Gold Futures Collapse Through Channel

Gold futures collapsed today, breaking through the channel on the bottom side, signaling a major move down.  As we noted in our previous post: Gold Sideways Move Presents Trading Opportunity, Gold has been traveling sideways in a channel bounded on the bottom side by a low of 1268.5 and on the top side by a high of 1315.7.

Today, Gold prices tanked, going as low as 1264.5 for the August 2014 contract at the time of this post.  Normally, when prices break out of a sideways channel, we go long or short with the expectation of prices moving up/down the same ‘distance’ as prices moved sideways.  But we’re not going to chase this market.  Prices moved suddenly and violently today so we want to wait and see if they climb a little first before we enter the market on the short side.  We’ll see if we can catch it before it drops too far down.   Stay tuned!

Intraday Gold Futures - Aug 2014

Wheat Futures Plunge Leaves No Trade

We’ve been following Wheat futures since a new 12-month high of 744 was reached on May 6th (see previous post:  New 12 Month High in Wheat Futures).

We waited for a 123 top formation, but instead prices tumbled almost straight down over the past 11 trading sessions (see Daily Wheat chart below).  At the time of this post, July Wheat futures are around 656 and the 50% Retracement Level is at 650.63, so that doesn’t leave much room for profit given that we look to make the difference between the #2 point and the 50% Retracement.  Since there was no discernible 123 top to signal a change in market direction, we missed the ride down and and we don’t see an opportunity to trade this market at this time.  Stay tuned.

Daily Wheat chart CBOT - July 2014

Gold Sideways Move Presents Trading Opportunity

As the Fed prints billions of dollars each month from thin air, gold prices are affected by the rise in capital that flows into the equities market (and away from gold) as the Dow and other indices make record highs.  The game is rigged, and like an exceptionally cruel game of musical chairs, whoever is still in the stock market when the music stops  is going to suffer with the inevitable collapse.

Looking at the Daily Gold chart below, you can see gold futures have been moving sideways for the past month, with the upper end of the channel at 1315.7  back on 5/5/14 and the lower end of the channel at 1268.5 back on 4/24/14.    One of 3 things is going to happen over the next few months:  Prices will continue to move sideways in that channel, or they will break to the top side of the channel, or they will break to the bottom side of the channel.  And there are at least 3 ways to make money in gold futures and gold options.

Daily Gold Futures - Aug 2014

We could put in a buy order (go long) to purchase a gold futures contract if prices go above 1315.7 while simultaneously putting in a sell order (go short)  to sell a gold futures contract if prices drop below 1268.5.  Whichever way prices go, that order will be executed (and we would then cancel the other order) and we then take the long or short position of that executed order.  Gold futures margins are expensive, so another way to straddle the channel is with options.  We could purchase an out-of-the-money Call option now with a strike price above 1315.70 while simultaneously buying a Put option with a strike price below 1268.50.    If prices go up, our Call option becomes valuable.  If prices drop, our Put option becomes valuable.   We would only lose the cost of one of those 2 options.

Another way to profit from this sideways channel is to SELL out-of-the-money put and call options and pocket the premiums (if we expect prices to continue snaking sideways, those options we sell will expire worthless, and we keep the premium paid to us for those options).  The downside to this strategy is if prices move against us, all of those options we sold would then be ‘in-the-money’ and we would be exposed to losses.

A little patience, however, could go a long way.  You can see in the Weekly Gold chart below that a wide 123 bottom has formed since reaching the multiyear low of 1182 (the #1 point in the chart).  If prices break above the #2 point of 1391.4, we could go long Gold Futures with a target of the 50% Retracement Level of 1488.4.

Weekly Gold Futures

If gold futures break to the upside of the sideways channel (above 1315.7) , we have a decision to make whether we want to wait for prices to also break thru the #2 before taking a long position, or to anticipate the ride up and buy a long position at that point.

When prices break out of sideways channels, they tend to travel the same distance up or down as they went sideways.  Looking at the Daily chart, it looks like if prices break to the upside of the channel, they would continue to go up past the #2 point.   The safest play would be to buy a Call option that is ‘out-of-the-money’ from the top of the channel, but ‘in-the-money’ in relation to the #2 point.

Either way, we have to wait and see if prices continue snaking sideways or break to the top or bottom of the channel before we initiate a position.  Stay tuned!



