Commercial Buyers See Wheat’s Value

We often state that commercial traders are value players. They take action in the futures markets when there’s alpha to be gained over and above their local cash offerings. The only real difference is whether we’re discussing wheat growers hedging their forward production or, whether discussing the long hedging end users in the wheat market. Both of these participants are responsible for meaningful price discovery in the futures markets through their actions. However, their actions and their corresponding effects on the underlying market couldn’t be more different quantitatively or, qualitatively. We’ll examine the current situation and setup in the chart below.

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Small Speculators Got Greedy in the S&P 500

There are a number of important changes taking place in the S&P 500 stock index futures. Normally, we focus on short-term swing trading opportunities. However, when something structural appears to be changing, it’s important to take note. The small speculators who bought the August decline expecting a strong closing quarter are very near to fighting a losing battle. Furthermore when the rapidly declining open interest and currently low volatility are factored in it doesn’t look like the small specs are going to get the strength they’d hoped for.

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Long-Term Soybean Crush Spread Trading Strategy

Global protein demand has been one of the primary drivers of grain prices as meat consumption over the last 15 years has increased by more than 13% in the same period. Soybean meal is a primary ingredient in protein production, primarily as feed but also as a meat substitute for people. As a result of this demand, soybean meal prices have gotten out of whack compared to its brother, soybean oil. This week will be a chart intensive study on the impact a slowing global economy will have on soybean meal’s multi-year trend. Finally, we’ll address some of the issues associated with trading the soybean crush spread or simply, the bean meal versus bean oil spread.

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Trend Trading with the COT Report

As most of you know, we focus on swing trading opportunities both for our own accounts as well as the money we manage. We do this for several reasons and we’ll include a short-term setup at the conclusion of this piece. However, today’s main focus will be on using Commitment of Traders analysis within an existing trend to determine an entry point and time in the current soybean meal market. The lesson, however, works across all commodity markets for which Commitment of Traders data is reported.

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Heating Oil and the Commitment of Traders Report

The heating oil market has developed a textbook pattern for trend following continuation lower. This week, we’ll look at how these long-term, macro-economic trends play out through the eyes of the commercial traders in the Commodity Futures Trading Commission’s weekly Commitment of Traders report. We’re going to examine the cycles of accumulation and distribution among the market’s participants as well as where we are in the current cycle. Finally, we’ll end with a shorter time frame chart that details the actual commitment of trader’s buy and sell signals over the past year in the heating oil futures as we begin to develop our energy outlook for 2016.

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Using Divergence to Trade Cocoa

The group of markets known as the, “softs” or, “exotics” include markets like coffee, sugar, orange juice and cocoa. These are all traded on the Intercontinental Exchange and each market marches to its own beat. These markets are known for their volatile moves but rarely get the trading attention they deserve. For some, like orange juice, it’s due to low trading volumes that make it tough to execute any more than a couple of contracts. However, others like coffee, sugar and cocoa have more than enough volume to handle 10 contracts or more in a single execution. Finally, because these markets have little correlation to the majors, their analysis is frequently overlooked. Today, I’ll review one of my favorite trading techniques in these markets and detail the current situation setting up in the cocoa futures market.

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ISIS and the Price of Oil

Every market has built in fear premium. This shows up empirically through the skew of an option chain. The idea is that two strike prices with the same expiration date that are an equal distance away from the market’s current price should have the same value, everything else being equal. We can also measure this through common sense. The skew is aligned with a market’s fear. This is what creates the fat tails on index put options as well as call options in the grains. Historically, fear in the Middle East leads to higher oil prices as the possibility for supply disruptions increases in times of uncertainty. This week, we’ll examine how oil prices affect ISIS and how this could affect the oil market as a whole.

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