Friday, April 18, 2008

Crude Oil $117

Crude oil futures ended the day today, literally on the very last tick of the trading day, at $116.97, just three cents shy of $117. This is quite remarkable, considering that this price was the very last price that passed on the ticker at the end of the trading week! At that moment, most traders had already closed out their trades and gone home for the weekend. Wow!

Crude Oil $116

Yo-Yo Soybean Prices

While the surging value of the US Dollar overnight has brought lower soybean and other grain prices, the fundamentals remain strong. This is a testament to the effect of the value of the Dollar.

Wet weather continues to create planting delays for corn across much of the grain belt. Corn hit new all-time highs overnight, but then sold off as the Dollar appreciated, starting today's session below yesterday's settlement price. Soybeans, after appreciating last night, sold off to starting the day session flat this morning. Wheat, after showing strong buying in the past few days on volume indicators, is also showing renewed weakness today, although still off the most recent low prices. Weather appears to be more favorable for wheat harvest (thus suppressing prices), while still delaying planting for corn (supportive of prices).

My hunch is that this sell-off is likely to continue today, especially since many traders perceive risk in carrying positions over the weekend. However, I am prepared for anything. I really don't know what will happen. These are manic-depressive markets, and anything could happen over the weekend. Remember Douglas' first fundamental truth: Anything can happen!

Dollar Up, Commodities Down

Commodities have taken a big hit overnight as the US Dollar has strengthened. Crude oil, gold, and grains have all moved broadly and significantly lower. Google had blow-out earnings report, followed by Citigroup having a less-awful-than-expected earnings report, and Caterpillar announcing a strong earnings report, that have resulted in the stock index futures moving strongly higher.

This, in turn, has strengthened the US Dollar and created a broad sell-off in Dollar-based commodity prices. LIBOR and short-term interest rates have also risen significantly, continuing the selling of Treasuries in anticipation of the end of the Fed's easing cycle. This is not going to help the housing sector, as interest rates are continuing to rise in recent weeks, after reaching their lows exactly on month ago today!

What a difference a day makes! It was just last Friday that the horrible earnings report of GE caused a sell-off of stocks. Isn't it amazing how connected the financial instruments are around the world? And isn't it amazing how connected they are to the value of the US Dollar?

Thursday, April 17, 2008

Bulls Win Out In the End

Despite an early sell-off, some stagnant periods during today's trading, and somewhat difficult conditions during much of the day, the bulls won out in the end. Soybean prices closed higher. The trade shown as the green arc above is one of the longest-lasting trades I've taken in quite awhile on an intra-day basis.

Corn ended the day flat, with the same settlement price as yesterday. What are the odds of that happening?

Eventually, I plan to open another trading account, most likely with Interactive Brokers. I want to test my ideas about whether it is more profitable to place long-term trades or trade intra-day exclusively. Right now, I trade primarily intra-day. I suspect that I am making much more money trading both long and short, than I would if I were to place only long-term trades on the daily charts. I will continue to trade using TradeStation software, but I will place long-term orders on another PC through another broker. Since I've used IB before, and I know their trading platform, they would be a logical choice for me. They also allow me to trade equities through them, including overseas exchanges.

Current Soybean Bull Trend at Risk
The soybean bull is at a key junction point on the daily charts, and if prices don't continue to push above the resistance point (of the Upper Bollinger Band) and continue to close above the EMA, I expect prices to collapse, and most likely, we will see range trading and price consolidation for the medium-term future. Today was important because prices continued to close above the Exponential Moving Average, thus keeping the bullish trend intact. Still, for the bull trend to continue, prices must push higher than the most recent high of $14.15 set on April 15th, and eventually, prices must push higher than, and close above, the Upper Bollinger Band, which is currently at about $14.20. Right now, the Bollinger Bands on the daily chart are going flat, suggesting a consolidation pattern.

Even the Bollinger Bands on the weekly chart are suggesting that a consolidation is a higher probability than a renewed bullish trend. If prices push through $14.20 and continue to close higher, then the Upper Bollinger Band on the weekly chart, currently at about $15.00, would be the next price target. This is why I say that soybean prices are at a key inflection point over the next few trading days.

