Friday, February 22, 2008

Wheat: No Losing Trades Today!

I only had 11 trades in wheat today, but miraculously, I had no losers. This is extremely unusual! The trades are marked with red and green arcs (I just learned how to change the colors a few minutes ago). The green arcs are the long trades, and the red ones are the short trades. Wheat and soybeans show enough volatility that when I get proper signals for the trades, they usually move sufficiently for me to be able to at least break even.

Soybeans: Last 3 Trades

My most profitable trade of the day was the last one. My last three trades are shown on this chart (see the 3 arcs). I had 15 trades today, with two losers. The two losing trades amounted to less than $50 loss. I have learned to exit quickly when a trade doesn't look correct (Phantom's Rule #1).

Soybeans Selling, Profit-Taking Begins

That was probably the shortest-lasting long-only decision in history. As you can see from this chart, soybean bullish exhaustion occurred just a few minutes following my last posting. I went short almost as soon as I sent the "send" button on my previous posting. As you can see from this chart, a head and shoulders top formed almost immediately, and prices only weakly set another new price high. Then, the bulls began to liquidate to take profits. This is evident from the heavy selling on the volume indicator that I have enclosed in a blue box at the bottom left of the chart. Volatility was still very good, and I shorted at the second shoulder for another profitable short trade.

I expect that more profit-taking will occur into the close, and then another bullish run will occur as people like me liquidate their short trades, causing another price spike before the closing bell for the week. I also anticipate a very high probability of a new closing high, as I indicated on my posting earlier today.

Wheat, Soybeans Pick Up Steam

Wheat and soybeans have now increased volatility and picked up steam to the upside. With such strong bullish sentiment in the grains today, I am no longer taking signals for short trades, until the buying shows clear signs of exhaustion, or profit-taking begins to drive prices lower.



Soybeans Erratic, But Profitable

Soybeans trading has been highly erratic today, with more than 15 trades so far, and most have been very small. Fortunately, however, I've had only one very tiny losing trade. Soybeans prices have also set another new all-time high prices multiple times today, and will likely set another new all-time closing high, if price strength continues through the remainder of the session.

Wheat Trading Back to Normal

Today, wheat trading has resumed normal trading volatility, although volume is still a little light.

Thursday, February 21, 2008

Stocks Dead Flat for Weeks!

Look at the Bollinger Bands on this chart of the S&P 500 futures. They are absolutely flat, and have been for two weeks! The Bollinger Squeeze indicator in the bottom panel shows the red dots indicator of insufficient volatility to trade. This is the reason why many investors are sitting on the sidelines, waiting for stocks to get off dead center. Meanwhile, commodities continue to perform well.

Commodities ETFs

I have posted charts for 7 different all-commodity ETFs on my other blog. You can view them here:

Commodity ETFs Continue to Perform

Eventually, I plan to write an article pointing out the various differences between the all-commodity ETFs and review each one. For today, the charts will suffice.

Soybeans: Trades 14-15

Trade 14 was an attempt by the soybean bears to defend resistance at yesterday's settlement price. It barely made a profit. When the Klinger Volume indicator turned bullish and profits were meager, I moved my stop to the top of the previous candle, where price movement took it out.

Trade 15 has proven once again that the soybean bulls are still very firmly in control. Prices have closed up again for the day! I've noticed that the best trades typically take off. This one was a good example of that. I closed it out less than one minute before the end of the trading session.

What a great day for trading. It had all the requirements for good trading, including volatility, solid movements in both directions, and excellent liquidity. What more could I ask for?

Weak Wheat

The past few days, volume trading for wheat has been quite weak. Wheat trading today has only 1/3 the volume of soybeans. I have stopped trading the grain until activity picks up again.

Soybeans: Trades 12-13

Volatility increased once prices broke through the support barrier of yesterday's settlement price (dotted magenta line). Now the question is: Can it break back through the same barrier at resistance?

USD Lower Recently, Still Rangebound

In this daily chart, the USD has been moving lower over the past 10 trading days, but is still range bound and trading above the lows set late November 2007, shown at the far left of this chart. The 50-day moving average (light blue) is flat.

Commodity Prices More Sedate

Commodity prices have been more sedate today. The GSCI (Goldman Sachs Commodity Index) is somewhat lower today, with both gold and crude oil prices moving lower from recent highs set in the past few days. I view any retracement from recent highs in commodities to be a buying opportunity, or an opportunity to add to my position.

