulators, tax collectors, central banks, etc., around the world can be expected to act aggressively to combat illegal uses of digital currencies, especially as they gain traction in the global economy.  U.S. regulators are beginning to act.  The Securities and Exchange Commission (SEC) has launched fraud cases.  China has started to rein in the use of cryptocurrencies for moving money out of the country.

Regulators are also moving to bring cryptocurrency platforms into the mainstream.  For example, in July 2017, the Commodities Futures Trading Commission (CFTC) approved a new Derivatives Clearing Organization (DCO) which was also granted an order of registration as a Swap Execution Facility (SEF).  Under the order, the new DCO will be authorized to provide clearing services for fully-collateralized digital currency swaps (i.e., Bitcoins, etc.).    Several other countries are also onboard with encouraging cryptocurrencies for legal commerce, including Japan and South Korea.

Some of the cryptocurrency platforms are starting to perform active user due diligence in terms of Know Your Client (KYC) and Anti-Money Laundering (AML), putting them in a position to successfully meet a variety of regulatory tests and become more mainstream with their business models.

And, one should recognize that regulation does not mean the demise of cryptocurrencies – only that the motivating uses will eventually have to be dominated by legal activities. For now, the regulatory landscape for cryptocurrencies is very much a moving target around the world.

Medium of Exchange and the Benefits of Inflation

While gold has proven to be a great, if volatile, store of value, essentially nobody still uses gold as a medium of exchange. When was the last time that you heard of somebody buying groceries, clothing, a new house or a new car with gold coins?  The problem for gold as a medium of exchange is simple: why would you part company with it now if you think that it might be worth more in the future? This problem applied doubly (or exponentially) for bitcoin and other cryptocurrencies. Wouldn’t you have regretted paying 20 bitcoins for a $40,000 car in June 2017 only to see the same 20 bitcoins valued at nearly $100,000 by October of the same year?

Basically, the overwhelming majority of transactions are in fiat currencies created by central banks.  These currencies tend to lose their value over time, not just against gold and bitcoin as we have seen, but also against the baskets of goods included in consumer price indices.  Some fiat currencies lose their value slowly, others do so quickly. That loss of value is precisely what makes them useful.  Without the fear of inflation, holders of currency tend to hoard rather than spend it.  Hoarding currency depresses economic growth and creates financial instability.  The Japanese yen, the one fiat currency that has experienced deflation over the past few decades, is a case in point.  Far from being a virtuous store of value, the Japanese deflation produced a depressed, underperforming economy.

Likewise, both gold and silver were extensively used as currencies in the past and both produced less than desirable economic outcomes.  Despite the rosy history of the gold standard written by gold bugs, economic reality under the gold standard was harsh.  While laboring under the gold standard, the United States experienced high economic volatility (Figure 6) and repeated economic depressions: 1873-79, 1884, 1893-98, 1907, 1920 and the Great Depression of the 1930s. Between 1877 and 1933, when then President Franklin Roosevelt confiscated the nation’s gold and devalued the U.S. dollar to $35 per ounce from $21, per capita GDP rose by just 1% per annum despite tremendous technological progress.

The New Deal was a success. Between 1933 and 1939, real per capita GDP grew by 6.8% per year and that growth accelerated to over 10% per year during the massive, fiat-currency financed, government spending program known as World War Two, which was basically the New Deal on steroids.  Post-war, under the Bretton Woods system of fixed exchange rates tied to gold, real per capita GDP expanded by 1.3% between 1945 and 1971 when President Nixon abandoned gold entirely and floated the U.S. dollar.  Floating currencies proved a difficult adjustment but despite the volatility of the 1970s and the Great Recession in 2008, U.S. real per capita GDP expanded by 1.7% per year, on average, since Nixon dropped gold and floated the dollar (Figure 7).

Figure 6: The Gold Standard Produced Massive Economic Volatility.

Figure 6: The Gold Standard Produced Massive Economic Volatility.

Figure 7: The Gold Standard Also Coincided with Sub-Par Progress in Real Per Capita Income.

Figure 7: The Gold Standard Also Coincided with Sub-Par Progress in Real Per Capita Income.

Unit of Account and Method of Deferred Payment

It’s difficult to use money as a unit of account if it is excessively volatile. While the U.S. dollar loses value versus consumer goods and services over time, it has the virtue of losing that value at a steady rate.  By contrast, consumer prices viewed from a gold or bitcoin perspective are excessively volatile making using either currency as a unit of account difficult (Figure 8).  Moreover, using either currency as a method of deferred payment would be extremely risky.

Figure 8: Consumer Prices from a USD, Gold and Bitcoin Perspective.

Figure 8: Consumer Prices from a USD, Gold and Bitcoin Perspective.

