Our focus on the commercial trader population within the Commodity Futures Trading Commissions’ (CFTC) weekly Commitments of Traders (COT) report is based upon the premise that these people are some of the most well connected members of today’s financial world. Much of the weight we give them is based on years of watching their positions build and decline in conjunction with the economic news of a given market. Their timing is uncannily accurate. Therefore, when their actions forecast a given scenario ahead of an important news event, we take note. When the news, like this morning’s unemployment report, moves the market further against their position, we REALLY take note.
The Japanese Yen’s rally since their move to negative interest rates has been an economic phenomenon that I simply can’t get my head around. Perhaps a case of the government not taking more is akin to losing a foot rather than the entire leg? I suppose my lack of understanding is one of the reasons I follow the collective actions of the commercial traders in the commodity markets. While any individual can be wrong at any given moment, the commercial traders, as a group, have a knack for having the right position on at the right moments. Whether by research or algorithm by hook or by crook, there is little question in our minds which group we should be following. Today, we’ll update you on their most bearish position in the Japanese Yen in more than six years.
Our Commitments of Traders research is based on trading reversals. Today, we’ll look at the weekly unleaded gasoline chart as commercial traders force its turn lower inline with its standard seasonal peak. This is nearly an identical situation to last year. While last year’s rally held out a couple of weeks longer, it’s skid lower lasted through the rest of the year. We’ll identify the setup that created a mechanical Cot Sell signal for Sunday night as well as examining where to take profits on a discretionary basis.
The farming industry in the United States has been under considerable pressure as the gains of years’ past were quickly washed away by modern technology and agronomy practices. The record prices achieved in soybeans just last year now seem like a lifetime ago to farmers who bought land and equipment based on the increasing average prices of corn, soybeans and wheat over the last decade. Today, we’ll take a long-term look at the soybean market and see what has farmers so anxious to sell.
Tech issues with my charting platform sent me to my list of non-chart critical backup topics. Before breezing past a non-market topic piece ask yourself, “Am I a discretionary or, mechanical trader?” This isn’t a gray area. Mechanical trading involves following a specific set of rules that has garnered a positive expectancy over the course of time. Discretionary trading is any trading that makes the trader a variable, whether through the interpretation of the signal’s rules, asset allocation and weighting to chart pattern and fundamental data interpretation. Most traders fall into the discretionary category when looked at honestly. This makes the trader the biggest variable in a given investment sector. We’ll take a look at the frailty of the human psyche as well as a perspective that’s ameliorated more than twenty years of trading for a living stress.
We’re swing traders, rarely holding a position more than two weeks. Even so, it’s important to understand the macro environment of the market being traded. The idea is to predict volatility expansion and market surprises in the correct direction, thereby providing a profit taking opportunity. Given the tremendous disagreement on the Federal Reserve Board’s expected actions by the general public and within the Board itself, it makes the likelihood of volatility expansion following next week’s unemployment numbers much more likely. Furthermore, it’s possible that the market could be handed consecutive reports pushing the market in the same direction, rather than instantly reversing course as has been the recent case with any two reports. This combination could push the Dollar through the last year’s resistance making the current weakness an opportune buying moment.
We’ve discussed at length over the last two weeks that commercial producers in most of the commodity markets have come out in force to unload their future production on the first quarter commodity rally. Fore example, we’ve noted that gold producers haven’t been this bearish since 2013 and that the crude oil glut would take more than a year to work through. See, “Gold, Oil, Grains – Was that It?” for the background we discussed last week. Last night’s tragedy in Brussels has added a bit of a boost to the precious metals as expected. If this boost is insufficient to force short covering or, attract new buyers, it’s over until prices decline.
Coffee futures have been trending lower since October of last year. As always, coffee trends are anything but smooth as seen by the spikes in the included chart. Whether these spikes washed out short positions or simply forced them through some pain is not the point of these spikes. Today’s point is how to use these spikes, like the current one, to initiate new short positions inline with the commercial traders. Hopefully, this avoids being stopped out or having to endure too much pain while still participating in the opportunities that trading coffee futures presents.
Gold bugs always amaze me. Perhaps I’m sensitive to their discovery having grown up finding Goldbug on every page of Richard Scarry’s, Cars and Trucks and Things that Go. All I know they’ll come up with any reason to justify why, “This time it’s different.” I’ve plotted the collective actions of the large speculators on the included chart as well as the actions of the commercial traders. Take a look and tell me which group you’d like to follow.
The corn market doesn’t get a lot of hype in the news except during years of extremes. It’s a shame really, because the corn futures market is one of the world’s biggest and is dominated by the hedging activity of domestic farmers and producers battling it out over the smallest edge of profits at the margin. Following the battle between these domestic behemoths is a wonderfully anticipatory data stream for successfully trading a market that’s small enough to be accessible to the retail trader but large enough to capture the world’s attention and usage. Here is how we employ the Commitment of Traders report in conjunction with technical and seasonal analysis to stack the odds in our favor.