Friday, February 8, 2008
Even I can't trade when it gets this tight. Even going for just a few ticks would be suicidal if the market should break out against your position. Under these circumstances, I either stay out, or take only trades in the direction of the long-term trend (up). However, I'm sitting this out, since prices are so close to their all-time highs. At times like these, I'll grab a trading book and read, while keeping one eye on the charts for the next break-out.
Early in the session, soybeans are volatile. My trades this morning are marked with the arcs connected by dotted lines. Short trades are a necessity, but are very profitable. (You can open the chart in another window or tab to see a larger version.) That first peak reached within one tick of the all-time high price for soybeans. This bull is alive and well!
Imagine trying to trade this on the lower chart, where the 3 minute chart shows on the left. It would be almost impossible! Tick charts are a necessity for me because they count orders flowing through the exchange rather than counting arbitrarily by time. It makes sense to count orders rather than minutes, doesn't it?
I have been long the US Dollar Index since Feb 5th. It is trading above its 50-day moving average. If it doesn't close outside the Upper Bollinger Band today, I will close out my position with a small profit. I have a very tight stop on this one. I'm not going to hold it over the weekend unless it shows signs of additional strength.
One reason for the strength of the USD may be explained in this article:
Gold Traders See Through ECB's Smoke and Mirrors
Crude oil has been trading below its 50-day moving average since January 15th. In fact, prices bounced lower off the 50-day moving average a few days ago. Note also that the 50-day moving average has turned down. In this chart, the 50-day moving average is shown as a light blue line. Oil is still above its 200-day moving average however, shown in this chart in the color magenta.
Thursday, February 7, 2008
If you are long wheat, it is making you wealthy! I have literally lost count how many days wheat has locked limit up. This evening, at the open of the trading day, wheat has gone lock limit up again, just as it did yesterday, and the day before, and the day before that! The smaller chart below is the daily chart for wheat. It is moving straight up! I hope the farmers of America are planning to plant lots of wheat this spring! The farmers will get rich growing and selling it, and traders will get rich buying it! The losers will be anyone or any animal that eats!
Apparently, fear that Europe will slip into recession based upon Trichet's dogged determination to fight inflation, is causing the Euro to plunge against the USD today. Meanwhile, the markets are showing confidence that the Fed's rate cuts will eventually bear fruit and bring the US out of its doldrums.
The US Dollar Index is up quite sharply the past three days (see the daily chart, on the left side), but particularly against the Euro. The light blue line on the left chart is the 50-day moving average. It has been a very long time since the USD has been above its 50-day MA. However, it is approaching the Upper Bollinger Band, which is usually a point of resistance from a statistical standpoint.
The right chart shown here is a 30 minute chart.
Wednesday, February 6, 2008
What an unbelievable day of trading. After both soybeans and corn touched lock limit up, both grains sold off and closed down for the day! (Note in the charts below that the dotted red line represents yesterday's settlement prices.) Was it a reaction to Fed Governor Plosser's comment that inflation could restrain the Fed from further rate cutting action? I don't know, but by talking to the market in this way, Plosser may have effectively, but artificially, created a top in grains prices -- temporarily. However, if the Fed doesn't back up the talk with walk, the Fed will have undermined its credibility in fighting inflation, and prices will escalate and re-inflate again. And that would undermine also the Fed's credibility as an inflation fighter.
I have noticed that the Fed often tries to manipulate markets by talking in such tones. The effect is only temporary unless Fed policy backs up Fed talk. This merely creates more turmoil in the financial markets. It does not calm them! And that's fine with me, because the volatility simply creates more opportunity for me to trade and make more profits! I love days like today! Let's do it again tomorrow!
So trading resumes! This grains market is beginning to feel a little overbought to me. I wouldn't be surprised if we see a contraction or consolidation. Prices that rise in such a parabolic fashion usually burn themselves out quickly. A more gradual price rise is more typical for a strong bull market.
All three of the grains I trade (corn, wheat, soybeans) have now hit lock limit up today. Trading has halted, possibly until this evening, or until enough sellers step in to fill the demand. This often happens as farmers with grain in storage decide to take advantage of the high prices and sell some of that stored grain. Good for them! They deserve the windfall! They work hard to provide the rest of us with food on our tables! What an unbelievable trading day.
Folks, prepare to pay more... at the grocery store!