Soybeans: Volatility Too Low to Trade

The Bollinger Squeeze indicator, shown as red dots in the blue box in the bottom panel, has fallen too low to trade further on the 3-minute chart. I will now wait until the red dots disappear on this chart, or until I see a trade that I have missed that would have been profitable, had I taken it, on the tick chart. This will be a hint to me that sufficient volatility has returned to the market to once again make additional profitable trades. The Klinger Volume indicator (also known as Klinger+ATR) still shows selling volume, but prices have thus far remained steadfastly above the closing price for yesterday. The bulls have valiantly and successfully defended yesterday's settlement price thus far.

Soybeans: Trades 5-11

Trade #8 was too tiny for the arc to be seen, and was a small loss of 4 ticks. Trade 11 is still active at this posting, but the Klinger indicator has turned down, so I have tightened my stop in anticipation of this trade being closed out. Trade 10 started off very shaky, but has become one of the most profitable of the day.

Trading Win/Loss Ratio

Thus far, 9 of my 11 trades have been profitable, and the ones that lost money cost me only 5 ticks and 4 ticks. Good day! Working these up and down movements in the markets is what swing traders are most effective at doing.

If the trade looks questionable, I consider other factors:

  • What do other indicators tell me (for example, the Bollinger Squeeze, Moving Averages, and MACD)?
  • What do the indicators in the higher time frames suggest?
  • Is there important support or resistance at this point? In this case, prices had already found support at the same price point three times today, so I considered it to be a good risk to remain in the trade.
  • How much profit have I made so far today? Am I willing to take a little more risk, or are my profits too sparse to risk losing them today?
  • How good is volatility right now? If the past few trades have shown sufficient volatility to take reasonable profits from the market, then I consider volatility to be good.

Wheat trading over the past few days has been supported by poor volume, and liquidity has suffered somewhat. I will wait until volume and volatility improve again.

Soybeans: Trades 1-4

Trades are marked with arcs connected with dotted lines. Trade #2 was a small loss, and is difficult to see on this chart. As is typical, the early trades are usually the best ones because liquidity is good and price moves tend to be sustained for longer periods and larger price movements.

Gold Has Regained Its Footing, Moving Higher

Gold prices on the April 08 futures contract have struck a new all-time high price over $950/oz. during trading over the past few hours. After nearly two months of relatively flat trading, gold has regained its upward momentum.

Look at the blue circle in the bottom panel of this daily chart, which depicts the Klinger+ATR volume indicator, and heavy accumulation activity as fund managers continue to vigorously buy gold. I first noted this phenomenon several days ago on this blog before gold prices started to surge upward again. The Klinger Volume indicator shows unbelievably strong volume buying by funds. More fund activity is moving toward gold and commodities, and away from U.S. government debt.

Soybeans Just Keeps Marching Higher

There appears to be no end to the bullishness of soybean prices. They just keep setting new records day by day. This is the daily chart for the May 08 contract. New records have continued to be set overnight, with soybean prices moving 15 cents higher than yesterday's new record close.

The Bond - Inflation Conundrum

If inflation is spiraling higher, then why have bond prices remained relatively firm? Despite the sell-off in U.S. government debt over the past few months (see the heavy volume of selling in the lower panel of the chart), bonds had remained relatively well-bid. Each time the stock market sells off, bonds tend to rise temporarily. I emphasize the word "relatively", because in fact, U.S. government debt has been selling off, and interest rates have been rising despite the best intentions of the Fed. The chart (above) doesn't lie.

Here is a superb article, by one of my favorite investment advisers, Michael Pento, explaining why. Pento is a well-read and superbly educated Senior Market Strategist for Delta Global Advisors (I have no affiliation with them of any kind, either as investor or client). I just like Pento! He is a practitioner of the Austrian School of economics. He is absolutely right about why this discrepancy appears in the markets between bonds and inflation.

7 Reasons Why the Bond Market is Wrong About Inflation

The Austrian School of Economics teaches that sustainable prosperity can only occur in a environment of free markets, unrestrained by government interference, productivity, savings, and retrained debt accumulation, both individually and nationally. They also teach the need for limited fiat money growth to restrict inflation. They have vast resource material available for study on the website named after the father of Austrian Economics, Ludwig Von Mises. This is likely the finest website dedicated to free markets and economics on the web.

Ludwig Von Mises Institute

Wednesday, February 20, 2008

Gold: New Record!

The new record high for gold is now $949.20 in the futures markets.

I'm writing so frequently of "new records", I'm going to get carpal tunnel syndrome from typing the words.

Oil $101: Up, Up, and Away!

Following the release of the FOMC minutes, crude oil prices have surged to a new record over $101/barrel. Hugo Chavez must be doing a gig about now! The GSCI futures have also risen higher.

GSCI Commodity Index Continues Higher

Commodity prices continue on a roll, per the Goldman Sachs Commodity Index in this chart.

