Friday, December 14, 2007

Soybean sell-off at the end!

There is almost always a reversal in soybeans at the end of the day as traders take their profits. Many people, including me, don't like to carry trades over the weekend. Many others are day-traders, and liquidate all trades before the close of the day's market session. I like to use this as a way to make additional profits. Thus, I usually execute my last trades between 12:00-12:05 MDT (my local time zone in the Salt Lake City vicinity).

Today, the market began its sell-off about 17 minutes before the market close. That's when I made my last trade. This is prime trading time, since market moves at this time are almost always very smooth and uni-directional. These are some of my best and most reliable trades, too. This is also a time when large funds and hedgers must liquidate quickly to take their profits, so small traders like me can use this to our advantage. I take advantage of these opportunities, closing out my last trades only 2-3 minutes before the session ends at 2:15 EDT. The pictured trade was worth almost $200 per contract, and occurred in only 15 minutes. Just look at how clean that trade was!

I might add, however, that I have NOT found that the market open is equally profitable. The market often moves so rapidly and erratically that it is difficult to trade profitably. I usually wait 5-10 minutes into the trading session before placing my first trade. This is not always the case, but is a general rule for me.

Evening trading can also be profitable between 7:30 - 9:30 pm EST. I ONLY trade using tick charts during these hours. Unfortunately, however, spreads also widen; the bid/ask spread is usually 2-3 ticks during these hours, so they can entail higher risk as well.

U.S. Government deficits on the rise again

Here is some news that hardly makes the media reports, but it's true. Beginning about 3 months ago, the U.S. government has begun to report that budget deficits are rising again. If Congress and the President don't pull out the budget scalpel or raise taxes, the deficits will rise even faster. I haven't heard either seriously talk about cutting the size of government!

Republicans and Democrats BOTH to blame!

While I am politically conservative, and believe generally that less government is better government, Congress and the President are going to have to start cutting spending dramatically or else taxes will have to be raised. Let the record show that I prefer the former. This fiscal ship is heading into a financial tsunami, and no one wants to take responsibility for it. Both Republicans and Democrats are more concerned about maintaining or obtaining greater power than doing what's best for the Republic or the American people.

The Republicans abandoned their principles for the sake of power, and they have now lost both. It's no coincidence!
The Democrats have always believed they have a right to take what belongs to other people, for which there is never an excuse.

I'm disgusted with them all.

Stealing is still stealing whether by hand or by vote!

Why is it that if someone takes the property of someone else with their hands, we call it "stealing" and send them to prison. However, if we hide behind our vote and steal someone else's property via a corrupt politician, we applaud the politician and name freeways and buildings after them. It's still stealing, either way! It's still coveting property of another, either way. I doubt if our Maker is so deceived.

The Founders knew and provided for appropriate government

"The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. If `Thou shalt not covet' and `Thou shalt not steal' were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free." -- John Adams (A Defense of the American Constitutions, 1787)

Wise man, that John Adams! We would do well to learn from him and the other Founders. They were wise men, all! God bless their hallowed names!

The Founders also provided for effective and limited government, as well as appropriate and sufficient revenues for that limited government in the Constitution, but we have proudly abrogated that precious document and destroyed the Republic they gave us, until now, I believe it hangs by a thread. There will be hell to pay!

Wheat also continues its uptrend

Surprisingly, even with the recent strength of the US Dollar, the grains have all continued moving higher. Today, wheat has also shown great strength! So did corn, but corn is the least volatile of the grains.

Food is going to continue to cost more

Inflation is escalating and accelerating, NOT decreasing. Disinflation is a myth! Higher grain prices are going to add to the cost of most processed foods, meat, and milk. Did you know, for example, that a greater percentage of the higher cost of milk is due to the cost of grain, than the percentage of higher cost in meats is due to the cost of grain? Beef cattle can graze on grass most of the year, only being fattened on grain toward the end of their lives, just before slaughter. However, dairy cattle are fed high-nutrition grains throughout their productive period. Thus, dairy products are more highly impacted by the price of grain than are meat products. That's why milk has risen in price 20-25% over the past year. Both dairy and meat products will have to rise in price even more in the future, however, as the price of soybean meal, corn, wheat, and other grains continue to move skyward. So will all vegetable oils, as will all the products made from grains and their derived oils and other products (meal, flour, etc.).

