Weekly Commodity Strategy Review 10/24/2014

This was a quiet week on the trading front. Our editor was out on Monday so, we had no piece for TraderPlanet. We did follow up on Tuesday with, “Commitment of Traders Report Caps Eurodollar Rally” in Equities.com. This trade is still worth looking at as it will take quite a while to pan out.

Our main feature was the chart and graph intensive, “October Market Volatility Scared No One.” This piece seems to be pretty well received based on its near instant #1 Google rank for articles on the market’s recent volatility. We compared seven commodity markets across the equity, interest rate and precious metals sectors and their interactions through October’s expanding volatility. The fact that we didn’t find what we were expecting to is far more telling about our current place in the markets and where we may be headed.

Finally, I urge you take a look at the Mechanical Commitment of Traders Program we’ve developed and see how breaking the markets into separate long and short trades can improve your swing trading odds.

Register to create your own portfolio or, view our sample portfolios.

Draghi and merkel

October Market Volatility Scared No One

Trading is a funny thing. There are times when the reasoning behind a market’s actions are spot on. There are times when the reasoning turns out to be wrong yet the directional prediction holds fast. Finally, there are times when the reasoning is dead right and the market does the exact opposite of what was expected. It appears that our September through October forecast was directionally solid. However, based on the data I’ve compiled over the last week, I believe the jump in volatility has merely shaken things up, rather than signaled a major change in market sentiment.

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Commitment of Traders Report Caps Eurodollar Rally

Commercial traders have been selling Eurodollars at an amazing rate. The Commitment of Traders report shows that they’ve sold more than 1,000,000 contracts since mid-September. You can see on the chart below that this selling has shifted their momentum to the sell side for the first time in sixteen months. We took a closer look at this for our piece in Equities.com.

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COT Signals Mechanical Wheat Trade

Here is an example of a successful trade our mechanical trading program generated based on the commercial long hedgers in the Commitment of Traders report.

commitment of traders trading signal
Commercial long hedgers supporting market finally justifies our long entry. Protective stop was placed at swing low.

Here’s a quick link to this wheat trading system along with two others and their historical hypothetical equity curves. We offer 33 in total. We use both the strengths of the commercial traders as well as the weakness of the speculators to stack the swing trading odds in our favor.

Weekly Commodity Strategy Review 10/17/2014

What a crazy week this has been! Nearly a 100 point range in the S&P 500 and more than a 4.5% range in bonds!

Quantitatively speaking it’s been a pretty quiet week in our trading. The cocoa trade we discussed in TraderPlanet has consolidated throughout the week. The consolidation does allow us to adjust our stops accordingly as well as provide an additional point to add on to the trade once it starts moving in our anticipated direction.

You can recap the details in, “Commitment of Traders Report Supports Cocoa.”

Please call in for our evolving risk profile in this trade. The current consolidation provides a couple of technical points that can help put the odds of increasing the bet size in our favor.

You can reach Vicki or Andy at 866-990-0777 until 4:15(EST)

We moved from cocoa to corn based on a new (for us) discovery of a peculiar pattern in commercial long hedging behavior through the harvest. This brief piece for Equities.com ended up being the focus of our weekly piece.  Continued review of the charts and calculating the data revealed the type predictability necessary for successful trading. This may only be a once a year occurrence but, it’s better to trade once a year successfully than all year, poorly.

Corn Harvest Through the Commitment of Traders Report

Finally, we have released many of these strategies in their mechanical forms. You can view their hypothetical equity curves and pick and choose the markets your interested in to create your own basket of markets and their summed equity curve as well as your long or short bias. We feel it’s important to be able to adjust the long or short bias of a commodity portfolio based on where we stand within the economic cycle.

COTSignals – Equity Curves




Corn Harvest Through the Commitment of Traders Report

My favorite part of this business has always been analysis. Whether programming something in Tradestation, building a spreadsheet or good old pencil and paper. Years of hand drawing charts finally allowed their nuances to sink in despite my stubbornness. The result of this is that I still do a lot of manual scanning of markets. There are times when a line of code will alert me to certain criteria. Many times, however it’s the human eyeball that eventually begins to compare a current set of visual data points recognized from the past and can extrapolate that into a projected set of assumptions into the future. We’ve had our eye on the corn market’s decline towards $3.00 per bushel not so coincidentally timed with the October 10th USDA World Agriculture Supply and Demand (WASDE) report. In doing so, we’ve discovered a very particular type of behavior in the Commitment of Traders reports among the commercial trader category in corn futures this time of year. You can see the fully mechanical results of our approach in these equity curves.

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Commitment of Traders Report to Turn Supportive of Corn Futures

The Commitment of Traders reports showed that commercial corn producers sold more than 350,000 contracts equal to 1,750,000,000 bushels or, about 12% of this year’s crop as estimated by the October 10th USDA WASDE report between February and April. The average price for these forward hedges was around $5.00 per bushel. The summer’s perfect weather has led to record production and this has caused the market to sell off all the way down to $3.20 per bushel. This sell off has brought out the consumption side of the commercial trader equation and our math suggests that they’re just getting warmed up as you can see on the chart below.

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Commitment of Traders Report Supports Cocoa Market

This morning’s piece for TraderPlanet combines all of the classic elements necessary to create a Commitment of Traders buy signal in the cocoa futures market. We discuss the macro factors that have kept the commercial traders on the short side of the market during its extended sideways range near the highs as well as the cause of the recent sharp sell off. Finally, we examine the technical nature of the market and exactly what this trade is setting up and the risk entailed.

Fully mechanical Commitment of Traders markets and equity curves.

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Weekly Commodity Strategy Review 10/10/2014

I’d like to begin this week’s recap with last week’s primary piece, Commitment of Traders Report Returns S&P 500 to 1900. Also note that we we alluded to this setup as early as last Tuesday in our piece for Equities.com when we first discussed the shift in commercial trader bias while we were still sitting at 1975 in the December S&P 500 futures. Read more in, Commercial Selling Tips S&P 500 Bias.

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Gold and platinum prices reach parity.

Metals Markets Hit Oversold – Reversion Imminent

Our piece for TraderPlanet this morning focuses on the developing metals picture. Quantitative Easing in Europe has clearly contributed to the deflationary tone along with China’s unwillingness to fill the global demand gap. However, these macro issues carry little weight in our day to day trading.

This morning’s issue comes down to two things. First, the Commitment of Trader Report has shown tremendous commercial buying on this decline and secondly, platinum and gold hit parity. As I said in our piece for TraderPlanet, “Given the same price, would you rather own an ounce of platinum or, an ounce of gold?”

We’ll be following up on this in detail later in the week.

Read – Metals Markets Hit Oversold: Time to Revert to the Mean?

Commodity Futures Trading