Watch the weather!

Grains Modestly Higher in Overnight Trading

Corn, soybeans, and wheat are all higher after light overnight trading. This is the overnight chart for wheat.

Soybean prices yesterday failed to break through the Upper Bollinger Band on the daily chart, a key resistance level. However, prices haven't closed below the Exponential Moving Average, either. It remains to be seen whether this will occur. This is a key inflection point for soybeans, but it will undoubtedly be driven by weather-related news.

Oil, Gold Lower After Hitting New Highs

Crude oil has once again hit another new record high overnight, but has since moved lower on a stronger US Dollar, and is trading below yesterday's close for the time being. Gold has shown similar price action.

Wednesday, April 16, 2008

Oil Surpasses $115

Wild Day for Soybeans

I have been both long and short today. I was expecting the day to be erratic due to the changeover of contracts. I was wrong. Liquidity was excellent, trading was strong, and profits were good. I closed out my last trade literally in the closing seconds of the day session.

Today, Everybody Loves Gold

Heavy gold buying is reinforcing the perception that inflation is going to be a long-term phenomenon. Many commodities are near highs today, with grains being the rare exception.

Soybean Recovery Supported By Fundamentals

Whatever caused the earlier sell-off, the bulls have stepped in to buy soybeans. Weather and world events appear to be extremely supportive of soybean prices. This correction today appears to be an excellent opportunity for traders to enter the market or add to their positions. I suspect that recovery will occur quickly, since whatever caused today's rout appears to be contrary to the fundamentals supporting the market.

Oil Nears $115

Another unexpected dip in U.S. oil inventories for the second week in a row. I could see this one coming, since the market was expecting an increase this week, even though the same thing happened last week.

Soybean Sell-Off

I have no idea what has caused the selling of soybeans this morning. This does not appear to be a fundamentals-induced sell-off, unless it is a phenomenon of the broader financial markets. In fact, weather in the grain belt continues to hamper planting operations, with only 2% of corn having been planted at a point in the crop year when 12-20% is typical. Ground in the grain belt is still wet, and more rain is expected by the end of this week, with additional rain systems developing. This will hamper corn planting, but could possibly hamper even soybean planting at some point. That would be very bullish for grain prices.

Wheat prices are relatively stable to slightly down, and corn prices are down also, but only slightly.

But does the reason matter? No! The market told me to sell, so I sold!

Consumer Inflation, Housing

Year-over-year CPI inflation just reported at 4%, with core at 2.4% March inflation registered at .3% and core was .2%. The Euro is reaching new record highs against the US Dollar as a result. The US Dollar Index futures on the NYBOT are modestly lower (71.550), but not threatening the all-time low of 71.205 on 3/17.

The Goldman Sachs Commodity Index futures are reaching fresh all-time highs today, suggesting even higher commodity prices.

Housing starts for March were down 11.9%.

Transitioning to July Contracts

I've noticed that during the period in which traders are transitioning from one contract period to another, volume and liquidity suffer, and trading conditions are often less than optimal. We are in that period now. I changed to the July 08 wheat contract a few days ago. Today, I have changed my charts to the July 08 corn and soybean contracts. During this next few days, spreads will tend to be wider and trading will be somewhat erratic. I will use some caution during this transition period, which will probably last into next week. The sooner traders make this transition, the better, because the increase of liquidity in the July 08 contract periods will benefit everyone.

US Dollar Sinks to Near Break-Out Level

The US Dollar has sunk overnight to a level where it is very close to a break-out to a new downside record. If it does, and the devaluation of the currency resumes, commodity prices will very likely surge much higher. If, on the other hand, the US Dollar strengthens, commodity prices will probably stabilize somewhat. Oil prices of $114.50 may become a distant memory that we will remember with fondness.

Tuesday, April 15, 2008

Food Inflation Causes Panic Global Buying

Here is one of many similar articles that I've read over the past few weeks. It is only the latest example of the growing concern world-wide that the biofuels trend is having on food prices. Congress' mandates for biofuels is bound to cause grain prices to continue higher and higher in the months to come.