In addition to being volatile, consumer prices tend to be in a strong deflation from both a gold and bitcoin perspective.  Since December 1999, consumer prices have risen by 44% in U.S. dollar terms but have fallen 64% in gold terms.  From a bitcoin perspective, prices have fallen by 99.98% since the end of 2010.  Imagine the economic disaster that would have resulted had people borrowed money in gold or in bitcoins.  Paying back loans would be a near impossibility.  As such, given the inadequate growth in money supply, and the persistence of long-term deflation, there is little possibility that either bitcoin or gold could be used for deferred payments.

This is the beauty of fiat currencies.  Central banks can create as much money as they deem necessary.  Moreover, fiat currencies pay interest, and long-term interest rates allow investors to discount future cash flows into the present, creating liquidity, facilitating trade and greasing the wheels of commerce. Essentially, fiat money inflation is the lubricant of the economic engine. This isn’t to suggest that either fiat currencies or the central banks that create them are above reproach.  They can create too little credit growth (the U.S. during the early 1930s or Japan during the 1990s), too much inflation (the U.S. and Europe during the 1970s), or hyperinflation (Germany in 1923 or in Venezuela or Zimbabwe today).  Unlike the gold standard and bitcoin, which depend upon mining supply, central banks can at least attempt to create the right amount of money to keep the economy growing.

Moreover, holders of fiat currency don’t necessarily lose their value if they put their currency to work in the banking system and bond markets, which pay interest, or the in the equity market, which tends to increase over time. Although interest rates can be below the rate of inflation, as they were frequently during the 1970s and have been since 2008, for the most part, depositors hold their own against inflation. Over the long term, fiat currencies only lose value if they are kept under the mattress, in cash, in checking or in other non-interest-bearing accounts.

The ability to use a currency as a method deferred payment explains why even under precious metals standards there tends to be so much inflation. Yes, you read that correctly, inflation.  Far from preventing inflation, gold and silver standards require currency debasement in order for the economic system to function.  For example, under Julius and Augustus Caesar, the Roman denarius contained four ounces of silver.  250 years later, by the late third century, that same coin contained only 2% as much silver as before, implying that it was worth about 1/50th as much.  That sounds like a dramatic depreciation but it amounts to an average annual inflation rate of about 1.6%, not far from what central banks target today. Rome’s metal-based monetary system functioned only with debasement.

The Roman experience of precious metal currency debasement was just a precursor to future European currency debasement.  Essentially every single country in Europe did exactly what Franklin Roosevelt would do in 1933: they resolved financial crises by debasing their currencies (Figure 9).  Sometimes the only way to pay off debts, public or private, is to do so with money that is worth less than what it was worth at the time the loans were secured.  This is the Achilles heel of gold and bitcoins as currencies.  They are stores of value. Stores of value are deflationary and deflation is destabilizing.

Figure 9: Past as Prologue, a Brief History of Currency Debasement.

Figure 9: Past as Prologue, a Brief History of Currency Debasement.

The Future of Bitcoin

So, will bitcoin rally another 5,000% or more until the outstanding value of the digital currency equals the outstanding value of the world’s gold?  The short answer is that we don’t know.  Something is worth what somebody else is willing to pay for it, and how much people in the future will be willing to pay to hold bitcoins is difficult to know. That said, precious metals do hold a potential insight into one factor that might limit bitcoin’s future upside.

Just as gold isn’t the only precious metal, bitcoin isn’t the only digital currency.  As we discussed earlier, gold responds negatively to increases in gold mining production.  It also responds negatively to increases in silver mining production. Thus, a boom in silver production can contain price rises in gold and vice versa (Figure 10).

Figure 10: Gold and Silver Respond Negatively to Rises in Each Other’s Mining Supply.

Figure 10: Gold and Silver Respond Negatively to Rises in Each Other’s Mining Supply.

Likewise, the existence of other digital currencies could limit price upside for bitcoin.  Ethereum, Zcash, dash, ripple, monero etc. compete with bitcoin just as silver, and to a lesser extent platinum and palladium, compete with gold. This might keep bitcoin’s value in check before it rises another 10 or 100-fold in value.

Indeed, just in the past two years, over 1,000 additional digital currencies have been launched.  One could argue that they actually are limiting the rise in bitcoin, whose price appreciation actually has slowed, at least in percentage terms. Even bitcoin itself has split (“forked”) into bitcoin, bitcoin cash and bitcoin gold as disagreements within the user community create new iterations of the original currency.

That said, two things argue in favor of bitcoin’s continued success: network effects and government regulation. Just as Facebook, LinkedIn and a handful of other websites or apps dominate social networking, it is possible that the incumbent currencies like bitcoin and ethereum could continue to dominate cryptocurrencies as well for the simple reason that they have large networks of users who accept them.  Google’s attempt to invade the social networking space with its Facebook equivalent, Google+, didn’t turn out so well because the user community was already on Facebook’s platform (although Google, by all appearances continues to prosper in other domains). Analogous network effects could work to bitcoin’s advantage.  If a large community of users accept it, they will be loath to move elsewhere unless a new alternative is truly completing and not a mere copycat.

