Weekly Commodity Strategy Review

This week’s primary analysis focused on, “The Interest Rate Conundrum.” Since this is a macro piece, I thought I’d review the last bits of trading in more detail. The trades over the last two weeks are a great look into the real world of discretionary trading. We’ve had a loser that bounced back as quickly as it knocked us out (sugar), a non-event of a trade (bean meal), a nice winner (silver) and another fish on the hook (hogs). If we can land the last one, it’s a decent week trading….warts and all.

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The Interest Rate Conundrum

hot potatoHere are some headlines from this week’s reading.

World Braces for Taper Tantrum II Even as Yellen Soothes Nerves

Swiss, Mexican Bond Deals Represent Milestones for Debt

Bill Gross: German bunds are ‘the short of a lifetime’

The general gist of these headlines is twofold. Janet Yellen and the U.S. Federal Reserve Board of Governors is doing everything they can to talk the market into behaving in an orderly fashion as the Fed prepares to enact the shift in interest rate policy that they’ve been telegraphing since the end of the taper announcement last summer. Secondly, the reason the Fed is trying to talk some sense into the markets is because the markets don’t seem to believe the in the Fed’s intentions.

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Weekly Commodity Strategy Review

We began this week by revisiting the sugar futures market. We started talking about it a couple of weeks ago for Equities.com in, “Time to Sweeten on Sugar.” We updated this outlook Monday for TraderPlanet.com. This trade finally triggered on Thursday and currently sits above the $.1310 level that we believe will induce some speculative short covering. See, “Sugar Prices on the Decline.”

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Record Position Narrows US Dollar vs. Euro Currency

Something happened on the way to parity between the US Dollar and the Euro currency. Amidst the rhetoric of Mario Draghi and his Quantitative Easing forever platform, both the Dollar and the Euro have accumulated record positions among the commercial traders. Given the trend and considerable decline this seems reasonable until the data is actually absorbed consciously and it becomes clear that the record positions in both markets are opposite the trend and bode strongly for this spread to narrow.

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Silver Still Has Further to Decline

Like many physical commodity markets, silver futures are still on the decline from their 2011 highs near $50 per/oz. This market had begun to find a base through mid 2014 when the Fed’s announcement to end Quantitative Easing sparked several commodity rallies. Clearly, this was premature in the market as silver, along with most of the other markets quickly found that its spark failed to catch and once again resumed its downward trend. The primary characteristic of this downward trend in silver futures has been the commercial traders’ consistent selling on rallies. This has been especially notable as these rallies have neared the downward sloping trend line that has capped them.

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Record Selling in S&P 500

I understand that our weekly readers may feel like we’re beating a dead horse over the last few weeks. We’ve stated and re-stated various reasons for our concerns regarding the equity markets and this week has provided yet more fuel for the warning signal. First of all, let me begin with my personal bias by stating that, as an S&P 500 pit trader whose only decade on the floor was the 1990’s, I’m used to making money on the long side. However, there are enough warning signs in the marketplace right now that I won’t take a long position home. I believe the next home run trade in these markets will be on the short side and this week, I’ll provide one more big money example.

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Still Decoupling The Euro and Swiss Franc

The Euro currency and Swiss Franc had been artificially tied together since 2011. Eventually, as with all single markets tying themselves to a larger commonwealth, the single market eventually needs out. It can happen for a variety of reasons either the larger group’s or the individual country’s but eventually, the fluid movement of a single country’s needs will find itself at odds with the larger group’s stagnancy.

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Commodity Futures Trading