Weekly Commodity Strategy Review 11/21/2014

Monday’s corn analysis for TraderPlanet couldn’t have been more timely. Our mechanical swing trading programs picked up the highs being made in the grains as a short selling opportunity that bore fruit right through yesterday’s exit. We discussed the Commitment of Traders report’s importance in determining resistance levels as defined by the commercial traders’ volume and execution prices.

Read, “Corn Rally Stalls Short of $4.”

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S&P 500 Rallies .5% Per Day, Sustainable?

The S&P 500 has rallied more than 12% in 24 trading sessions. This isn’t a terribly rare occurrence. Writing up a quick indicator shows me that there have been 18 observances of rallies traveling more than 10% in any rolling 24 day period. Restricting the filter to 12.5% still provides us with 9 observances while bumping it to 15% drops the return to 5 examples. The last 10% rally was in January of 2012 and the last 15% rally was in November of 2011. These last two observances were clearly during the churning process as the market had not made new all-time highs, yet.

The 18 total examples gained an average of .92% in the S&P500 futures one month later. The largest gain was 6% while the largest loss was 10%. Finally, the market ended up higher one month later exactly half of the time.

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cocoa pods

Cocoa Shortage Fears Overblown

Cocoa shortage news seems to be going viral when the fact of the matter is that cocoa prices will structurally decline in the coming years due the modernization of an industry that’s been marginalized for more than 20 years. The Ivory Coast which, is the number grower in the world is undergoing full on paradigm shift due to President Allasane Outtara.

As we said last year, “President Ouattara, who was educated here in the U.S. at Drexel University, is quickly modernizing the Ivory Coast’s cocoa markets. There’s been rapid development in soil reclamation, fertilization and education. Most cocoa is grown by individual farmers on small plots of land and is harvested by hand as it has been for hundreds of years. The application of modern agronomy techniques will cause the Ivory Coast’s cocoa production to increase rapidly over the coming years. The combination of infrastructure improvement and political stability supporting free trade and as well as modern farming practices will increase yield and depress prices once the changes are fully implemented.”

Read more – Paradigm shift in the Cocoa Futures Market.

no cocoa shortage
There’s clearly no shortage in the cocoa market.

See our past cocoa futures articles.

Read the rest of today’s piece, Cocoa Fear are Overblown at Equities.com

corn-field

Corn Rally Stalls Short of $4

The corn market has found some harvest strength. We first suggested this in, mid-October in, “Commitment of Traders Report to Turn Positive in Corn Futures.” Our tone has changed recently as reported in, “Corn Rally Stalls on Commercial Selling.” The CFTC’s Commitment of Traders Report shows that the area between $3.60 and $3.80 was heavily traded among the commercial traders. Based on our experience, the price levels that previously acted as support will now act as resistance. Commercial traders have a habit of reverting to the mean. This behavior should result in enough commercial selling on this rally to offset the long hedges that were initiated on the way down, thus providing enough selling pressure to cap prices near these levels.

It turns out that, like last week’s Bond market trade, the corn futures market wants to do it on its own timing. Like the Bond trade, the corn trade is a big picture trade. Therefore, the initial timing isn’t as important as its continued monitoring for opportunities.

Thanks to Friday’s trade, the opportunity is here.

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Weekly Commodity Strategy Review 11/14/2014

This week’s theme was the same as last week, expecting that some of these markets had gone too far, too fast and were ripe for a turnaround. Like last week, our strategies have continued to be on the wrong side of the markets.

Combine our programs to build your own Equity Curve.

See our Sample Portfolios for examples and ideas including the portfolio tracked at Futures Truth.

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Timing the Dollar’s Run

The U.S. Dollar has been the best house in a bad neighborhood since the U.S. Federal Reserve Board announced its intentions to taper the U.S. economy off of its monthly stimulus supplements. Protracted issues in Ukraine and the sanctions levied against Russia have created a major capital flight from Eastern Europe as a whole. The European Union recently announced its own form of Quantitative Easing and finally, on Halloween, Japan dropped the mother of currency bombs. Their announcement that they would not only invoke another round of currency destruction but would also become direct investment participants in their own stock markets created a shock through the investment landscape that I’ve not heard in non-crisis times.

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record soybean harvest in 2014

Commercial Selling and WASDE Pressures Cap Soybean Rally

Commercial soybean growers who hadn’t hedged their crop early in the year have taken a pounding on prices all summer long. As is seasonally predictable, the market did get somewhat of a harvest rally moving from a low of $9.04 in the November soybean futures contract up to current levels around $10.25. Negative price action has accompanied this rally as growers have sought to unload whatever they could ahead of the USDA’s November World Agriculture Supply and Demand report. The primary takeaway in the soybean market is the nearly 8% increase in this year’s crop estimate, now at 3.958 billion bushels versus their previous estimate of 3.927 b/bu. The only kind note in the report was the trade’s general expectation of 3.967 b/bu.

More interesting than the fundamental action is the increasingly negative technical picture taking shape as you can see on the chart below.

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Outside Bar Key Reversal in Bonds

Last Monday, we discussed our forecast for lower US Treasury yields ahead in, “Bonds CReeping Towards Lower Yields” for TraderPlanet. Unfortunately, we were early and the market stopped us out with a manageable loss prior to Friday’s key reversal higher. We expect this to continue as the world prepares slower growth and a strengthening U.S. Dollar. Therefore, we will re-enter this trade with a new protective stop placed at Friday’s low of 140^08.

We’ve updated the chart below to reflect our current outlook in the 30-year U.S. Treasury Bond futures.

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Weekly Commodity Strategy Review 11/07/2014

cot_bannerLooks like we’re batting .500 for the week with a loss in the bond market being more than offset by the profits in corn. Meanwhile, our primary piece uncovered a nice pattern in the crude oil futures that we’re still waiting to take action on.

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The story in, Bonds Creeping Towards Lower Yields, which was published at TraderPlanet still holds. Commercial traders, while roughly neutral in their current position, have rapidly purchased more than 17,000 heading into this week’s trading. This buying should help the support around 140^00 hold as the market makes some type of run at the October highs.

Mechanical COT Signals’ portfolio equity curve tracked by Futures Truth.

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Tuesday’s corn futures trade for Equities.com combined classic Commitment of Traders’ analysis along with an inside bar trigger to enter the trade. Sometimes, it works like a champ. It’s a high percentage trade and it played out well.

Corn Rally Stalls on Commercial Selling

Finally, our main piece required eyeballing more than 20 years’ worth of commercial trader activity in crude oil futures. In, “Time to Buy Crude Oil’s Decline” we discussed a very specific pattern that we’ve only found eight examples of in the crude oil futures. More importantly, this pattern’s predictive power has been quite strong. Read the full piece for details.

The bulk of my Commitment of Traders research has gone into creating COT Signals.

crude oil barrel

Time to Buy Crude Oil’s Decline

The crude oil market has received its just due in the media gaining everyone’s attention by declining nearly 25% since the summer’s peak. The market’s consolidation through most of October clearly spelled trouble in November. Trend traders will tell you that consolidation almost always equals continuation. Thus, the final spike lower hasn’t taken many traders by surprise. Furthermore, November’s range expansion has not been greeted with additional selling. In fact, our analysis suggests that the speculative nature of this decline has nearly run its course. This notion is supported by the fact that for only the eighth time in the last 20 years, we’ve seen the net commercial trader position grow by more than 100,000 contracts in two months as you can see on the chart below.

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Commodity Futures Trading