Isn’t the U.S. dollar a bit the same?  What makes USD the world’s reserve currency isn’t just the size of the United States (4% of the world’s population and about one fifth of the world economy) and its military might, it’s also a network effect: people the world over denominate their foreign transactions in USD. Once enough people agreed to use USD, it began to dominate the world’s liquidity and became the primary global reserve currency.

Recently, governments have begun to crackdown on digital currency exchanges in the case of China or at least regulate initial currency offerings (ICOs) in a manner similar to their regulation of initial public offerings (IPOs) of equities.  To the extent that ICO regulation limits the creation of new currencies, one unintended by-product could be to restrict competition and to enhance the market position of incumbent currencies like bitcoin and ethereum. Libertarians often rightly accuse government regulation of protecting incumbents by raising barriers to entry.  There is no reason to think that cryptocurrencies will be an exception to this rule.

On the other hand, regulation could also give rise to, and bestow legitimacy upon, new cryptocurrencies that lack bitcoin’s main attribute and flaw: an asymptotically fixed money supply. A digital currency that replaces fiat currencies as a medium exchange cannot have a fixed supply.  In fact, central banks, like the Federal Reserve, might even create their own cryptocurrencies but ones that are designed to optimize economic growth. It will probably need to have constant money supply growth and preferably money supply growth that matches economic needs and not some algorithm’s hard, mathematical constraint. In the meantime, bitcoin could continue its role as a sort of purely electronic crypto-gold: a perceived store of value given to great but, perhaps, slowly decreasing volatility.

Bottom Line:

  • A natural tension exists between stores of value and mediums of exchange.
  • Gold and bitcoin have been great, if erratic, stores of value.
  • Gold and bitcoin appreciate because of the slow growth of mining supply.
  • Fiat currencies are more practical as mediums of exchange because they lose value which encourages holders to exchange them for goods and services.
  • Strong stores of value encourage hoarding, deflation and financial instability.
  • They also make for poor units of account and methods of deferred payment.

 

For more information and to open your trading account please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

 

Cattle Commentary: Cattle futures started the last week of November on a softer note before seeing buyers step in shortly after the open. February live cattle futures firmed up, trading in a 1.925 range before closing 1.375 higher at 125.95. January feeder cattle saw strength today, trading in a 2.35 range before finishing up 1.475 at 154.775 at the day. We will keep a close eye on the development on cash trade. Last week ranged from 118-120.50; dressed was seen from 188-189. Last week’s cold storage report showed beef stocks at 506.9 million pounds, this was down nearly 5% from last year but still up over 2% from September. The Commitment of Traders report was released this afternoon (due to Thanksgiving). Funds have reduced their net long feeder cattle position by 3,300 contracts, this puts their net long at 14,600 contracts. Funds also reduced their live cattle position to the tune of 8,300 contracts, putting their net long at 122,000.

 

PM Boxed Beef Choice Select

 

Current Cutout Values: 209.47 187.28

 

Change from prior day: -1.42 -.57

 

Choice/Select spread: 22.29

 

 

 

Cattle Technicals

 

Live Cattle (February)

 

On the technical side of things, the market managed to find support last week at from 122.40-122.75. This pocket represents the 50-day moving average, an indicator we have not closed below since the first week in September. More importantly, this represents previous resistance in May, June, and the first half of October. On October 24th the market broke out above this level which invited momentum traders into the market to extend the rally to 131.95 in just 9 sessions. On the chart, there has been damage done over the last three weeks, but the bulls remain in control as the market has managed to mark higher lows for the time being. If the market does come back and this support level again it is likely we see funds continue to liquidate a portion of their net long position. On the resistance side of things 126.65-126.975 is the pocket to keep an eye on. If the market achieves consecutive closes above, we could see the funds step back in to the buy side.

 

Resistance: 126.65-126.975***, 127.65-128**, 131.95****

 

Support: 124.35**, 122.40-122.75****, 120.70***

 

 

 

Feeder Cattle (January)

 

January feeders managed to grind back above the 50-day moving average today which accelerated the buying. 155.10-155.55 is our next resistance pocket, this represents the middle of the range from the October 23rd lows to the November 3rd highs. This also represents previous contract highs and the breakout point in October. If the market is able to achieve consecutive closes above, we could again see funds step back in on the buy side and propel the market higher. We would not be surprised to see a failure and consolidation following todays first test, but traders and producers need to remain nimble. If the market does retreat off of resistance, we could see a head and shoulders formation which would lead to additional long liquidation. With that said, this week’s price action will be very important for setting the tone in the last month of the year.

