Tough week in the markets as we generally got continuation where we were looking for rebounds. This led to a a pair of losers in gold and the Canadian Dollar against a winning trade in the stock indices due to their rebound.
We’ve discussed the peculiarities of the stock index futures’ expiration cycle in detail here before.
Commercial traders in the stock index futures behave quite differently than the Index traders or, small speculators who act as their counterparts. Collectively, this is perfectly logical. Index traders are positive feedback traders. Positive feedback traders add on to their bullish positions as the market climbs and scale out of their bullish positions as the market declines. This keeps their portfolio balanced to their available cash resources. This also places them on the side most likely to buy the highs and sell the lows. Typical trend following. Small speculators are a sentiment wild card. Their position is more price and sentiment based than anything else. The randomness of their sentiment makes their positions too yielding to lean on.
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.
Hog futures have fallen approximately 30% between last November and the recent March lows near $.72 per/lb. This rapid and significant decline may be nearing an end as the commercial long hedgers come out buying with both hands because the market is approaching what they clearly feel is an important price level.
Commercial corn traders have played this year’s market like the veteran traders they are. They collectively sold more than 370,000 contracts during planting season and have now come in as active buyers in the corn futures. recently repurchasing more than 120,000 contracts.
We discuss the impacts of the commercial corn traders via the CFTC’s Commitment of Traders report in this morning’s feature for Equities.com in , “Corn Market Finding Support.”
You can see other examples of our recently published analysis at COTSignals.com Recent Trades. You can also sign up for a FREE 30 day trial at COTSignals Signup and have our nightly worksheet delivered straight to your email.
We also walked through the same scenario in the soybean market for TraderPlanet, yesterday in Global Food Dynamics Impact U.S. Grains: Soybeans at a Turning Point?
The gold market has simply been stagnant for more than a year now. Prices may be higher year to date but virtually any gold traded at $1,300 per ounce over the last year has seen both sides of the ledger. The trading pattern that’s developing continues to consolidate. The tighter this consolidation becomes, the more explosive its breakout should be. This week’s piece will be short because this is one of those instances when a picture really is worth a thousand words.
The cocoa futures market is undergoing a dramatic transformation that is rapidly increasing production stability and supply yet, the market is at its highest prices since July of 2011. The market is currently caught between the pressures of efficiency driving the market lower over the long-term and short-term demand doing its best to buck this trend. These are exactly the types of scenarios that create trading opportunities for the commercial traders we follow. Their outlooks and bank accounts are skewed toward long-term corporate growth which allows them to focus on value principles that will remain intact for prolonged periods rather than tuning their operations strictly to the whims and trends of personal sense gratification.
The agricultural commodities produced and traded domestically have all fallen precipitously through this summer’s growing season. Maximum planted acreage and ideal growing conditions have combined to drive many of the agricultural commodities to multi-year lows. In fact some of the technical readings these markets have been registering are just as shocking as the growth in many commercial traders’ positions. Since no individual market really stands out, we’re going to discuss the current state of these markets while attempting to get a hold on what it means going forward.
The Chicago Board of Trade soft red wheat contract has declined by nearly one third since the early May high near $7.50 per bushel in the current September contract. The mild summer has brought with it the classic seasonal May-July sell-off. We believe that this market may be ripe for a bounce based on demographic, seasonal and technical factors.
The USDA reports their global Supply and Demand figures this Friday at noon Eastern. This report frequently sets the tone for the rest of the year with the fast and wild action affecting the beans in the bin while the long-term effects play out on the beans in the ground. There’s no denying the seasonal effects of this report on both markets. Post June USDA Supply and Demand leads to one of the most predictable declines in seasonal market forecasting as beans fall through the end of July. Finally, the table is already massively stacked against bean prices with record acreage being planted with the expectation of record yields. Barring any unforeseen weather catastrophes, which are unlikely in our part of the world in an el nino year like this one, the 2014 US soybean crop should be a record setter by a wide margin. But….