A rocket attack in sugar and cotton today, too!

This is today's sugar trade. This one is worth $190/contract, and has not yet closed. The smaller graphic below is cotton. I am awaiting a confirmation below the EMA. Klinger indicator shows waning momentum, but it can always go higher again.

Klinger works best with an existing trend, but is very good as a true leading indicator for finding a change in market sentiment. Note the red falling volume in the 1st subgraph beneath the pricing candlesticks. I have noticed that if prices don't fall with the Klinger indicator (I used other indicators, including MA's, to confirm this), then once the profit-takers have all exited, prices are likely to resume an upward trend. Therefore, I consider it better to tighten my stops, and let the market take me out, rather than simply exit.

The soybeans bulls have done it again!

Another new record!

Soybeans have just risen to another new high twice today! We soybean bulls have done it again! This was a $500/contract trade, and I didn't even pick the top or bottom! I got out to early. Price rose to a second new high again after I made this chart.

Long live the soybean! I just love those little things! By the way, they taste good, too! I buy them at Costco all the time.

Seriously, though, one of the reasons that I love trading grains so much is that there is very little Fed or other government intervention in this market.

Government intervention increases market turmoil rather than calms it!

Consider how much turmoil has been created by the Fed, the Treasury, Bernanke, Greenspan, and Hank Paulson in the stock markets in the past few months. They haven't calmed the markets at all. To the contrary, they have added to the turmoil! Financial markets operate best, I believe, with minimal government intervention. Let the free markets work. The markets with the greatest government intervention tend to also be most volatile and tumultuous. How many times in the past few months have Fed actions, taken before the markets opened, caused traders in the stock markets to lose money? (This is one of the good reasons for trading futures rather than stocks -- they trade almost 24 hours!) Government intervention in the financial markets increases market turmoil rather than calms it!

Another reason if prefer to trade soybeans is that (as I have mentioned in past blog posts) soybeans have a larger lock limit than corn or wheat, so they can fluctuate more, with the potential of greater profits. Why trade anything else?

Soybean mini-primer

While soybeans are not really a grain (they are in the legume family, as are the many different beans and peas), they are classed among the grains for we futures traders. In appearance, the look much like peas in a pod. However, the pods are somewhat hairy in appearance.

Note also that when shelled, they also look much like dried peas, but without the wrinkles.

Soybeans are incredibly versatile and nutritious, too. Here in America, few people are aware how much they use soybeans without even realizing it. Additionally, they are the 2nd largest agricultural crop for the United States (corn is 1st). One of the reasons for the bull market in soybeans it that like corn, it is considered a potential source for fuel. Most people have heard of ethanol, which is derived primarily from corn. However, the soybean is also considered to be a good crop for deriving an alternative fuel source.

Trade this!

Believe it or not, you CAN!

This is the 15-minute soybean chart today, 12/14/07.

Soybeans - a 14 month bull!

This is the weekly chart for soybeans. What a beautiful bull this is! And it appears to be accelerating in recent weeks! Prices have more than doubled in 14 months.

Wheat -- the manic-depressive grain!

During these extremely volatile days of trading in the financial markets, I have often thought that the stock markets are manic-depressive, as traders alternatively create conditions of frenzied buying and selling. That's not just a stock market phenomenon.

Well, remember the rocket rise in wheat yesterday? That was the manic nature of wheat. Today, we see the depressive nature of wheat, as it plummets just as fast (see charts above)! This chart shows this plunge, just as yesterday's chart shows the wheat rocket attack.

And remember that all this is occurring within the backdrop of a recent bull market in wheat and longer for the other grains (see the smaller chart at right of the daily chart and the wheat bull of the past few weeks).

