The current interest rate scenario has been by far the loudest nothing I’ve heard since Greece was about to collapse. The confounding factors have sent us back through 45 years of Federal Open Market Committee (FOMC) decisions line by line. This was tedious, to the say the least, relevant at its best. Aside from FOMC data perusals and the hopeful nuggets of useful information, price and time appear to be doing their best to draw our attention back to where the rubber actually meets the road. That being said, we’ve reached a critical point in price and time that should yield big clues in the future direction of interest rates.
We were early selling December lean hog futures in September. Our expectations were based on solid technical resistance that had built up near $0.645 per pound along with an early onset of seasonal weakness. Fortunately, our protective stop kept the loss manageable. December hog futures continued to climb through September. The mid-September head fake didn’t fall far enough to to actually trigger a sell signal but it did fall far enough to setup a bearish divergence pattern triggered by yesterday’s price action. We’ll briefly review the premise for the current hog trade while illustrating the power of divergence analysis supplemented by the Commitment of Traders report.
Historically, September is a bad month for soybeans. This is about the time the harvest numbers begin to crystallize, shortly to be followed by the actual harvest. October, on the other hand, tends to be one of the strongest months of the calendar year for beans as the battle begins between Mother Nature and the farmers in the fields. Given the benign weather patterns we’ve been experiencing and expect to continue into the near future, we believe the September sell off could’ve gotten ahead of itself. Correspondingly, October’s strength may have arrived a week early.
The most heavily anticipated Federal Reserve meeting in the last seven years turned out to be a non-event. No change. The ticker flashed across the bottom of the screen, “The Federal Reserve Board has left interest rates at 0. No change.” There are lots of variables factored into their decision but the end result is that they simply didn’t feel our economy was ready strong enough to withstand even the slightest of interest rate increases. Assuming they’re right, what do we make of copper’s recent rally? Clearly an expanding economy will need more copper. Apparently, the commercial traders weren’t too keen on this idea as they’ve been net sellers in each of the last four weeks. Furthermore, the Commitment of Traders report reveals a unique imbalance that bodes poorly for copper’s future prices.
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.
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.