I had a good belly laugh today reading this from an article on

"Just imagine Chairman [Ben] Bernanke standing in the middle of his office, closing his eyes, clicking the heels of his ruby loafers together three times, and chanting 'there's no core inflation, there's no core inflation, there's no core inflation,'" added Mr Stanley.

Gold Finally Follows Other Commodities Higher

Gold is very close to reaching another all-time record high price. The left chart is the daily chart for gold. Note the explosion of volume higher for the past several days as funds buying has reached mania proportions. Also note that prices broke firmly through the magenta trend line yesterday, and then again today. The right chart is the 2 hour chart, and shows the exploding price over the past few days. Virtually ever class of commodity has moved significantly higher in recent days. Gold had been the lone hold-out -- until today!

Grains Volume Subdued

Many traders are in the process of transitioning from the March to the May contracts. Volume is split across both contract months, and is therefore lower than usual for either month. I am sitting this one out until volumes resume normal levels, probably within the next day or two. I am trading the May 08 contracts for corn, wheat, and soybeans.

Inflation Heats Up

It's no surprise to commodities traders, but inflation is rising, approaching its business cycle highs of the past few years. Here are the headlines and links on Marketwatch, Financial Times, and Bloomberg:

Inflation Remains Hot in January

Consumer Prices in U.S. Rise More Than Forecast

Rising Inflation Reinforces Challenge to Fed

Tuesday, February 19, 2008

Investors Don't Want U.S. Treasuries

These three charts represent some of the most liquid ETFs for U.S. Treasuries. They are being sold, even though the Fed is promising lower interest rates. Bond prices move inversely to interest rates, so the selling on these charts indicates that interest rates are rising. So what are investors buying instead?

Commodities, including gold, energies, and agricultural commodities.

Stagnant Stocks

The three blue boxes on these three S&P ETFs indicate that stock prices are in a trading range too tight to trade on a daily basis. The left-hand chart is the ultra short ETF. The middle one is the long ETF, and the one furthest to the right is the ultra long one. It matters not whether a trader is long or short -- the market is still stagnant. All three of them show that the Bollinger Squeeze indicator has contracted to the point that it is fruitless to try to trade on the daily charts. I won't trade any of them again until prices close outside the Bollinger Bands.

Oil: Non-stop to $100

Surging Soybeans

Soybeans surpassed the $13/bushel mark on 1/11. Today, soybeans prices pushed through the $14/bushel handle very forcefully. Soybeans prices appear to be positioned to reach another all-time closing high today also, even though prices have retracted well from the highs reached earlier today and last night. The settlement price from last Friday is shown in this chart as the white dotted line at the bottom of the price graph at $13.73 6/8. Retracements of this magnitude are very common for the grains markets, but as this chart indicates, prices are still well above the closing settlement price from last week.

Don't forget platinum

Platinum (daily chart, at right) prices are going stratospheric!

Gold Breaks Outs of Range, Moves Higher

Fund buying of gold has caused a break-out to higher prices. Note that for several days, the Klinger Volume indicator has shown heaving buying activity, even though prices remained flat. Today, gold prices have finally surges higher as volume has pushed through the range of the past few months. Gold appears poised to reach new highs now that the break-out has occurred.

The first chart shows the daily activity, and is an update of the gold daily charts I have posted over the past few weeks. As you can see, gold has broken through the trend line and is now moving forcefully higher once again.

The second chart shows the buying activity for today on the tick and 3-min charts.

Crude Oil Near $100 again!

Crude oil is above $98/barrel today, and it appears that $100 and higher is coming soon.

Stratospheric Commodities Prices!

Soybeans are beginning the day session today at all-time high prices. Sugar, cotton, crude oil, gold, platinum, coffee, cocoa, wheat, copper, and various other commodities prices are all significantly higher. Inflation is on the march! This chart for soybeans shows prices only since last night, but it is typical for commodities almost universally.

Only the U.S. Dollar continues to sink!

Monday, February 18, 2008

Another New All-Time Soybean High (sigh)!

Soybeans prices have reached new all-time high prices -- three times -- during the overnight trading session, closing at a new all-time high of $ 13.98 4/8. The day session should be vigorous!

This has occurred so often, it is becoming routine!

Sunday, February 17, 2008

John Mauldin's Words of Caution

Here is the link to John Mauldin's newsletter for this weekend. John Mauldin is no bear, but is sounding increasingly bearish. This newsletter has some very good information and education on auction rates, monoline insurance companies, and P/E ratios for the S&P 500 based upon current and projected earnings. Very interesting stuff:

What Would Warren Do?