Tag Archives: live cattle

Major Turning Point

This blog is published by Andy
Waldock. Andy Waldock is a trader, analyst, broker and asset manager.
Therefore, Andy Waldock may have positions for himself, his family, or, his
clients in any market discussed. The blog is meant for educational purposes and
to develop a dialogue among those with an interest in the commodity markets.
The commodity markets employ a high degree of leverage and may not be suitable
for all investors. There is substantial risk in investing in futures.

Today’s price action appears to have trumped the
deflation/reflation argument that has been building over the last month. Many
of the markets have been rallying on small speculative buying as seen in the portfolio
rebalancing by the major long only funds.

Looking at the Commitment of Traders reports over the last
few weeks, we can see an increase in the net long positions of small
speculators in the following markets:

Swiss Franc, Japanese Yen, Canadian Dollar, Unleaded Gas,
Wheat, Beans, Bean Oil and Meal, Corn, 10yr. Notes, Eurodollars, Live Cattle,
Hogs, Copper, Orange Juice, Coffee, Sugar and Dow Jones futures.

The commercial hedgers have gladly stepped in to take the
short side of these trades with their numbers building as we’ve neared the
October – November resistance in many of these markets. Obviously, the interest
rate sector is the exception, although, there is strong short hedging taking
place at these levels.

There are a few major reasons for the resistance at these
levels. First, the U.S. Dollar Index has a strong bias towards setting a high
or low for the coming year in the first two weeks of January. If the Dollar’s
trend is going to be higher, the global demand for American commodities will
decline. Secondly, portfolio rebalancing by the major index funds for 2009 is
going to balance smaller gold weighting against heavier crude oil weighting.
Today’s collapse in crude oil futures is an indication that they may have filled their
need for crude. This also helps explain Gold’s inability to rally through $900
even on weak U.S. Dollar days. Lastly, the economic numbers continue to get
worse with each release. Last week’s ISM numbers were the worst since 1980.
Unemployment this Friday should continue to rise and eventually head north of
8%.

This is a very brief outline of the weakness I’m expecting
in many markets in the near term. Please call with any questions.

The “Market Book” as a Trading Tool

RJO Vantage has a tool called the “Market Book.” The Market Book provides live access to the resting bids and offers in the electronic market. The effectiveness of the Market Book becomes more and more apparent now that 90+ percent of total commodity volume is executed via electronic trading platforms. As a former pit trader in the S&P 500, I find myself used to looking at the depth of the market’s bids and offers to establish any strength or weakness biases the market may have at a given price level. I now use the market book as much as I do the Commitment of Traders Reports.     This morning’s action in August live cattle was an excellent example of how the Market Book can increase the effectiveness of one’s trading strategies. Cattle have run up considerably for the month of June without any type of pullback. Over the last week, the market has consolidated just above the 103 level. Knowing that cattle prices tend to peak around Independence day and given the month’s run up, I felt like we could see extended selling on a penetration of the support at 103. I was watching the market as we neared the support this morning looking for the tell tale signs of a stop run to begin the decline. I expected to see standard volume on the available bids….maybe 2-6 contracts on every bid price under the lows, with an occasional 10 lot. Had I seen this, I would have been anxiously looking for a bid to hit to get my contracts sold. However, as the market declined to the support / breakout level, it was greeted with 10 – 85 contracts at each bid. This is an exceptionally large and supportive bid in the cattle market!    Therefore, rather than rushing to get my contracts sold, I decided to wait. As I waited, the market climbed and climbed.     The point is, had I placed an entry stop at the breakout level, I would have found myself stopped into a short position in a fully supported market. The beauty of the market book is that I was able to get a “read” on the market’s bias and avoid putting my accounts in harms way. If you haven’t spent any time with it, I highly recommend that you do. The market book can be a valuable tool in a trader’s arsenal.Any questions, please call.866-990-0777.Andy.