SPX Weekly Chart

Lately everyone is coming out putting their two cents on where the S&P 500 is headed. I figured I would throw my thoughts out there.

S&P 500

SPX

Looking at the chart we can plainly see that the SPX has been trending higher, almost text book perfect for the last two years. Over the last two years the SPX has been in a tight up channel, making higher highs and higher lows. The most important thing about the trend and the technical pattern we are in is, will we continue to see more of the same? My answer is yes! Until we break to the down side making the pattern no long valid we should continue to see the same. With that said whats the upside target? Traders for some reason like round numbers, so my target would be for a print of 2000, about 50 handles away. This target is only valid if we continue to see the same type of price action. The time frame for this to happen is anyones guess, if we hit my target with no pull back that would be unhealthy for the market in general. I would have to believe some type of pull back would happen before we hit 2000.

In conclusion S&P 2000 at some time this year would be a reasonable target after a pull back or two. Keep in mind that market conditions can change, and if they do watch for a violation of the current price pattern.

SPXDAY

Targeting a pull back to support before higher prices is now the focus. I think you can look at this a few different ways. The first would be a moving average, I like the 50 and the 150. If price pulls back to the 50 we could see some support with up tick volume and a bounce to higher prices. If price breaks the 50 day the next line in the sand would be the up trend line. At the up trend line we need to look for strong up tick volume for prices to move higher. If price breaks below the up trend line the last line in the sand would be the 150 day moving average.

My personal “want” from the market is sideways action!

 

Trade Idea: Soybean Meal

GRAINS

We have been watching a soybean meal spread over the last few weeks and we are at a high probability spot to sell this spread. Front month soybean meal is trending higher with soybeans, but we are starting to see some weakness in soybeans and we think soybean meal will follow. On top of that we have a strong seasonal pattern and typically we see demand for soybean meal decline in mid to late summer months.

Trade Idea: Short October/Dec Soybean Meal- The seasonal pattern is highly correlated with the 5 year and 15 year price average patterns. Historically this spread has traded as high as $10.00 before the seasonality start date, and thats looking at data since 1985. The 15 year price average is around $4.00 to $4.30. Now we don’t usually refer to average price, but in this case we will because the technicals are setting up with agreeing fundamentals. Looking at the spread chart we think the resistance area around $4.00 would be a good place to take the initial position. We have an open order GTC at $4.00, our risk will be $600 per contract.

MEAL

Win%———-93%  14 out of the last 15 years trading this spread

Days in Trade———57

Worst Down————–($140)

Best Up——————$272

 

Trade Idea: Heating Oil

ENERGY

July Heating Oil over the past few weeks has been pulling back with weather across the country heating up. Technically we have some major support at $2.85 and price is starting to approach that level. Typically in the summer months front month Heating Oil will trade between $2.90 and $2.75. In our opinion we are right in the sweet spot for a great seasonal trade.

Trade Idea: Heating Oil Long January/February  This bull spread has a very correlated 5 and 15 year price average pattern. Historically this spread has not traded below $-.020 over the last 28 years. We like the spread around $.040 to initiate the position and $.000 to add the second half. We will risk to historic lows of $-.020. The statistics also support a strong seasonal pattern, over the last 15 years this seasonal spread has won 15 out of 15, 100% win rate. We have an open order GTC to buy this bull spread at $.040.

HEAT

Win%—–100%

Days in Trade——29

Worst Down——-($34.16)

Best up——–$248.08

Trade Idea: Lean Hogs

MEATS

This week we are keeping our eyes on Lean Hogs, the front month chart looks to be in a consolidation after a big rally up to 128.775. Fundamentally lean hogs are looking a little bit better after last Fridays USDA report, the WASDE (World Agricultural Supply and Demand Estimates) which is a supply and demand report. They stated that pork production is expected to increase as producers respond to the Porcine Epidemic Diarrhea virus, by increasing farrowings and feeding hogs to heavier weights.

Technically we feel that lean hogs are way to over valued, and front month hogs are breaking a major level of support. So we like to bear spread lean hogs.

Trade Idea: Lean Hogs Short December/February There are a lot of different month combinations that you can use to bear spread hogs, but December/February has the strongest seasonal pattern. The 5 year and 15 year price averages are highly correlated and the pattern is very strong. The last time this spread traded anywhere close to where we are currently trading was in the 80’s. Taking past performance into account on risk, we would love to sell this spread around $5.00, but the problem with that is we may never see that print. Our initial position will be taken at $4.00 and added to at $5.00. We are risking this up to $5.20. We are currently in this position short at $4.00, with are target at $2.00.

HOGS

Win%—–95% over the last 20 years

Worst Down—–(-$640.74)

Best Up——$1186.02

Trade Idea: Gold

GOLD

We have been watching a beautiful chart pattern set up on gold over the last few weeks, and we feel this is a good spot to enter a trade.

Technically speaking we are seeing a descending triangle chart pattern, and with a break-out up through the down trend line and now a retracement back to the same down trend line, we are bullish on gold. Statistically, this chart pattern has a high probability of pushing price higher, but there is a chance of a neutral (sideways) or continuation lower. We are betting that prices go higher from here.

Trade Idea: Gold Short Put Spread with Long Put Spread

Without over complicating the concept of this trade, we will post a screen shot of our position. We will also go over our reasoning for trading this spread.