 

Resistance: 155.10-155.55***, 156.40-156.75**, 158.70-159.27***

 

Support: 153.45-153.85**, 151.75-152.075***, 148.175****

 

 

 

Lean Hog Commentary and Technicals (February)

 

February lean hogs finished the day up .80 at 70.20, just below the 70.30 level we referenced on RFD-TV this morning. This level represents a key retracement From the August lows to the November highs. If the market achieves consecutive closes above, we could see a run at contract highs. We are looking for a failure and consolidation this week which could send prices back towards 68.475. This afternoons commitment of trader’s report showed that funds reduced 9,200 long positions, putting their net long at 64,000. Last weeks cold storage report showed stocks at 597.3 million pounds, this was a hair more than the expectations of 595 million pounds. This was down 3.4% from September which has proven to be supportive to the market.

 

Resistance: 70.30-70.675***, 72.45**, 73.30****

 

Support: 69.15**, 68.30-68.475***, 66.215-66.92****

 

 

For more information and to open your trading account please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

 

Disclaimer:

 

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

 

Euro (December)

Session close: Lost 28.5 ticks on the session.

Fundamentals: The Euro reversed gains on the session after trading to the highest level in two months. The Dollar began to stabilize after losing as much as 2.5% in about two weeks on the heels of strong New Home Sales and a positive rhetoric on tax-reform. Last week’s holiday abbreviated sessions wrapped up with a more hawkish rhetoric and strong data out of Europe. It’s now a new week and a new chapter and the Euro has begun paring some of these gains from light volume. Tonight, Fed Presidents Kashkari and Dudley speak at 4:30 and 6:00 pm CT. Tomorrow will be pivotal with the next Fed Chair Powell appearing before the Senate Banking Committee to begin his confirmation hearing. With tax-reform in the cross-hairs President Trump speaks with Senators at a luncheon.

Technicals: We remain bullish, but the Euro blew through key resistance levels last week and the 14-day RSI reached 65. The market is due for a consolidation period at minimum. We are watching key support that aligns with previous highs at 1.1866-1.8815 and a close below here would encourage further selling down to the 50 and 100 day moving averages.

Bias: Bullish

Resistance –1.19975-1.2019**, 1.2154-1.2180****

Pivot – 1.1921-1.1934***

Support – 1.1866-1.18815**, 1.18-1.1824**, 1.1728-1.1730***, 1.1672**, 1.15785*, 1.1481-1.15***

 

Yen (December)

Session close: Gained 45.5 ticks on the session

Fundamentals: The Yen was the best performing major currency against the Dollar today and the only one in the green. The Dollar pared losses before the session close but has still been subdued and the Yen has capitalized tremendously. We remain bullish and to start the week we have more hawkish talk from BoJ board members. The near record short position in the Yen has been established by traders who see no end in sight for the BoJ QE, however, this premise is coming into question.

Technicals: Today’s extension to new swing highs after pulling back first overnight has created a bull flag, signaling higher price action through tomorrow. The Yen is now convincingly above major three-star resistance at .8971-.8991 and is working towards the .9045 level; a close out above here could potentially spark the next leg higher. First support comes in at the .8961-.8993 level which has widened against today’s session low; a close below here will signal a near-term failure and encourage further selling.

Bias: Bullish

Resistance – .9045***, .9119**, .9321-.9359****

Pivot – .9018

Support – .8961-.8993***, .8890-8928**, .8800-.8828***

 

Aussie (December)

Session close: Lost 6 ticks

Fundamentals: The Aussie was pushed around by the US Dollar today, losing ground from session highs as the US Dollar gained back on a positive outlook for tax-reform and strong New Home Sales. There is no key Aussie centric data until Wednesday night.

Technicals: Price action traded to a high of .7643 today and failed against major three-star resistance, a level we expected it to test but commented on Wednesday that it will be a tough one to breakout above. The Aussie seems ready for a slight consolidation lower after this failure and we are watching the .7605-.7607 level on a closing basis.

Bias: Bullish/Neutral

Resistance – .7645-.7678***, .7726-.7755**, .7824**, .7891-.7893***

Pivot – .7605-.7607

Support – .7530-.7550**, .7390****

 

Canadian (December)

Session close: Lost 30 ticks.

Fundamentals: The Canadian lost ground today as Crude Oil was under pressure and the US Dollar stabilized. Traders were quick to capitalize on the recent rally as they look to a busy week that begins to unfold tomorrow with the Raw Materials Purchasing Index at 7:30 am CT, the Bank of Canada Financial System Review at 9:30 am CT and BoC Governor Poloz 10:15. Later in the week is jobs data and GDP from Canada on Friday.

Technicals: Price action failed to hold recent swing highs at .7897. Today’s failure opens the door for a retest to major three-star support at .7790-.7803.