While I mentioned last night that wheat had hit its lock limit up price two days in a row, this morning, soybeans smashed through the old record of $13.41 4/8 set on 1-14 to hit a new all-time high today (so far) of $13.73, stopping at the lock limit up price. That's a new record more than 30 cents higher than the old one in a single day! That's also 50 cents higher than yesterday's settlement price!
Wheat remains at its lock limit price that it reached last night (trading has halted), but corn has also smashed through its old record of $5.19 2/8. Corn is setting new all-time record high prices minute by minute, and will most likely stop at its lock limit price very soon. This chart shows the triptych of soybeans so far today. Click on it to see a larger version of the chart. Soybeans prices came very close to its lock limit price before backing off somewhat, but have now moved higher and stopped trading and the lock limit price.
Tuesday, February 5, 2008
In evening trading tonight, grains are at or reaching new all-time high prices. What a remarkable phenomenon that all the grains are setting new records, or approaching new records simultaneously. Today's close this afternoon was the first day in ten that soybean prices did not close higher. Tonight, it appears that we are making up for that slightly lower close earlier today.
Wheat - lock limit up again, new all-time record high!
Soybeans - approaches new record high!
Look at these two charts. Except for the prices, they could have been the same. The similarity in chart structure today is striking -- nearly identical! Corn and soybeans are trading in near lockstep with one another today. After yesterday's meteoric rise, they were both overbought and in need of a correction. This shouldn't be taken as a sign of bearishness. Perhaps the weakness in today's prices is influenced somewhat by the weak economic data today, which often leads speculative traders to liquidate long positions in anticipation of softening demand for commodities during recessionary cycles. The reason is really quite irrelevant; the only thing that matters is that price changes occur. The 3 minute charts shown here are erratic, but the tick charts (not shown) are much better for good trading today.
Wheat prices, as I mentioned a few days ago, appear to be breaking out into a possible new bull trend. All the grains and oilseeds are surging to new price highs every few days. Oh, uh, but there's no inflation according to the Fed.
Personal Note - Wildlife and the hard winter this year:
Anecdotally, I buy wild bird food for the birds, especially the wild quail, that live in my neighborhood. We live in the Rocky Mountains, and we have large blue spruce trees in the yard where about 2-3 dozen California quail roost at night. I love to watch them scratch for seeds like chickens in the pine needles underneath the spruce trees. I also enjoy seeing the families of 1-inch tall quail chicks in the spring and summer. I also enjoy the black-capped chickadees and some of the other beautiful songbirds that I don't know the names of.
Unfortunately, 80-90% are killed by the neighborhood house cats or cars-- both the adults and chicks. The hawks also take quite a few. I've seen entire families of quail run over by cars that never even slowed down, and I've chased away (or trapped and sent to shelters) many cats that were hiding under our bushes waiting for the families of quail. The chicks can't fly for the first 3-4 weeks of life, so they are sitting ducks for the cats. And its quite difficult to outrun a car when you have legs that are only 1/2 inch long. The adults are reluctant to fly away from their chicks, even when their own lives are in danger. Between the hawks in the air and the cars and cats on the ground, they have very tough lives, most adults living only 1-3 years.
This winter, we have had snow on the ground continuously since Thanksgiving (unusual even for the Rockies), and the wild birds have had no natural food sources since then. Without winter feeding, many of them would die. It saddens me each time I find another one dead in the yard. Often, it is a violent death (cars, cats). In the winter, they simply starve to death and I find their little bodies around the yard; sometimes, they fall dead from the trees during the very cold winter nights. The quail eat primarily insects, but also small plants and seeds. With a very harsh and snowy winter this year, all of those food sources are either underground (insects) or covered with snow (plants, seeds).
Even the deer are starving to death. The State of Utah this week has begun emergency feeding of some of the deer to prevent a wildlife disaster. They have been showing video of the deer on the news in which the snow is so deep, the deer are buried in it up to their heads. All they can do is stand in the deep snow and starve to death. Very sad situation! We live in a city in the suburbs of Salt Lake City, but I've noticed that over the past week, the deer have begun a virtual invasion of our yard at night looking for food. They are even eating the rose bushes! Ouch!
Grain Prices Skyrocketing!