The soybean bull has been going since October 2006, more than 14 months! Expect the buying to resume!

Gold sells off on strength of US Dollar!

2nd chart shows gold breaking through the 50-day MA. Will it hold, and perhaps cause a reversal in gold?


Gold closed at $798.10, just barely above the 50-day Moving Average of $797.31. It remains to be seen if the 50-day Moving Average will continue to support the price of gold. If it does, the price of gold should surge upward within the next few days, even if it closes below the MA temporarily. Keep watching! Perhaps the fear of further inflationary pressures will override the strength of the US Dollar and the gold bugs will step in to send the price of gold soaring again. One never knows. I expected the price of grains to fall as the USD went upward, but they didn't. They have continued into the stratosphere.

Inflation lives! The US Dollar recovers

USD recovery. This is today's chart of the US Dollar index futures. Upon release of yesterday's PPI, showing a strong resurgence of inflation, and today's CPI, also showing significant renewal of inflationary pressures, the US Dollar shot up. Why? Because it ties the Fed's hands at further devaluation of the currency through lower interest rates. This has caused the USD to rise.

Deflation is NOT necessarily a bad thing. Huh? Isn't it blasphemy to suggest such a thing? Deflation increases the net buying power of the currency. It also rewards discipline and savings, because savers' money increases in purchasing power over time. Yet we have been so brainwashed into thinking that a constantly increasing home price (value) is a good thing, that our leaders continue to inflate and inflate without shame.

The only true and lasting economic prosperity is one in which people prosper by discipline, productivity, and saving. The Fed's monetary policy of easy, cheap credit only rewards those who borrow more and more, regardless of risk. It will ultimately harm our prosperity, and the longer we kick the can down the road with cheap, easy credit, the more catastrophic will be that day of reckoning.

The best website for teaching correct economic principles of lasting prosperity is this one, where much of the research and reading material are free:

Ludwig von Mises Institute

Here also is an interesting article by Paul Farrell, who is a lawyer and has a Phd in business. It appeared this week on the website.

17 Reasons America Needs a Recession

And here is a link to the wonderful page of the Wall Street Journal's commodities page.

Wall Street Journal Commodities

I understand that with the consummation of the purchase of Dow Jones next week, Rupert Murdoch plans to make the Wall Street Journal's website free, so that he can put advertising on it and derive revenue from it. I can't wait!

12-14: Great trading on opening of wheat today

What a thing of beauty. I love trading conditions like this. This is the opening 15 minutes of trading on wheat this morning. Nice, smooth transitions -- all within 15 minutes.

Soybeans 12-14: Fast sell-off, followed by passionless buy back

The right shows frenzied and erratic buying, but look at the strong buying taking place on the Klinger volune indicator on the left side of this chart. There is heavy buying on dips of soybeans prices, so prices are almost certain to rise later.

Are you a stock market bull or bear?

There is a third alternative -- the markets can consolidate -- trade sideways in indecision for several days, weeks, or months. Another term that we often use for this condition is range trading. As a swing trader, I like this trading environment because I can alternate trading both long and short.

This charts shows the Russell 2000 index futures for the past few weeks. It may be that since the Bollinger Bands and Bollinger MA have both gone flat, we may be heading into a period of range trading. Who knows for how long. In Philippe Cahen's book, he suggests that a Bollinger Band break-out, to be valid, must follow a period of flat bands (lasting at least 6 periods).

But look at the Klinger volume indicator and the welling going on in the lower subgraph!

Time interval charts compared to tick charts

Time intervals charts compared to share-based charts

Share-based charts compared to tick charts

Thursday, December 13, 2007

12-13: Wheat was up like a rocket today

Even after a late-session sell-off, probably due to profit-taking, wheat had a great rally today. I have noticed that wheat has a tendency to demonstrate strong reversals. I think of the futures market somewhat like a rubber band, snapping back and reversing in the opposite direction when the band gets too tight from being stretched in one trend direction, and wheat is one of the most elastic of them all.