GOLD

The position is set up first as a credit spread which is set a little more than a standard deviation out of the money, so this is a high probability trade to start with. We then cut deltas and put on a small hedge in the form of a Put debit spread set at the money. If we go higher we are completely fine, if we go sideways we are completely fine. The real test on this strategy is if we go lower. If we do go lower we will reduce the amount of credit spreads on, but if we go lower at a slow pace we will be fine as theta increases to the downside, we just don’t want a fast gold market to the downside.

Adjustments for this position are pretty basic, we will reduce the size of the credit spreads as our short Put delta increases.

Trade Idea: Crude Oil and Gasoline

ENERGY

This week we have been very focused on the energy sector, and with inventory numbers coming out this morning we have some nice trade set-ups.

CRUDE OIL 

As the writing of this post June crude is trading up 1.23 after bullish inventory numbers. Over the last couple weeks crude has pulled back to some very important key levels and we think crude could rally up to 102 over the next week or so. We hold a neutral to slightly bullish stance on crude over the short term.

Trade Idea: Crude Oil Short July/August This bear spread on crude oil has a strong 5 and 15 year pattern. Over the past 15 years this spread traded as high has 2.40 in 2000 at the beginning of July, but on average the high as been around 1.20. We like this spread around 1.10 for half position and 1.20 for the second half. One important pattern that we see is this spread tends to do well during the month of May and prices have typically bottomed out in the first week of June. Now the first week of June we could see a rally in this spread, so its important to cover this position before the seasonal pattern is no longer valid. We have an open order  GTC on this bear spread at 1.10 with our first target at .80. (If we move our order, we will move it to 1.05)

CL

GASOLINE

We have been in and out of a couple different Gasoline spreads over the last few weeks, bear and bull spreads. Right now we are entering into a extremely strong bullish seasonal pattern. As of writing this June Gasoline is trading up .0274 at 2.9133. We are getting a nice move higher this morning, our short term target on June Gasoline is 2.95, support is at 2.8493.

Trade Idea: Gasoline Long June/July As I mentioned earlier, this spread as a very strong seasonal pattern. The spread typically puts in lows mid April to the first week of May and trades higher.  Over the last 14 years this spread has traded as low as .005 as the bottom in the April and May time frame, the 2014 lows for this spread was .0177 and currently this spread is trading around .0215. We like this spread here and are buyers at .0215 for the first half, and our second half around .0180. Our first target is .0300 and we think we could trade up to .375.

GAS

 

 

Trade Review and Trade Idea: Live Cattle

ENERGY

Since our last post on our short Crude Oil spread we have seen all of our energy spreads move in our favor. Today we will be going over a review of all our energy spreads over the last week.

We have been trading two different spreads on Crude Oil. The first spread was short July/August we sold at $1.00 and this spread is currently trading at $.80. We covered this position yesterday. We will be looking to re-enter at a higher price, or we will wait until we have a strong seasonal pattern to go long a different Crude Oil spreads. We also have been trading short September/October Crude Oil Spread. This spread we recommended on our last post, we moved our limit order to $1.06 and got filled. Today this spread is trading at $.90, yesterday we covered this spread as well. Two days ago we entered a short heating oil spread July/December. We shorted this spread at $.0187, seasonality is very strong and we will be holding this spread into the first week of May. We also shorted a Nat Gas spread August/October. We shorted this spread at $.018. Seasonality is very strong with this spread as well and we would like to hold this spread until the first week of May.

GRAINS

We have had a very active couple weeks in the grain markets. Below is a review of all our spread trades over this last week. We shorted a Wheat spread July/December at $-22.75. We hold a slightly bearish stance on wheat and we expect wheat prices to drop to 6.25 to 6.50 a bushel. Currently this spread is profitable trading at $-23.50 and our target is $-29.00. We bought a Soybean Meal Spread December14/March15. Seasonality is very strong and demand for Soybean Meal typically catches a bid coming into June. We bought this spreads at $.20, currently we are down a little, this is a spread we wanted to go long a bit lower and we have a chance to add to our position. We shorted a Corn spread September14/March15. Front month Corn broke a major uptrend line we’ve been watching and the seasonality pattern is very strong. We sold this spread at $-6.00.

MEATS

This week we are looking to bear spread Live Cattle. I found an interesting view on bear spreading cattle in Moore Research Center, and they say, “During peak cattle slaughter, supplies of beef build. With retail beef consumption slow during the heat of summer, demand for cattle can remain mostly muted for months. Thus, during peak slaughter, the market builds seasonal disparities in demand into its price structure.” As for our view on cattle, which is seasonal, we find seasonal patterns are strong and the statistics of past trades are very appealing.

Trade Idea: Live Cattle Bear Spread Oct14/Feb15 We like this trade for a few different reasons. First, the 5 year and 15 year price averages are highly correlated at 98%. Second, fundamentally we could have more supply with average to slightly below average demand. And thirdly historical statistics are highly appealing to our risk tolerance. As of writing this we are filled a bear spread at $-2.90, if this position goes against us we will add our second half at $-2.70/$-2.60. We will risk $350 per contact on this trade and our target is $-5.00 or $800 per contract.

cattle

Win%—–93%

Days in Trade—–30

Worst Down—–($102)

Best Up—–$494.67


 

Current Trades that are open

1. Heating Oil Bear Spread Short From .0187

2. Live Cattle Bear Spread Short From -2.90

3. Nat Gas Bear Spread Short From .018

4. Corn Bear Spread Short From -6.50

5. Soybean Meal Bull Spread Long From .20

6. Wheat Bear Spread Short From -22.75