Last winter, I was able to buy 40 lb. bags of wild bird seed for a price of $7-8 each at Petco. This winter, those same bags of wild bird food at Petco cost $17.99 as of yesterday. Grains prices are skyrocketing, and all the grains that I trade are very close to all-time high prices today. I have been able to buy smaller bags at Ace Hardware, but the total price is still about 50% higher than last year. Soybean prices have tripled in the last 16 months. Wow!
The point of this whole story is simply to explain in real terms that the price of grains continues to go higher. These prices affect people, too. All products made from grains, and livestock raised for meat must be fed grain as well. The cost of dairy products are impacted more than meat because dairy cattle must be fed grain throughout their productive cycles, while meat cattle are only fed grain in the last few weeks of their lives.
Can you believe it? Bad news from the ISM data, and the USD shoots straight up! The charts triptych shown here includes the daily charts on the left, the 30 minute chart in the middle, and the 10 minute chart on the right side. It is remarkable to me how often the obvious fundamentals-related information tends to cause the opposite reaction that what I would have expected. This chart today is a perfect example. After a disastrous drop in the ISM survey data this morning, one would have expected the US Dollar to plunge to new lows. Just the opposite has happened. Even on the daily chart, the rise in the USD Index today is stunning!
Often, the markets react to news event in precisely the opposite way that I would have expected. This is why I trade only using technical analysis. Who would have expected that following a collapse in the U.S. ISM non-manufacturing data, that the US Dollar would sky-rocket and gold prices would drop. But the charts don't lie! Here is the price chart for gold. See my next post today for the chart of the US Dollar Index futures (above). I'm not sure that a day ever passed but what the markets don't surprise me.
Monday, February 4, 2008
Gold has shown remarkable resilience, and after falling initially (see the chart), prices have rebounded higher to about where they ended last week. This may indicate price strength, especially in light of lower interest rates, higher inflation, and US Dollar weakness. It is also possible that some of the funds flowing out of bonds (see my earlier post today), are flowing into gold for greater safety and protection of value.
In this earlier post, this connection between bond selling and gold buying is explained further:
Bond Vigilantes - Where Are They?
The grains appears to have reemerged with renewed vigor and strength today! Here are the 15 minute and 3 minute charts for corn, wheat, and soybeans after market close today. Wheat even hit its lock limit up price just minutes before the close of the market. The grain bull is back!
Wheat - Hit lock limit!
Soybeans - new all-time closing high
Today, we are seeing interest rates on the 10-year US Treasuries rise, even while the stock indexes have moved down. This is significant! Note in the chart (daily candles, above) that following the doji candle on January 23rd, bonds prices have been lower, and the Klinger Volume indicator (lower panel) is showing heavy selling of US Government bonds (see the red line in the subgraph, indicating significant selling volume). This will drive interest rates higher, especially if this phenomenon accelerates!
For several weeks or months, bonds prices have risen inversely and in near lock step with falling stock prices. This occurred as funds flowing out of stocks sought safety in US treasuries, which are considered one of the world's safest investments. This inverse relationship appears to have reached its apex today, and suddenly reversed. Bonds are selling off simultaneously with the weak stock market. The next few weeks will determine whether this is a short-term event, or a long-term trend.
Are the bond vigilantes back?
It may be that investors are beginning to tire of lower interest rates, even in the face of greater risk. The bond vigilantes are pricing in higher interest rates, demanding better returns for their capital. They are seeing greater risk in US Government debt, and the greater likelihood of inflation. These are typically the two factors (risk, inflation) that influence interest rates to move higher in the bond markets. A third factor -- greater returns available elsewhere -- may also be in play here.
I have started another blog. I will be posting to that site ETF charts that are showing signs of good trades. Each evening after the markets close, I will review many charts for various ETFs. I will post those charts to my new blog. That blog will be a lower priority for me than this one, however. The website is:
The grains are all up strongly across the board, today. It seems that concerns about a weaker USD and continued strong demand for grains (food) globally is providing continued strong support for higher grain prices. I am continuing to buy on dips. Even when the markets temporarily go lower, grains universally continue to bail out even bad trades if I "go long and hold on"! The yellow dotted lines are Friday's closing prices. Here are today's charts!
Corn -- look at how strongly the Klinger Volume indicator is up on the left-side chart (bottom left)!
Soybeans -- The Klinger Volume indicator is strongly up (left side chart, lower panel) in this one, too!