Bias: Bullish

Resistance – .7851-.7856**, .7897**, .7950-.7960***, .8019-.8035**, .8293****

Support – .7790-.7803***, .7730-.7745**, .7671**, 7550***

 

For more information and to open your trading account please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

CORN (March)

Last Weeks Close: March corn futures traded ¾ of a cent lower last week after trading in a range of 5 ½ cents (basically Fridays session). Funds were estimated to have been sellers of 4,000 contracts on Fridays session. Due to the Thanksgiving holiday, the weekly commitment of trader’s report was delayed until today.

Fundamentals: With December options off of the board we have moved our focus out to the March contract. The market has been and will continue to look towards South America for new fundamentals to move the market. Argentina is estimated to be about half way done with their planting which means short term weather changes could affect price action. There has been concerns that Argentina could turn drier over the coming months which could help provide support to the market.

Technicals: The market has been in a trend of lower highs and lower lows over the past three months which will keep the bears in control until we see a close above technical resistance. First technical resistance comes in at 361, this represents the 50-day moving average, an indicator we have not been able to stabilize above since July. Consecutive closes above could encourage short covering from the funds who have a near record net short position (we will get an updated look at where the funds stand in todays Commitment of Traders report). On the support side of things, 348 ¾ is the line in the sand we are watching. This held as support on the 16th and 17th, a break and close below could open the door to another leg lower.

Bearish

Resistance: 361***, 367-369 ¼**, 373 ½-375****

Support: 348 ¾**, 334-335 ½***, 323-325 ¼**

 

SOYBEANS (January)

Last Weeks Close: January soybeans closed ½ a cent higher on the week, trading in a range of 16 ¾ cents. Funds were estimated to have been sellers of 3,500 contracts on Fridays abbreviated session. Due to the Thanksgiving holiday, the weekly Commitment of Traders report will be released today.

Fundamentals: Attention of market participants has shifted towards developments in South America, particularly in Brazil and Argentina. Argentina is estimated to be 34% complete with their planting. Talks of La Nina developing over the next few months could mean problems and therefore premium in the market, this will need to be monitored closely going forward. As of this past weekend, there was estimated to be a 70% chance. Brazil is estimated to be 84% planted, this is basically on pace with last years 83% for the same time.

Technicals: The market has made a strong recovery over the past two weeks and is right back at the top end of the recent range and our resistance pocket which comes in from 999-1004 ¾. If the bulls can achieve a close above, we could see funds extend their net long position and press prices towards 1021 ½. On the support side of things, we see 983 ½-984 ½, this pocket represents the 50 and 100 day moving average, along with the 50% retracement from the June lows to the July highs. If the market fails to breakout and breaks down below first support, we could see long liquidation back towards 968 ¼.

Bias: Neutral/bullish

Resistance: 999-1004 ¾***, 1014**, 1021 ½****

Support: 983 ½-984 ½***, 968 ¼****, 957-963 ¼****

 

WHEAT (March)

Last Weeks Close: During the shortened week, March wheat futures traded in a 14-cent range with prices ending the week 10 cents cheaper than the previous. Funds were estimated to have been sellers of 4,500 contracts on Friday. Due to the Thanksgiving holiday, the weekly Commitment of Traders report will be released today.

Fundamentals: Fundamentals have not changed much over the past few weeks which keeps the bears in control of news. Ample global supply and lack of demand continues to be a burden on bulls in the market. We will need to start seeing a fundamental shift in the supply and demand functions, we do not see that being an imminent threat to the shorts. We will be watching the USD closely, if the USD does fail to gain momentum we could see that help out exports, this is a reach for a silver lining.

Technicals: The market has been making lower highs and lower lows for several months now which keeps the bears in control. First technical resistance comes in from 445-447. A close above could encourage short covering towards the 50-day moving average at 452 ¾, an indicator we have not closed above since July. We feel these are levels you will want to sell against with a limited risk strategy just above. On the support side of things, it is tough to navigate at contract lows, but we would not be surprised to see the market make a run towards the $3 handle.

Bias: Bearish

Resistance: 445-447****, 452 ¾**, 478-479****

Support: 422 ½**, 412 ¾***, 399-402 ¾****, 390-392 ¼**

 

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

E-mini S&P (December)

Last week’s close: Traded to 2603 and settled at a new all-time high of 2601 on Friday.

Fundamentals: The market legged fresh all-time highs to finish last week on strong Black Friday sales with Amazon gaining 2.5% and adding another .5% in today’s pre-market. Price action brushed off weakness in China, trading to a low of 2596.50 early in the session before turning higher. New Home Sales data is due at 9:00 am CT and today could be on the quieter side as traders gear up for a big day tomorrow. President Trump is scheduled to address Senate Republicans on tax-reform at their luncheon tomorrow, this could lay the groundwork for a vote in the Senate this week. The next Fed Chair Powell speaks in front of the Senate Banking Committee as his confirmation hearing begins; we will get a glimpse on his plans for the Fed. Goods Trade Balance and Wholesale Inventories are due out at 7:30 am CT tomorrow, Case Shiller at 8:00 am CT and Consumer Confidence at 9:00. Treasury Secretary Mnuchin speaks along with the Fed’s Dudley and Harker.