Note also in the chart the powerful reversal indicated by the Klinger volume indicator in the lower subgraph. Now that's a powerful sell-off!

Complete soybean about-face

I thought that soybeans were looking a bit overbought in my previous post. At approximately 1:00 p.m. EST, a sell-off began that would have wiped out all bullish profits for the day for anyone that held a position after the peak in prices. This is why it is so critical to monitor trades constantly.

Fortunately, I was able to not only liquidate my long position with good profits, but also go short for the last hour of the day. I had a few small losses on the short side (at the green candles in this chart), but benefited from the overall trends of the day, cutting my losses quickly and shorting as the reversal intensified.

Note again that the Klinger indicator showed a leading divergence that hinted at the upcoming sell-off.

In the second, larger chart, I have shown a 5 minute chart of soybeans for the entire day. As a swing trader, I work at changing directions on a dime when market sentiments change. I don't typically use 5-minute charts. This one is only shown because I can show the entire days' trading in a single screen capture. How do I know when the market sentiment has shifted? I look for two things:

  1. a change in trend on the 30-tick chart, as indicated by a lower low and lower high
  2. a crossover and close below the 8-period Exponential Moving Average on the next higher time frame (in this case the 3 minute chart)
  3. reversal agreement/confirmation with the Klinger volume indicator
  4. no nearby support or resistance. I use dynamic support/resistance using Bollinger Bands and various moving averages
In the above case, the MACD had also reversed on both my 3 minute and 30-tick charts, so I went short at the second downward thrust above. The MACD, however, is a lagging indicator, so I don't consider this a required indicator. It is a great confirming indicator, however, once a change is under way.

Agricultural commodities ETFs for my IRA and stock portfolio

In am also long the following two ETFs (Exchange Traded Funds) in my IRA account: MOO and DBA. I am also watching JJA & JJG, but want to see a longer history before buying.

One important factor to consider in selecting an agriculture ETF is whether the ETF tracks the commodities themselves or businesses that grow them. I have noticed that ETFs that track the commodities tend to follow the underlying commodity trend better. The business-based ones tend to show greater sympathy to the stock markets and related indexes. However, the commodities ETFs that track the futures have different tax consequences, especially due to the contango phenomenon in futures. I always do plenty of research into these considerations before deciding which ones to buy.

Also have you heard about Jim Roger's new agriculture ETF (symbol: RJA)? RJA is a much broader-based agriculture ETF, but who better to manage an ETF based upon commodity futures than the master commodities uber-bull, Jim Rogers? His ETF is really taking off and growing very rapidly. I believe his ETFs will be some of the best-performing, without doubt. In fact, his all-commodities ETF (symbol:RJI) is significantly outperforming any other broad-based commodity ETF this year! Jim knows his commodities better than anyone! RJI is the broadest-based commodity ETF of them all, and the results are astounding.

The bulls are back in town!

It didn't take long for the soybean bulls to charge ahead again. But unlike yesterday, they have had to fight, scratch, and claw their way through the opposition to reach fresh highs again today. Yesterday, bullishness was almost unopposed, but today, it took awhile for the bulls to push their way back. The first chart shows the rise to new highs at $11.61/bushel, which momentum began about 12:15 EST, after the bulls charged back. This meteoric rise in grains futures is beginning to feel a little overbought to me.

The second chart shows how erratic the market was until the bulls finally pushed their way through with fresh buying. Wheat and corn have done the same!

The USD takes off!

Sometimes, things happen in the financial markets that defy explanation. One is the behavior of the Dollar index today. Note the rise today in the first chart, and the somewhat bullish USD trend in the 2nd chart, which is a daily chart for the past few weeks.

Gold and the 50-day Moving Average

It is critical to observe that gold may be finding support at its 50-day moving average, as shown in this chart in cyan (light blue). Today, it reads 796. The 200-day moving average is depicted at the bottom of the chart in magenta (to me, it's pink). You can barely see it below. These moving averages are important because many traders, particularly in large trading firms, watch them closely and take or exit trades based upon them.

