Every one of the major U.S. stock indices has sold off more than 10% in the last week. This will finally put an end to the, “But the market is due for a 10% correction” argument. I began trading in the S&P 500 pit in the early 1990’s. Therefore, it has been my experience that I can make more money on the long side of the equities, more often than I can hoping to catch the major downdraft. The S&P 500, the broadest and biggest of the indices knocked out a year’s worth of gains in three days. Now that we’ve gotten the drop, let’s see what we can buy.
The crude oil sell off has been vicious both in its depth and its speed. In fact, the market has been so negative that we last wrote about it this past June 11th. The market had provided a bit of a rally in the face a growing and overwhelmingly bearish commercial trader position which led to our headline, “Sell Crude at $65 Per Barrel.” Our primary focus is based on the Commodity Futures Trading Commission’s weekly Commitments of Traders report. We use the actions of the commercial traders to help us determine value in the commodity markets like the buying opportunity in gold that we published in Futures Magazine on august 7th. Bringing this back to crude oil, here are three charts that show the crude oil market is nearing a bottom.
The National Oceanic and Atmospheric Administration (NOAA) has repeatedly stated the growing case for the 2015-2016 El Nino event. While much has been discussed in the headlines, very little of the conversation has focused on the commodity price impact that the most significant El Nino weather pattern since 1997 could have on U.S. crops. This week, we’ll begin our look at how the U.S. grain markets performed during 1997-1998 El Nino and continue this line of thought through the global grain markets next week before finishing this segment with a look at El Nino’s impact on energy prices.
The sugar market, like many commodity markets has been grinding lower, now down 40% for 2015. Additional problems have been forced on the sugar market by currency weakness among key producers Brazil and India. This has made it cheaper for them to produce sugar domestically and sell it globally thus, increasing the current supply glut on top of 5 years of production surpluses. In spite of its recent dismal performance, we see commercial trader action indicating that the sugar market internals are gearing up for a rally attempt.
It sure seems like everything in the news has been full of alarm bells lately due to Greece, China and falling oil prices in one form or another. Frankly, China’s impact on the US equity markets may be just the buying opportunity we’re looking for as several factors combine to point towards strength through the expiration of the September Dow Jones futures contract on September 18th.
Obviously, China has dominated the news this week. There has been rampant speculation regarding the, “first roach” philosophy which suggests there’s much more to come in the way of Chinese Yuan/Renmimbi devaluation. I’m not very good at projecting political developments along an investment front. However, I do know enough to hunt down the information no one is talking about amid the hyperbole. What follows are a few actionable ideas based on the historical context of recent US economic developments and the transference of these principles to the Chinese economy’s cyclicality.
The grain markets finally got moving this year once the crops got in the ground. Since March, the soybean market has seen four moves of more than 7.5%, all of which were completed in three weeks or less. Soybeans have increased their volatility substantially while remaining range bound between $9.20 and $10.60 per bushel. With both the USDA’s Crop Production and the World Agriculture Supply and Demand report coming out Wednesday at noon, we’ll take a look at who is in control of the soybean futures market and how their actions in the market telegraph their expectations of tomorrow’s crucial reports.
Much has been written recently regarding the record speculative short position in the gold futures market. Markets move in trends followed by periods of consolidation, sideways action and reversals. Most speculative trading is trend trading due to several factors outside the scope of this piece. Commercial traders on the other hand are swing traders. This is also referred to as value trading or, mean reversion trading. Their decisions are based on the perceived value they see between the commodities they need or produce and how current market prices impact the forward outlook of their businesses that use or, produce the commodity in question. The commercial traders in the gold market have just established their most bullish position since December of 2001.