Technicals: Price action has extended gains this morning and last week’s breakout above 2594.50-2596 signals the next bull leg higher to 2633.50. The overnight pullback to 2596 held support beautifully and gives the bulls a clear edge to start the week. We expect price action to drift higher into tomorrow.

Bias: Bullish

Resistance –2616**, 2633.50***

Pivot – 2600

Support – 2594.50-2596**, 2585.75-2589.50**, 2576.50**, 2567.75*, 2561.75-2562.25**, 2555*, 2539.25-2543***

 

Crude Oil (January)

Last week’s close: Traded to a high of 59.05 and settled at 58.95

Fundamentals: This week is all about OPEC with Thursday’s meeting in the crosshairs. Russian Energy Minister Novak has implied that Russia is on board with extending cuts, but this will be a key talking point throughout the week. Given the recent rally and the positioning from the bull camp, the market is pricing in perfection from this deal; lauded support for nine months to finish out 2018. Anything less could cause a mass exodus from the growing long position. We have been very bullish and vocally such. With our upside target being achieved we have come out of the weekend Neutral.

Technicals: Price action has softened up a little this morning and first support comes in at 58.09-58.14; if the market stays above here the bulls will remain in the driver’s seat, however, a settle below here will begin to neutralize the tape. The key level this week to watch will be 56.94-57.02 and a move below here could easily spark further selling down to the line in the sand $55 mark.

Bias: Neutral

Resistance – 58.97***, 59.96***, 62.58**

Support – 58.09-58.14**, 57.50**, 56.94-57.02**, 56.54*, 55.00-55.25***

 

Gold (December)

Last week’s close: Settled at 1287.3

Note: Traders want to begin using February Gold by tomorrow.

Fundamentals: Gold has continued to capitalize off a weaker Dollar, however, the gains have been subdued. The Dollar has lost 2.5% since its peak earlier this month and is now at the lowest level since September 26th. Gold on the other hand is about 1% lower from September 26th but ultimately range bound between 1270 and 1300. Prospects of stronger global growth, daily all-time highs in equity markets and a more hawkish ECB has worked to keep rallies in check. What it comes down to is the need for a catalyst. Do not get us wrong, Gold has traded in a very constructive manner, and we remain bullish. This will be a very interesting week with New Homes Sales due today at 9:00 am CT. However, tomorrow is jammed packed with speak from President Trump and next Fed Chair Powell as well as data that includes Consumer Confidence.

Technicals: Price action turned north this morning after holding first support and has now edged out first resistance at 1293.7. Strong three-star resistance comes in at 1298.4-1300 and this will be the key level that the metal must close out above in order to squeeze shorts and attract fresh buying. The chart remains extremely constructive and we have strong expectations for Gold in the first quarter, please contact us to see how we are positioning with options.

Bias: Bullish

Resistance – 1293.7**, 1298.4-1300***, 1308.4-1312.6**

Support –1285.1-1286.2**, 1272.4***, 1267-1268**, 1262.8-1263.8**,1243.6*

 

Natural Gas (January)

Last week’s close: Lost more than 4% on Friday settling at 2.916

Fundamentals: Friday was a bloodbath for Natural Gas and the selling pressure was exacerbated ahead of the weekend. Sunday’s reopen brought a much-needed relief as the gap higher regained critical three-star support. With warmer and more moderate temperatures on the horizon, the bears were in the driver’s seat, but as we said they have essentially begun to price-out an actual winter. Our bet is that they will get caught offsides and last night was a sneak peak of what can potentially happen as weather models shifted once again and colder fronts are on their way.

Technicals: Lighter volume (see December) and the contract roll added to an already heavy week. Price action has regained the major three-star level at 2.981 and this will be critical to watch through the end of today’s session. Gap support now comes in at 2.929 and a close below here will add fuel to the downtrend. Resistance now comes in at 3.036-3.059 and the bulls must achieve a close out above here in order to neutralize weakness.

Bias: Neutral/Bullish

Resistance – 3.036-3.059**, 3.10-3.12**, 3.21-3.25**, 3.321-3.36****

Support – 2.981***, 2.929**, 2.847-2.861**, 2.753-2.7565***, 2.486-2.522****

 

10-year (December)

Last week’s close: Settled at 124’31

Fundamentals: The 10-year treasury is holding well and battling a tug of war between equity bulls and what appears to be a more dovish Fed. Last week was a very interesting trade as the curve flattened significantly which has ultimately opened the door for a reversal higher. This is going to be a very interesting week and we have an auction for 2’s and 5’s today and one for 7’s tomorrow. New Home Sales is due at 9:00 am CT today and tomorrow brings the heat as tax-reform comes back into the picture with President Trump addressing Senate Republicans and the beginning of confirmation hearings for the next Fed Chair Powell.

