We were early selling December lean hog futures in September. Our expectations were based on solid technical resistance that had built up near $0.645 per pound along with an early onset of seasonal weakness. Fortunately, our protective stop kept the loss manageable. December hog futures continued to climb through September. The mid-September head fake didn’t fall far enough to to actually trigger a sell signal but it did fall far enough to setup a bearish divergence pattern triggered by yesterday’s price action. We’ll briefly review the premise for the current hog trade while illustrating the power of divergence analysis supplemented by the Commitment of Traders report.
The interest rate sector has been going crazy trying to determine what to do since the Federal Reserve Board (FRB) chose not to raise rates at the September meeting. My email has been inundated by interest rate related mailings. The basic point of most them was, “Now that the Fed held steady, what corner have they backed themselves into?” Most of the boxing in is focused on the FRB’s historical actions. I went back through 45 years of data to determine the scarcity of an October or, December rate hike along with Presidential election cycle analysis which isn’t supposed to be linked to the FRB in any way, shape or, form (wink.) We’ll also move through the individual futures charts to determine what the big money is suggesting with respect to FRB action, history be damned.
There’s been no shortage of talk surrounding the interest rate complex. I believe the recent Federal Reserve Board’s meeting was the most highly anticipated since the economic collapse. Their decision to leave rates unchanged sent everyone back to their drawing boards. I’ve read tons analysis since then by people who really know the inner workings of the Fed, the economy and the interest rate markets. The general consensus among these people is as clear as mud. When the brightest of minds come down on opposite sides of an argument it leaves us mere mortals incapacitated in a head shaking way. Since we can’t count on the experts, we’ll go straight to the source, the markets themselves.
Historically, September is a bad month for soybeans. This is about the time the harvest numbers begin to crystallize, shortly to be followed by the actual harvest. October, on the other hand, tends to be one of the strongest months of the calendar year for beans as the battle begins between Mother Nature and the farmers in the fields. Given the benign weather patterns we’ve been experiencing and expect to continue into the near future, we believe the September sell off could’ve gotten ahead of itself. Correspondingly, October’s strength may have arrived a week early.
We’ve been writing about the metal markets quite a bit, having recently published articles at Futures Magazine, Equities.com and TraderPlanet. We’ve seen major churning by the commercial traders which is indicative of a broader change in sentiment. Obviously, when it comes to the metals markets like gold, silver, platinum and copper, the major questions on everyone’s mind is, “Have we bottomed?” We’ll review the current setups in these markets and attempt to answer just that question.
We frequently discuss the effectiveness of using the commercial trader position as a proxy for fundamental data. We began looking at this years and years ago in the agricultural markets due to the inelastic nature of these annual markets. Adding that these markets are controlled by individuals whose livelihoods are based on the successful calculation of supply and demand and you begin to see the value in their collective forecasting ability. Thus using the commercial hedging activity as a proxy helps put us on the side of the sellers when there is forward production to be sold above their predetermined value area just as the end users put us on the side of the long hedgers supporting undervalued prices.
The most heavily anticipated Federal Reserve meeting in the last seven years turned out to be a non-event. No change. The ticker flashed across the bottom of the screen, “The Federal Reserve Board has left interest rates at 0. No change.” There are lots of variables factored into their decision but the end result is that they simply didn’t feel our economy was ready strong enough to withstand even the slightest of interest rate increases. Assuming they’re right, what do we make of copper’s recent rally? Clearly an expanding economy will need more copper. Apparently, the commercial traders weren’t too keen on this idea as they’ve been net sellers in each of the last four weeks. Furthermore, the Commitment of Traders report reveals a unique imbalance that bodes poorly for copper’s future prices.
The El Nino event of 2015 is expected to become the strongest on record. Considering the impact this event is supposed to have on our southern states, it’s time to review what has happened in the past as well as what may be coming. We’ll let the National Oceanic and Atmospheric Administration (NOAA), finish our intro. From NOAA’s analysis of the 1997 event. “The winter of 1997-1998 was marked by a record breaking El Nino event and unusual extremes in parts of the country. Overall, the winter (December 1997- February 1998) was the second warmest and seventh wettest since 1895. Severe weather events included flooding in the southeast, an ice storm in the northeast, flooding in California, and tornadoes in Florida. The winter was dominated by an El Niño influenced weather pattern, with wetter than normal conditions across much of the southern third of the country and warmer than normal conditions across much of the northern two-thirds of the country. ”