Tech issues with my charting platform sent me to my list of non-chart critical backup topics. Before breezing past a non-market topic piece ask yourself, “Am I a discretionary or, mechanical trader?” This isn’t a gray area. Mechanical trading involves following a specific set of rules that has garnered a positive expectancy over the course of time. Discretionary trading is any trading that makes the trader a variable, whether through the interpretation of the signal’s rules, asset allocation and weighting to chart pattern and fundamental data interpretation. Most traders fall into the discretionary category when looked at honestly. This makes the trader the biggest variable in a given investment sector. We’ll take a look at the frailty of the human psyche as well as a perspective that’s ameliorated more than twenty years of trading for a living stress.
October lean hog futures’ attempt to rally over the last couple of weeks has run out of gas. Their turning point coincided nicely with technical, seasonal and fundamental resistance. Lets take a look at the combination of factors that could continue to drive this market lower through early September.
This week will be a short myopic view of the internal workings of the interest rate futures market sector focusing on a potential short selling opportunity in the 10-year Treasury Note futures.
It is time to look at alternative ways to hedge against rising interest rates. Unfortunately, with the huge increase in volatility due to so many headline issues from Greece to trading halts on the NYSE, that it makes it tough to hold onto positions. Fortunately, the most liquid interest rate market is structured in such a way that hedging against inflation can be done with a reasonably fixed amount of risk.
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.
This week started off with our Chicago wheat futures analysis for TraderPlanet in which we discussed looking for a selling opportunity near the 50% retracement level at $6.05 just through the resistance at $5.80. Tuesday, the market traded to $6.10 before selling off down to $5.70. Tuesday’s reversal also triggered the entry for our COT Signals Mechanical system.
The wheat trade came straight from our nightly discretionary COT Signals which has a 30-Day Free Trial.
Tuesday we discussed the growing glut in the crude oil futures market because we noticed how actively commercial long hedgers are locking in future supplies. We still see this as a trading opportunity.
Finally, our main piece focused on the Diminishing Effects of Global Quantitative Easing. This is where we left off in Hand Quantitative Easing to Germany. We did not expect Japan and now, China to come in and throw gasoline on the fire the way they have but the fact is, we now have three major regions kicking in QE programs since late September compared to the US enacting three programs over the course of four years.
The S&P 500 has rallied more than 12% in 24 trading sessions. This isn’t a terribly rare occurrence. Writing up a quick indicator shows me that there have been 18 observances of rallies traveling more than 10% in any rolling 24 day period. Restricting the filter to 12.5% still provides us with 9 observances while bumping it to 15% drops the return to 5 examples. The last 10% rally was in January of 2012 and the last 15% rally was in November of 2011. These last two observances were clearly during the churning process as the market had not made new all-time highs, yet.
The 18 total examples gained an average of .92% in the S&P500 futures one month later. The largest gain was 6% while the largest loss was 10%. Finally, the market ended up higher one month later exactly half of the time.
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.
The weekly Commitment of Traders report published by the Commodity Futures Trading Commission tracks the markets’ players of consequence. The report breaks down the actions of the commodity index funds, managed money, small speculators and finally, the commercial traders. For the purpose of this article, we’ll focus on the commercial trader category. I’ve been reading these reports for twenty years and there’s a phenomenon that I’ve counted now 13 times in the S&P 500 futures that is usually tied to the expiration of the quarterly contracts. This setup has had a 76% forecasting accuracy for the period in which we measured its effectiveness. Most importantly, we find ourselves in the middle of this rare event even as we speak.