Technicals: Resistance at the 125’015-125’03 level has kept price action in check and this will continue to be a critical level on a closing basis; a close above here will likely gravitate price action higher. To the downside we are watching minor support at 124’275 as the level could become stronger through the end of today’s session.

Bias: Neutral/Bullish

Resistance – 125’015-125’03**, 125’07*, 125’19**, 125’255**, 126’01**, 126’15***

Support – 124’275*, 124’16-124’19**, 124’00**, 122’22-122’29***

 

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

  1. Powell/Yellen

The next chapter of the Federal Reserve comes into focus this week with Jerome Powell’s confirmation hearing in front of the Senate Banking Committee on Tuesday. The Dollar Index has been under pressure since Wednesday’s FOMC Minutes. Despite a December hike expected, the take away from last week was a very gradual pace of raising rates moving forward. This will be the first time that we get insight into how Powell plans on running the Fed and the Dollar trade will be in our crosshairs. Current Fed Chair Yellen follows him on Wednesday and testifies before congress on the state of the U.S economy. If we get more of the same from the two of them, weakness in the Dollar could have just started.

  1. OPEC

The all-awaited OPEC meeting is this Thursday and Crude Oil is trading at the highest level in two years. Traders have piled into Crude, front-running the expected extension of production cuts. The wild card remains Russia, but they did say on Friday that they are in support of an extension. By all means, if no extension is reached on Thursday, Crude will sell off quickly. We have been very bullish ahead of this meeting and believe that this is shaping up to be a ‘buy the rumor, sell the fact’ event. The Commitment of Traders is due out on Monday because of the holiday. Last week’s read showed the largest net-long position since February. We believe this position has continued to expand, but if everyone has already bought, we will need more bullish news out of this meeting to attract fresh buying. We will look for an opportunity to position short this week.

  1. Inflation data

On Thursday we get the October PCE Price Index read. Lagging inflation is working to slow down the pace at which the Fed looks to hike rates next year. Janet Yellen’s comments last week and Wednesday’s FOMC Minutes expressed a growing concern that rate hikes have directly halted inflation. Furthermore, we began to see a tectonic shift in central bank expectations this spring; the Fed is now not the only central bank tightening policy. Also on Thursday is CPI data out of the Eurozone. These dueling reads should already add to a volatile Euro-USD trade.

  1. All-time highs

The S&P finished the week at a new all-time high. With strong Black Friday sales as well as expectations for Cyber Monday coupled with accommodative central bank policy and likeliness of tax-reform the Santa Clause rally could have already begun. Some could argue that last year’s Santa Clause rally still hasn’t stopped. With the S&P settling the week above resistance at 2594.50-2596 this opens the door to our next upside target of 2633.

  1. Commitment of Traders

For the second week in a row, we must wait until Monday to see the latest CoT report. It is important to remember that the report only takes in data through Tuesday. Despite the delay, we watch this report very closely as it helps dictate our trade ideas. Right now, we are watching the positioning on Crude Oil, Japanese Yen and Corn the most closely.

  1. Chinese Manufacturing

The November Manufacturing PMI read is due out Wednesday evening. Last week was a volatile one for major Chinese indices and their 10-year treasury retreated below 4% on Friday but remains at the highest level in almost four years. We will be watching the base metals closely on this number. In particular, Palladium which has been trading at the highest level since the first quarter of 2001. Price action in Palladium rejected $1000 once again on Friday. A miss for the second month in a row on Chinese Manufacturing could begin to put some pressure on the base metal camp.

 

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

Cattle

January Feeder cattle saw a higher trade to round out the week, finishing the day .50 higher after trading in a range of 1.825. February live cattle futures closed .925 lower on Fridays abbreviated trading session after trading in a range of 1.05. There were some cash trades through the week that got up to 120.50. We will be interested to see how this week’s cash and futures trade develops as we should get more activity. We look for volume to confirm price and we saw a lack of that with the Thanksgiving holiday. On the technical side of things, the market managed to find support last week at from 122.40-122.75. This pocket represents the 50-day moving average, an indicator we have not closed below since the first week in September. More importantly, this represents previous resistance in May, June, and the first half of October. On October 24th the market broke out above this level which invited momentum traders into the market to extend the rally to 131.95 in just 9 sessions. On the chart, there has been damage done over the last three weeks, but the bulls remain in control as the market has managed to mark higher lows for the time being. The RSI (relative strength index) has come well off of its overbought levels and is currently a hair above 48 which is about as neutral as it gets. The weekly Commitment of Traders report has been delayed until Monday (due to the holiday). Last week’s commitment of trader’s report showed that funds held 131,830 long positions. Although that number is likely shrunk some, there is thought to still be a good sized net long position in place.