Klinger as leading indicator

Note in this chart that the Klinger indicator shows a bearish divergence, followed by a turn down in soybean prices soon thereafter. One must always pay close heed to divergences, since they are one of technical analysis' most reliable indicators.

Days like this can be very erratic, but it appears that the bulls may be beginning to reassert themselves. Eventually, it is quite inevitable that the prevailing trend will confirm itself once again.

One of the Three Natural Laws of Trading:

Law #2 from Chick Goslin's book, Trading Day by Day is this:
Continuation is more likely than change

Use of Bollinger indicators

So far, the Bollinger Squeeze indicator in the bottom subgraph hasn't changed to red. Sometimes (not seen in the above example), we will see a single green dot as the histogram changes from bullish to bearish (from green/dark green to red/dark red). The small chart at right shows this phenomena. During a bullish trend, when momentum is starting to falter, the bright green histogram will change to dark green. Then, as bearishness prevails and the histogram crosses the zero line, it will change to bright red. When the bearish momentum begins to wain, it will also turn back to dark red. This is a sign not to take a new position or add to an existing one. It is also a good sign of a good possibility that the market will change direction entirely.

Another sign of waining momentum appears in the Bollinger Bands themselves. When prices rise to a new high, but remain within the Bollinger Bands, it is a sign of fading momentum. This is a time to tighten stops or exit positions (Rule #1 of Phantom).

And now... the consolidation

Today, more challenging trading conditions have emerged, as expected. However, on the tick charts, there are still some excellent trading opportunities. They just aren't as profitable as the past two days have been. The good news, however, is that I can trade both directions! You have to watch the charts tick by tick to trade today, since you must be prepared to exit and enter trades very quickly. Execution is critical today!

When the Bollinger Bands go flat, the Bollinger Moving Average flattens, and/or the Bollinger Squeeze indicator changes from blue dots to green (the first change is always a green dot) and then red (after the first dot, which is green, the subsequent ones during low volatility are red), then it is best to NOT take trades. Time to sit out of the market!

Here comes inflation again!

The headline above is a snapshot from Marketwatch.

From myway (AP) news:

"Wholesale prices shot up 3.2 percent, the biggest jump in 34 years, propelled by a record rise in gasoline prices. "

And remember my post that during October, the healthy rise in retail sales was due to healthy sales only in fuel and grocery prices? Well, from the same news article:

"The Commerce Department reported Thursday that retail sales surged by 1.2 percent last month, double the gain that economists had expected. That followed a much weaker 0.2 percent rise in retail sales in October.

"Half of the November increase came from a big jump in gasoline pump prices and therefore was not seen as a sign of strength in consumer demand."

"The report on retail sales showed that sales at gasoline stations jumped by 6.8 percent, the biggest increase since September 2005, another period when gasoline prices were surging."

Thus, half of the robust November retail sales figures were due to the cost of gasoline. But there was some good news this time. Some retails sales increases were more broad-based than last month:

"Excluding gasoline, retail sales would have been up by a still solid 0.6 percent. This strength reflected a gain of 0.9 percent at department stores and general merchandise stores such as Wal-Mart and Target and a solid increase of 2.6 percent at specialty clothing stores."


"Retail sales also posted strong increases at appliance stores, furniture stores, sporting goods stores and grocery stores."

Read the entire article here:

Wednesday, December 12, 2007

Dec 12: Great day for trading soybeans!

Anyone trading soybeans today should have made at least $1000 per contract traded. What a great day to trade soybeans, as prices moved in only one direction almost the entire day, with only a minor temporary retracement. See the charts for two great trades! Typically, when markets move strongly in one direction, I will NOT take any counter-trend trades that day. Between the two charts shown here (upper one is first trade, lower one is second trade), there was a small retracement during which I was out of the market. Retracements are normal, even during a strong up cycle. Therefore, I have learned to expect them.

