We had been watching the Live Cattle Futures market after seeing a 1-2-3 top formation develop over the period of a few weeks. Now, Live Cattle Futures have hit a record high (see Daily Live Cattle chart below). The fundamentals for Live Cattle are that ranchers have far less heads of cattle than historically because the demand for beef has dropped. Therefore, they have shrunk their herds to accommodate market demand. This is driving the price of Live Cattle Futures to new highs. But prices won’t rise forever, and now that a new historic high in Live Cattle Futures has been reached, we will look for a new 1-2-3 top formation over the next several days/weeks.
Today, December 30, March 2014 Cocoa prices broke below the #2 point of 2728 and we are now short Cocoa Futures. Our target is the 50% Retracement level of 2495. We purchased a 260 Put Option (2600) at $350, which is 2 strike prices out of the money. This option expires on Feb. 7th.
We purchased a March 2014 Sugar #11 Call Option at a strike price of 16.75 (cost of $268.80). This Call option is 2 strike prices out of the money. We could have gone for a slightly cheaper Call option that is 3 strike prices out of the money (a 17.00 Call option would have cost $224.00) but the 16.75 Call option was a much better deal. This option expires on 2/18. Every penny in Sugar is $1120.00. Our target is the 50% Retracement level of $18.01.
Sugar Futures hit a multiyear low (see Weekly Sugar chart below) of 15.86 on 12/18/2013 and quickly formed a 1-2-3 bottom formation over the next several days of trading as can be seen on the Daily Sugar #11 (March 2014) chart below.
We are going to go long Sugar when prices break above the #2 point of 16.48 which can happen as soon as tomorrow. The 50% Retracement level is 18.01 based on the Daily chart below and could go to 19.93 based on the Weekly chart, giving us plenty of upside profit potential.
Looking at the Weekly Natural Gas (NYMEX) chart below, a new 12-month high has been reached in Natural Gas Futures. Although one may think from a Monthly Natural Gas chart that this high isn’t very high at all (see Monthly Natural Gas chart below) when in June of 2011 Natural Gas reached 4.983, the fact is that Natural Gas prices have been severely depressed for since fracking (hydraulic fracturing) that started a few years ago has greatly increased Natural Gas supplies and hence has depressed prices.
Therefore, for Natural Gas prices to reach the level of 4.550 we see in the March 2014 Daily Natural Gas chart below is actually a new high. Prices haven’t been this high in over a year and therefore we will watch for a 1-2-3 top formation so we can short the Natural Gas Futures market.
The Weekly Wheat (CBOT) chart below shows that Wheat has made a new 12-month low. Looking at the Daily Wheat chart for March 2014 wheat futures, we have a possible #1 point of a 1-2-3 bottom forming at 621. As of this morning (12/17/13) the Intraday chart shows wheat has gone even lower to 620.25 (at the time of this post). We will watch for the #2 and #3 points to form before going long wheat.
A couple days ago on 12/11, we posted about Entering Coffee Futures on a Multiyear Low and Repeating 1-2-3 Bottom Formation and put a Buy order in at 112.95. Current Margin on Coffee is $1705 (with a $1550 Maintenance Margin). Since a Coffee Call Option that is 3 strike prices out of the money is in the $1200-$1400 range and only gives us a couple months of time, we opted to go for a Futures Contract with the $1705 Margin instead. We initially placed our Stop Loss at the most recent #3 point (support level) of 105.65 it hit on 12/5.
Today (12/13) as can be seen on the Intraday March 2014 Coffee chart below, prices broke to the upside and triggered our Buy order and prices have continued up from there and stand at about 115 at the time of this post. Our target is the 50% Retracement level of 148.
On 12/11/13, Corn closed above the #2 point on the Daily March 2014 Corn Chart (see below). The closing price on 12/11 was 439.25. As of 12/12, Corn opened at 430 and we bought 1 March 2014 Call Option at a strike price of 445, which is 3 strike prices out of the money, for 8.75 (cost of $437.50 – 8.75 x $50/cent). This option expires on 2/21/14.
Prices moved as high as 439.75 before dropping back down. Over the next few days/weeks we will watch this Daily Corn Chart to see if prices continue to trend higher. Our target is the 50% retracement level of 468.
Coffee is trending up, as can be seen in the daily March 2014 Coffee Futures Chart below. A 1-2-3 bottom formed in early November, with new #2 and #3 points forming late November and early this month (December).
There’s lots of upside potential with the 50% retracement level near 148 (as can be seen on the Weekly Chart below). Prices already broke above the original #2 point formed on 11/11 at 109.85, and had we been watching this market back then we would have went long when prices broke above 109.85. Now there’s a new opportunity to enter the Coffee Futures market when prices break above the latest #2 point at 112.9 formed on 12/4.
We are going to put a buy order in to purchase 1 March 2014 Coffee Futures contract at 112.95 and long with the target of 148. Current opening margin for Coffee Futures contracts is $1705 with a maintenance margin of $1550. Keep an eye on Coffee in the next few days.
Alternatively, we could purchase an out-of-the-money Call Option with a strike price of 115.0 (1150) for $937.50 (250 x $3.75/tick). That gives us ~2 months before it expires.