We began this week by revisiting the sugar futures market. We started talking about it a couple of weeks ago for Equities.com in, “Time to Sweeten on Sugar.” We updated this outlook Monday for TraderPlanet.com. This trade finally triggered on Thursday and currently sits above the $.1310 level that we believe will induce some speculative short covering. See, “Sugar Prices on the Decline.”
This morning’s unrevised Q4 GDP number at 2.2% on declining corporate profits provides just the right ambiance for a what has been a gloomy week. While we had a completely separate trade looking at multi-year lows in , “Time to Sweeten on Sugar,” most of our focus was on the financial markets.
This week, we took a step back and looked at the markets in groups. We focused on the metal and meat markets in general while only discussing specifically, a soybean meal trade.
Re-Shuffling the Metal Markets which we wrote for TraderPlanet focused on the growing commercial trader position in the precious metals. There’s no question they’ve been big buyers on the recent decline and their total positions are controlling a larger percentage of open interest with each additional contract they buy.
See our mechanical Soybean Meal program’s Equity Curve
We ended the week with a broad outline of the interaction between commercial traders and seasonal analysis in hogs and cattle. We featured the current seasonal charts by Moore Research and combined them with our own Commitment of Traders charts to demonstrate effectiveness of these tools when combined.
See all 9 charts and commentary in Hogs and Cattle Bottoming Out.
See the equity curve for the Meats Sample Portfolio.
Most of the trading we do is based on some form of mean reversion. The idea is that a market that has moved too far away from its predicted value area is apt to return. This is the equivalent of buying low and selling high in a sideways market. The primary difference in our methodology is that we use the commercial traders within their respective markets to provide us with the two necessary keys required to make this work.
This morning’s piece for TraderPlanet combines all of the classic elements necessary to create a Commitment of Traders buy signal in the cocoa futures market. We discuss the macro factors that have kept the commercial traders on the short side of the market during its extended sideways range near the highs as well as the cause of the recent sharp sell off. Finally, we examine the technical nature of the market and exactly what this trade is setting up and the risk entailed.
Fully mechanical Commitment of Traders markets and equity curves.