Weekly Commodity Strategy Review

It’s been an exceptionally confusing week to trade on a discretionary basis. Rarely can I recall a time when the markets have been more unsure of their next move. Fairly well every financial market has LOUD voices on both sides making good cases for their positions and their market forecasts. Between the FOMC meeting and the constant worry about whether or not or, when Greece will default has made picking a side based on theory and economics all but impossible. Despite this, we managed to remain fairly unscathed trading feeder cattle, Eurodollar and 30yr Treasury Bond futures; even a bit profitable.

We began this week with a look at the feeder cattle market for TraderPlanet. We combined the increasingly negative commercial trader position with last Friday’s technical bearish divergence to short this market.

Here is the full piece and an updated chart.

Cattle Markets Peak in Hot Summer Months

Our Commitment of Traders trading program issued sell signals in both live and feeder cattle at or, near the recent highs.
Our Commitment of Traders trading program issued sell signals in both live and feeder cattle at or, near the recent highs.

Tuesday we took note of the growing commercial trader position in the shortest-term and most liquid of Dollar based interest rate products – Eurodollar futures. Our analysis for Equities.com described the process of measuring fear in the markets, the typical response to historical fears and why this time, it truly is different. As you can see from the chart below, “Eurodollar Safe Haven” is exactly what happened following the FOMC meeting.

Commercial traders began purchasing fear hedges two weeks ago. When they yell, "shark!" I get out of the ocean.
Commercial traders began purchasing fear hedges two weeks ago. When they yell, “shark!” I get out of the ocean.

Moving to our primary piece, “Commitment of Traders Report Sees Dovish FOMC” we analyzed the commercial trader behavior over the last 16 FOMC meetings and found, unsurprisingly, that they are pretty darn good at forecasting the Treasury Bond futures’ direction after the FOMC’s announcements. This week’s correct call further reinforces their track record as you can see below. It’s a bit early but, they were clear buyers on the market’s initial decline.

Tracking the commercial traders via the CFTC's weekly Commitment of Traders report has been a valuable tool heading into FOMC meetings.
Tracking the commercial traders via the CFTC’s weekly Commitment of Traders report has been a valuable tool heading into FOMC meetings.

 


This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors’ Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

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