Lean Hogs

February lean hogs finished Fridays session up .575 to 69.675, trading in a range of .825 on the day. Talk of higher weights and ample supply will continue to be a concern as we look to the last month of the year. Weekly average weights were down slightly from the previous weeks (why we saw a modest recovery) but we are still up 1.4% from the previous year. On top of that, slaughter numbers could come in 3-4% above last year in the coming weeks. On the technical side of things, the market found tremendous support from 66.20-66.90. This pocket represents the 100 and 200 day moving average, along with the 50% retracement (middle of the range) from the August 30th lows to the November 1st highs. The market has been posting lower highs and lower lows since that peak on November 1st which puts the bears in control in the near term. Technical resistance comes in from 70.28-70.675.

 

 

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

CORN

December corn futures closed 3 ¼ cents lower on Friday, trading in a range of 6 cents. With a good chunk of open interest in the 34-350 puts, we were expecting to see December option expiration to provide a little more support to the market. Due to Thanksgiving, the weekly Commitment of Traders report will be released on Monday. Estimates are for funds to be net short roughly 210,000 contracts, this compares with the previous week where they held a record short of 230,556 contracts. With December option expiration behind us, we will be focusing on the March contract. First technical resistance comes in at 361 ¼, this represents the 50-day moving average, an indicator we have not seen the market close above since July. If the bulls can achieve consecutive closes above, we could see the funds start to cover their short position. Until then, the bears remain in control as they have managed to continue the trend of lower highs and lower lows over the past several months.

SOYBEANS

January soybean futures finished Fridays session 4 ¾ cents lower, trading in a range of 8 ¾ cents. The market ran out of momentum in our resistance pocket from 999-1004 which led to some long liquidation into the weekend. If the bulls can achieve consecutive closes above this pocket, we could see funds extend their net long position and press the market towards 1021 ¾. Due to Thanksgiving, we will get the weekly Commitment of Traders report on Monday. Attention has shifted towards South American weather as they continue to plant an enter the crop development stage. Some weather models are suggesting a 70% chance of La Nina, this would lead to a drier December-February in the Southern parts of Brazil and Argentina.

WHEAT

December wheat futures closed 8 cents lower on Friday, trading in a range of 9 ¾ cents on the session. We continue to be bearish on the market as bears have been in total control for the past few months, posting lower highs and lower lows on a consistent basis. With December option expiration behind us, we will be focusing in on the March contract. First technical resistance comes in at 453 ¼, this represents the 50-day moving average, an indicator we have not closed above since July. The bulls will need to see a fundamental shift in supply and demand to encourage short funds to cover above this key technical indicator.

 

 

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.

Corn: Option expiration is today for the grains, this is something we have been focusing in on over the last week and a half. Roughly 50,000 puts between the 340 and 345 strike that were in the money last week are now next to worthless. There are still another 27,500(ish) at the 350 strike alone. We are not expecting a whole lot of action today but would not be surprised one bit if we saw a bid into the close today; grain markets close at 12:05pm cst. Where the corn trade goes post option expiration will set the tone for the rest of the year. If we do see some follow through momentum next week we will likely see funds cover some of their record short position (weather in South America will be the headline reason). Export sales for corn this morning came in at 1,080,000 metric tons, this is in line with the expected range from 900,000-1,300,000 metric tons.

Soybeans have drifted higher over the last week, settling in our key resistance pocket from 999-1004. This has been a big barrier over the past month, a close above here could encourage additional buying from the funds who have been establishing a net long position. A close above opens the door to 1021 ½. Historically we have seen the market rally from November 16th-December 28th; 15 of the last 15 years with the average gain being 42 cents. Due to Thanksgiving, the weekly Commitment of Traders report will be released Monday. Option expiration is today but less significant than the corn market. Export sales this morning came in at 869,100 metric tons, this was short of the expected range of 1,000,000-1,400,000 metric tons.

 

Cattle futures rallied on Wednesday with December live cattle ending the day up 1.225 at 119.05 and January feeders up 1.075 at 152.725. There were 955 head listed on the Fed Cattle Exchange with 119 passed on and no sales. There was a late day cash trade at 120.50 in Colorado, Nebraska, and Wyoming. 117.30 has been our “pivot” point, this represents the middle of the range from the August lows to the November highs. The market has grinded back towards 119.80 which is another technical indicator as well as previous resistance and the breakout point in October. A lot of people have been calling/emailing in wondering about the direction from here, and that remains to be the million-dollar questions; We feel a consolidation within this range would be healthy for the market.

For more information please contact DAW Trading at brokersedge@dawtradingdiv.com or at 877-329-0006 and visit us at http://dawtradingdiv.com/brokers-edge/

 

 

Disclaimer:

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. DAW Trading (“DAW”) uses various outside sources for research material regarding futures and options on futures trading therefore the views and opinions expressed in this letter may not necessarily reflect the view of DAW or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to DAW.