Expect a "Rest" in the market

However, after a rise in prices this rapid, it is customary for prices to either pull back somewhat or go flat for a few days. Expect tough trading again for at least the next few days.
The principle is that volatility leads to consolidation, and consolidation leads to volatility. Healthy markets don't go up in a parabolic fashion. We should expect a slight pull-back or consolidation while the market digests these higher, record soybean prices.

Wheat hits lock limit 12-12

Wheat has hit its lock limit today. I have noticed that wheat frequently hits its daily lock limit, occurring more with wheat than any other grain.

What is Lock Limit?

The Chicago Board of Trade has imposed a limit on how much each of the grains can increase (or decrease) in price each day. Wheat can only increase/decrease $.30 (30 cents) each day, after which prices reach their "lock limit" price. Often prices will then remain at that price for the remainder of the day's trading session.

Today, wheat prices have locked limit at the price of $9.40 4/8. Sometimes, as traders take profits, prices will back off the lock limit price and go back down. However, more frequently, if demand is high, prices will "lock" and remain at that price through the remainder of the day. Prices will "unlock", so-to-speak, at the beginning of the next trading day, which is 7:30 pm EST. Often, prices will reverse when the lock comes off, just as precipitously as they went the other direction the day before. This phenomena of up one day and down the next happens quite frequently with wheat prices.

U.S. Government: There is NO inflation!

While the U.S. government, and the (supposed) journalists (Denis Kneale keeps spouting that there's no inflation) on CNBC continue to report that inflation is low and contained, don't tell that to the American people. They know better!

How is it that there can be such a disconnect between the low inflation that the U.S. government reports, and what the American people are experiencing whenever they buy gasoline, groceries, cars, appliances, insurance, technology, etc.? Even computers, which the government tells us continue to drop in price, are in fact, costing the same or more. I have purchased 3 laptop PCs in the past 5 years, and they all cost about the same price. However, the government says that the price of PCs is falling because each succeeding laptop has better features, and thus, more computer power. But the price is about the same! PC prices haven't fallen!

Changes to inflation calculation methodology

Historically, the U.S. government used to report the consumer price index by taking a large basket of commonly-purchased products, both physical products, services, financial products, etc., and they would simply calculate the increase in prices each month from one year to the next. However, Mr. Greenspan, together with the Clinton Administration, decided to change the way the government calculates inflation. Now, they assume that if steak costs more this year than it did last, Americans will buy hamburger instead, substituting the product they purchased last year for a cheaper one this year. Thus, since hamburger costs less, prices for steak didn't go up, they went DOWN! So if the cost of hamburger goes up this year, does the government expect Americans next year to buy dog food instead?

However, Merrill Lynch continues to report inflation the traditional way. Last month (Nov 07), the Merrill Lynch Inflation Index was reported last week at 7% year-to-date! Others, who also calculate inflation the same way the U.S. government used to report it, also calculate inflation this year between 7% and 11%. Yet the U.S. government continues to mislead the American people by under-reporting the true inflation rate. One can only wonder, "Why?"!

Today, import prices were reported by the U.S. government. Month-over-month import prices rose 2.7%. That's just for ONE MONTH! The year-over-year import price inflation was 11%! Shall I repeat that? That's 11% import price inflation for one year!

"Headline" vs. "Core" Inflation

Furthermore, since the Fed only considers what the government terms "core inflation", and ignores "headline inflation" (which includes food and fuel) in considering whether to lower interest rates and increase the money supply, the cost of energy (gasoline) and food (groceries) is ignored. They say that these two items tend to fluctuate from month to month, and thus, they ignore them. Have they never heard of averaging? (We technical analysts using moving averages constantly. They are a valuable tool!) But they choose to simply ignore fuel and food prices instead. Why? Can you think of two items that Americans pay more for than fuel and food? I can only think of one: their mortgages. But guess what else the U.S. government ignores in calculating inflation. You guessed it -- the cost of a mortgage or house.