Our Call Option Now In The Money After Copper Surges

Our 310 strike price July High Grade Copper Call option is now in-the-money as High Grade Copper futures for July shot up today and now hover around 315 (see Intraday chart below).  We are long from 310 and since we have now surpassed our initial target of 313 (see our previous post: Going Long High Grade Copper on Breakout), we look to the 320 level which is the 50% Retracement Level on the weekly high grade copper chart (see Weekly High Grade Copper chart below).

Intraday High Grade Copper - July 2014Weekly High Grade Copper


Short Coffee Today After Drop Below Support

We made a lot of money back in January when we were long coffee futures.  Recently coffee futures made a new multiyear high.  We had been watching the Coffee futures market (see our previous post:  Coffee Forms 123 Top – Time to Short?) and TODAY prices broke thru the support of the #2 point at 196.5 on the 123 top formation so we are now short Coffee futures.  We bought a Sept. 2014 Put option with a 180.0 strike price for $4435 which expires on 8/8/14.

We could have purchased a much cheaper July Put option (a 180.0 strike price would have cost us ~$1875) but July Put options expire 6/13/14, giving us only about 1 month of time.  We therefore chose the Sept Put option and paid the extra premium for that additional time value.

For the September coffee futures contract, the 50% Retracement Level is 170.4, giving us plenty of downside potential.

Daily Coffee chart - Sept 2014

As Cocoa Prices Plummet, Our Put Option Briefly In The Money

Cocoa futures continue their slide (see the Intraday Cocoa chart below), which is getting steeper, going as low as 2849 before bouncing all the way back up to 2896. At the time of this post, July Cocoa futures sit around 2890.

The brief dip below our Put option’s strike price of 2850 was exciting, but even more exciting is the price collapse below the previous support level of 2880see the Daily Cocoa chart below.  We’re hopeful Cocoa continues this slide and we can reach our initial target at the 50% Retracement level of 2801.50 (see previous post: Shorting July Cocoa on 1-2-3 Top Formation).


Intraday Cocoa - July 2014Daily Cocoa - July 2014

New 12 Month High in Wheat Futures

The last time wheat prices were this high was back on 3/29/13 when prices reached 741.75. Today, July Wheat futures reached 744, making a new 12-month high. See the Daily Wheat chart and the Weekly Wheat chart below which show the new high and the previous high respectively.

We will watch the wheat market over the next few days to see if a 123 top formation gels in which case we will short wheat futures.

Daily Wheat CBOT - July 2014Weekly Wheat CBOT

Cocoa Prices Crash Through Support

Cocoa future prices are currently at 2910 at the time of this post (see the Intraday Cocoa chart below). Remember, we are short Cocoa with our 2850 Put option and were waiting for prices to break thru the #2 point of 2922. This has now occurred (see our previous post: Cocoa Futures Breaking Thru Support?).

Our 2850 Put option isn’t ‘in the money’ yet, but we still have time and it looks like prices are heading lower. Stay tuned!

Intraday Cocoa chart - July 2014

Coffee Forms 123 Top – Time to Short?

As you can see in the Daily Coffee chart below, Coffee Futures have completed a 123 top formation and we will wait for prices to break below the #2 point of 194.4 before we short the market.

The 50% Retracement Level from the last major move on the daily chart is 168.25.  That gives us plenty of down-side potential to profit on this trade.  Stay tuned!

Daily Coffee Futures = July 2014Monthly Coffee

Cocoa Futures Breaking Thru Support?

Today, Cocoa Futures prices reached a new recent low of 2943 (at the time of this post).  We are short Cocoa Futures with a Put option (at a 2850 strike price) we purchased back on March 25 (see our post:  Shorting July Cocoa on 1-2-3 Top Formation).

When we shorted cocoa futures with our put option, we didn’t wait to see if the 1-2-3 top formation was going to ‘firm up’.  Looking at the Daily Cocoa chart below, you can see that today’s low so far of 2943 is pretty close to the #2 point of 2922 in the VERY WIDE 1-2-3 top formation that eventually formed over the past several weeks.  Wide 1-2-3 top and bottom formations usually indicate a strong and prolonged move in the market.  We expect if/when prices break below the #2 point of 2922 our 2850 strike price put option should be in the money soon after.  Stay tuned!

Daily Cocoa chart  - July 2014