We’ve discussed the first quarter commodity rally in detail over the last two weeks. Our general opinion has been that these rallies are temporary as commodity producers use this opportunity to hedge forward production at decent prices for the first time in over a year. This week, we’ll discuss the metal markets – gold, silver, platinum and copper. We’ll detail how we used the Commitment of Traders report to pinpoint the market’s bias as well as how to factor external shocks into the current picture. Finally, we’ll provide some support levels as we look to take profits on the current decline.
Looks like we’re batting .500 for the week with a loss in the bond market being more than offset by the profits in corn. Meanwhile, our primary piece uncovered a nice pattern in the crude oil futures that we’re still waiting to take action on.
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The story in, Bonds Creeping Towards Lower Yields, which was published at TraderPlanet still holds. Commercial traders, while roughly neutral in their current position, have rapidly purchased more than 17,000 heading into this week’s trading. This buying should help the support around 140^00 hold as the market makes some type of run at the October highs.
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Tuesday’s corn futures trade for Equities.com combined classic Commitment of Traders’ analysis along with an inside bar trigger to enter the trade. Sometimes, it works like a champ. It’s a high percentage trade and it played out well.
Finally, our main piece required eyeballing more than 20 years’ worth of commercial trader activity in crude oil futures. In, “Time to Buy Crude Oil’s Decline” we discussed a very specific pattern that we’ve only found eight examples of in the crude oil futures. More importantly, this pattern’s predictive power has been quite strong. Read the full piece for details.
The bulk of my Commitment of Traders research has gone into creating COT Signals.
Our published pieces this week for Equities.com and TraderPlanet focused on lean hog futures and soybeans respectively. The hog market fell through the support we were leaning on and stopped us out with a loss. The Commitment of Traders Report continues to suggest that long hedger buying will continue to support this market as packers ensure their future supplies at these prices.
Meanwhile, the soybean market appears to have peaked. Commercial selling has been consistent through the October rally. This is exactly what we expected to happen as we near the expiration of the November soybean futures contract.
Our primary article this week focused on trading system development and the possibility that the new meat market hours will return a technologically outdated trading program back to its former glory in the lean hog futures market.
Finally, one piece of information about today’s markets. The Japanese government elected to inject further economic stimulus into their domestic markets in an attempt to reach their 2% inflation target and stave off 25 years of deflation in their economy.
This announcement pushed the Nikkei 225 up more than 5% for today’s trading. The S&P500 is currently higher by 1%. The overnight rally in the S&P500 pushes the rally from the October 15th lows to our current price, more than 11% higher in 11 sessions. This has only happened 3 times since 9/11. Twice in 2009 and once in November of 2011.
Fortunately, we saw that the sell off in the stock market was being used by the commercial traders to add onto their long positions. We discussed this in October Market Volatility Scared No One.
Here’s the chart from our commercial long only, mini Russell 2000 trading program. This program cleared more than $7,000 on its last trade and currently holds an open position worth more than $13,000.
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This was a quiet week on the trading front. Our editor was out on Monday so, we had no piece for TraderPlanet. We did follow up on Tuesday with, “Commitment of Traders Report Caps Eurodollar Rally” in Equities.com. This trade is still worth looking at as it will take quite a while to pan out.
Our main feature was the chart and graph intensive, “October Market Volatility Scared No One.” This piece seems to be pretty well received based on its near instant #1 Google rank for articles on the market’s recent volatility. We compared seven commodity markets across the equity, interest rate and precious metals sectors and their interactions through October’s expanding volatility. The fact that we didn’t find what we were expecting to is far more telling about our current place in the markets and where we may be headed.
Finally, I urge you take a look at the Mechanical Commitment of Traders Program we’ve developed and see how breaking the markets into separate long and short trades can improve your swing trading odds.
Here is an example of a successful trade our mechanical trading program generated based on the commercial long hedgers in the Commitment of Traders report.
Here’s a quick link to this wheat trading system along with two others and their historical hypothetical equity curves. We offer 33 in total. We use both the strengths of the commercial traders as well as the weakness of the speculators to stack the swing trading odds in our favor.