Interestingly, however, when the U.S. government reported retail sales figures for October, they DID include fuel and food costs in reporting that retail sales were UP by a healthy amount. They used this figure to suggest that the U.S. consumer is still robustly spending money. Thus, while they refuse to consider fuel and food in calculating the inflation rate that they look at in deciding monetary policy, they do count them in calculating and reporting robust growth in retail sales. This is significant because the ONLY retail sales outlets that showed increases during October were gas stations and grocery stores -- fuel and food! Sounds suspicious, huh?

The Fed ignores what is called "headline" inflation when it makes monetary policy, and only looks at "core inflation" (taking out food and energy), as I explained above. However, as Americans are forced to pay more and more for the items (food, energy) that the Fed ignores, they have less money in their pockets to pay for discretionary items. Discretionary items are the items in "core inflation" that the Fed does consider in making monetary policy. This, by nature, suppresses prices for these "core" items; since Americans have less money in their bank accounts for purchasing these discretionary items, the demand for these items goes down, prices are suppressed, and hence -- voila -- the government reports that inflation is going DOWN!

I am NOT suggesting any kind of conspiracy or intentional under-reporting of inflation by the U.S. government. I am simply saying that it occurs. It's possible that this under-reporting is simply due to bad judgment in the methodology selected. But who really knows?

Quite frankly, whether or not the conspiracy theorists are right, or whether this under-reporting of inflation is simply due to bad methodology, is irrelevant. The fact remains that the U.S. government under-reports the real inflation rate! And that's all that ultimately matters!

Reasons why the government might WANT to under-report inflation

Some reasons for this baked-in-the-cake under-reporting of inflation may include the following:

  • Millions of Social Security recipients' annual payment increases are tied to the inflation rate. The higher that the government reports inflation, the more it must pay these people in their annual cost-of-living increases. This only exacerbates the problem of the lingering Social Security insolvency crisis.
  • Congress can continue to spend more than the U.S. government takes in, thus allowing the Fed to simply print (or in our day, just add zeros in a computer) more fiat money. This, in turn, allows the U.S. government to simply spend more and inflate its way out of its spendthrift ways. This is known as the hidden inflation tax; its hidden because the American people are unaware that their own Congress is taxing away their wealth through inflation and continued profligate spending.
  • The banking sector, and particularly the investment banks, hedge funds, and financial sector, receive most of the new fiat moneys created by the Fed. They continue to prosper as long as the stock market perennially goes just one direction -- UP! Thus, they lobby and pressure the Fed to continue to create excessive liquidity and credit, and increase the money supply. The financial sector is the primary beneficiary of the increasing money supply, and of higher inflation. These endless bubbles create horrible turmoil as they build and then pop! This creates a false sense of prosperity -- fools gold, if you will -- but the financial sector continues to create more and more hedge fund and investment bank billionaires, while the American people are generally clueless why their economic prospects continue to sink into the swamp of inflation.

Inflation in other countries

I find it also interesting that all governments of all the major economies around the world are reporting higher and higher inflation, thus justifying that their central banks' threats to raise interest rates to control it, while the U.S. government continues to suggest that inflation is low. China, the entirety of Europe, Australia, and the United Kingdom are all reporting increasing inflation. Meanwhile, the U.S. Dollar is continuing to decline against all other major currencies among industrialized nations. How can it be that our currency is losing value month after month, while other countries' currencies are increasing in value, and yet we are the only country that reports low inflation month in and month out? Sounds odd, if not suspicious! No?

Crude oil, Gold, Cotton, Coffee all explode higher

Note from the attached charts that all commodities prices has risen significantly today. Crude oil, gold, cotton, and coffee prices have all risen significantly today. This is probably in anticipation of further Fed intervention into the financial markets, as the Fed has hinted this morning that they are preparing to do. They just haven't indicated how they will do it, yet.

