Weekly Commodity Strategy Review 10/31/2014

Our published pieces this week for Equities.com and TraderPlanet focused on lean hog futures and soybeans respectively. The hog market fell through the support we were leaning on and stopped us out with a loss. The Commitment of Traders Report continues to suggest that long hedger buying will continue to support this market as packers ensure their future supplies at these prices.

Buying Opportunity in Lean Hog Futures

Meanwhile, the soybean market appears to have peaked. Commercial selling has been consistent through the October rally. This is exactly what we expected to happen as we near the expiration of the November soybean futures contract.

Soybean Rally Out of Gas

Our primary article this week focused on trading system development and the possibility that the new meat market hours will return a technologically outdated trading program back to its former glory in the lean hog futures market.

Mechanical Trading Program Data Issues

Finally, one piece of information about today’s markets. The Japanese government elected to inject further economic stimulus into their domestic markets in attempt to reach their 2% inflation target and stave off 25 years of deflation in their economy.

This announcement pushed the Nikkei 225 up more than 5% for today’s trading. The S&P500 is currently higher by 1%. The overnight rally in the S&P500 pushes the rally from the October 15th lows to our current price, more than 11% higher in 11 sessions. This has only happened 3 times since 9/11. Twice in 2009 and once in November of 2011.

Fortunately, we saw that the sell off in the stock market was being used by the commercial traders to add onto their long positions. We discussed this in October Market Volatility Scared No One.

Here’s the chart from our commercial long only, mini Russell 2000 trading program. This program cleared more than $7,000 on its last trade and currently holds an open position worth more than $13,000.

COT Signals Mechanical Systems

cot trading program
Russell 2000 trading program based on the Commitment of Traders Reports.

Register to see all 33 markets and systems.

Mechanical Trading Program Data Issues

I’ve been designing, testing and publishing trading systems since I left the floor of the Chicago Mercantile Exchange(CME) more than 15 years ago. I had my first program, DCB-Bonds published in Futures Truth in 1999. This system is still actively traded and bounces in and out of their top 25 systems and is currently sitting at 26th. My philosophy with system design has always been to start with a fundamental premise and begin testing from there. Occasionally, circumstances change and can render the fundamental premise moot. This was the case for a suite of mechanical programs I published in December of ’05 in Futures Truth.

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russell 2000 cot chart

Commitment of Traders Russell 2000 Program

Here’s a snapshot of one of the programs we’ve written that’s also been published in Futures Truth. The program is based on following the commercial traders’ actions based on the data collected in the Commodity Futures Trading Commission’s (CFTC) weekly Commitment of Traders Report.

We track the net position of the commercial trader category as well as the momentum of the pressure they’re putting on the market and use that as the basis for determining when to be long the Russell 2000 futures.

Here are three more Mechanical Commitment of Traders Programs that you can combine into a single equity curve.

You must register by email verification to access all 33.

pig

Buying Opportunity in Lean Hog Futures

The lean hog futures’ volatility has provided tremendous opportunities for both the hog farmers and the packers this year. Their assessment of value fuels their collective trading requirements. This leaves the farmers selling production at the top and packers paying for consumption at the bottom. We use both of these groups in our discretionary trading at COTSignals.

You can see the results of the discretionary signals in the chart below.

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record soybean harvest in 2014

Soybean Rally Out of Gas

The Commitment of Traders report has shown a significant shift in commercial trader sentiment in the grain markets. The oat market seems to have had the most dramatic reversal with wheat following closely behind. We chose to focus on the soybean market this morning due its significantly greater liquidity. Commercial traders have sold about 45,000 contracts over the last few weeks of this gradual rally.

We based this morning’s piece for TraderPlanet off of our Mechanical COTSignals program.

 

soybean commitment of traders chart
Commercial traders’ soybean selling 45,000 contracts over the last four weeks shifts commercial trader momentum to negative.

See the rest of our analysis at TraderPlanet.

COT Data Shows Soybean Rally Out of Gas

Mechanical Cattle & Corn system equity curves.

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.”

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Commodity Futures Trading