ALL grains go higher

Corn, wheat, and soybeans have surged ever-higher today. The overall trend is higher, so no one should be surprised that after a minor Fed-induced correction, the upward trend has continued. Last night, as I suggested, grain prices fell across the board in sympathy with the stock markets' disappointment in the Fed.
However, stocks have now dismissed the Fed's statement and surged higher today.
In his book, "Trading Day by Day", Chick Goslin says that news-related events usually only cause course reversals only temporarily in an overall trend. Thus, is expected a temporary price correction after yesterday's Fed announcement, but this could be seen by a good trader as an opportunity to buy into a strong bullish trend in the grain markets.
The attached charts are of soybeans, wheat, and corn, but it wouldn't matter which, since they have all exploded higher today. I hope no one is short the grains!

By the way, the top chart is corn, the middle one is soybeans, and the bottom chart is wheat. I can only tell myself by the prices themselves. The chart patterns, including the other indicators, are nearly identical!

Tuesday, December 11, 2007

Soybeans 12-11 Trade #2

Soybeans hit new highs repeatedly today due to anticipation of an even weaker dollar. The chart shows two trades for soybeans. This time I posted the 3-minute chart so I could include both trades on a single chart.

But the Fed delivered a surprise and after the grains market closed. The Fed only reduced interest rates .25% instead of the .50% that was priced into the market, and commodity prices fell across the board. However, grain trading stops at 2:15 pm EST, precisely the same hour as the release of the Fed's decision, so grain prices couldn't react like other commodity prices. No doubt grain prices will probably fall when the market reopens this evening. This is one reason why I am reluctant to hold positions open while the market is closed.

But don't expect the correction to last long. Between the bullish trend in soybean prices, and the weak U.S. Dollar, prices should go higher again following a correction tonight. It may take a few days, but I expect the bullish trend to continue before the weekend.

Some Fundamental Truths of Trading

One of the 5 Fundamental Truths of Trading is:

Anything can happen. ("Trading in the Zone", by Mark Douglas)

This may seem rather obvious. However, many trading schools (that usually charge astronomical amounts of money to teach trading basics) often only teach picture perfect examples of their trading methods. Then, when traders are subject to real life trading conditions, they find that the examples they saw in school are rare in real life. Thus, they may either make bad trades or not trade at all, waiting for those picture perfect trading conditions that almost never occur. This is one of the reasons that I focus my trading methods and learning on dynamic trading indicators and methods rather than static ones.

Here is another core trading belief of mine:

"Trading should be FUN!" Bill Williams (author of two trading books in my library, including "Trading Chaos")

Soybeans 12-11 trading

Soybeans 12-11 trading

I trade ONLY the most liquid futures contracts with the highest open interest. I won't trade any futures that don't have a minimum of 100,000 open interest, and I always trade the contract months with the highest open interest and volume combined. I check this data at least once each week to make sure that I don't trade a contract month that has poor liquidity. Perhaps in the future I will start reporting each day when I change contract months. As of yesterday, open interest for the Jan 08 soybeans contract was 204,134 contracts of open interest. That quantity was down 16,435 from the day before. The Mar 08 contract was up 10,965 from the day before to 161,439 total. Total trading volume, however, is still significantly higher for the Jan contract. Here is a screen capture from the CBOT website:

Monday, December 10, 2007

Soybeans 12-10 --

Difficult trading conditions today. Following new highs, which were again reached today, it is fairly typical for the market to trade sideways in consolidation for a few days. Sometimes a minor correction also occurs, as traders take profits following these new highs. These are the prevailing conditions today. I'm glad that conditions like this usually are temporary. But the MUST be expected -- and planned for.

In the past, I have also noticed that during the December Christmas and Hanukkah Holiday seasons, many traders take time off, reducing volume and decreasing liquidity in the markets. This has the effect of increasing market noise. It thus also makes trading conditions more difficult. I don't know if this phenomenon is affecting the futures markets, but is certainly may be today. Open interest is about 1/3 less than it was just one week ago. This reduced activity inevitably leads to market noise and poor liquidity.