Corn, Soybeans Rise on Panic Buying

Here is another from the New York Times, admittedly not one of my favorite news sources (since it often has the appearance of being politically-driven, rather than news-driven):

Fuel Choices, Food Crises, and Finger-Pointing

Perhaps the biofuel craze is a true bubble. If so, then as it gains more and more scrutiny and people realize that it is a false answer to the energy problem, perhaps this bubble, too, will pop. And since the planting of corn and soybeans displaces other food crops, the price of many agricultural food crops -- including even meat -- would also drop. This is the one of the real causes of higher food costs, not traders. Another is the refusal of the United States to develop its own energy resources, including the vast known oil reserves off the Atlantic shelf of the United States.

Why don't we all write Congress and help them wake up?

Crude $114

Rice Riots

This chart shows one of the culprits for many of the food riots raging throughout the world at this time. The price of rice has risen from $11 to nearly $21 per bushel since the middle of 2007. This is the daily chart. Bullish trend reinforcement in the past few days seems to suggest that prices are amplifying their upward movement. Is it any wonder people are worried that they won't be able to buy food to eat?

What Do the Indicators Suggest?

Look at this chart. What do the indicators suggest was about to happen prior to the red arrow? All the indicators were pointing to a downward move in prices. I have marked divergences of the Klinger and Bollinger Squeeze indicators. The MACD was also pointing toward lower prices. Ironically, however, prices on the highest time frame (not shown), or principal time frame, are pointing toward continued higher prices.

Resistance is Futile

The $6 resistance level for corn appears to have given way finally, with corn moving steadily higher since 3/24. Prices have struggled to push through the $6 handle, but it appears that this price point has been finally achieved today. This chart shows the daily trend for corn on the left, which has demonstrated the most solid price strength today (on the right).

Soybeans prices have been in a bullish trend now for the entire month of April, pushing steadily higher almost without correction.

Wheat also appears to be close to a break-out upward again, with volume indicators suggesting that prices will move higher soon.

With all three of these major grains moving higher (rice has been shooting upward without retracements since January), the grains ETFs may soon start to move higher at an even faster pace. Food prices are going to go higher at an even faster pace. There will be even more rioting in the streets around the world.

We're Building a Solid Base

See Saw Trading

This is a day made for swing traders!

Grains Are Gold

After a short down tick at the open, grains have moved rather forcefully higher. Interestingly, however, corn is the strongest this morning. This has caught me by surprise, as I expected renewed buying of soybeans from China to drive soybeans higher. I'll take what I can get!

New Record: GSCI Commodity Index Futures

The GSCI Commodity Index futures, a broad index of 24 commodity futures, has reached a new all-time high this morning.

Grains Modestly Higher Overnight

After moving lower for the past few weeks, buying interest for wheat has been rising recently, so perhaps wheat is approaching a rebound soon. All the primary grains were up modestly overnight on thin volume. Rice hit new records.

The Crude Reality: $113.93

Crude oil has reached another new record at $113.93, primarily due to supply disruptions in Mexico. And the hurricane season hasn't even arrived yet!

PPI: Up 6.9% Year Over Year

March PPI was up 1.1%. That's much hotter than expected. If it sounds low, just multiply the number by 12 months to get an annual figure. Ugh! Crude goods up 8%, as the cost of food and energy is bleeding into the cost of finished goods. Energy inflation for one month (March) was 2.9% (multiply that number to a yearly figure). And oil is higher this month than last, suggesting that inflation will be even higher next month.

Core was restrained to 0.2%. No surprise there, since the government ignores food and energy costs. Treasuries are selling off in response.

Higher food costs are causing price riots around the world, inflation is raging even in countries with strong currencies (like Europe, Australia), but our government continues to try to persuade us that inflation is contained here.

There is a widespread myth that higher commodity prices are being driven by speculators. In a recent article on, the case was made that COT reports from the CFTC indicate just the opposite -- that speculative interests in the commodities markets are flat over the last year. Of more than 3000 funds in existence, only about 50 have been buying commodities, with very little change year-over-year. COT reports show that it is commercials -- companies who hedge and take physical delivery of commodities -- that are increasing their long positions in the commodities markets.

Monday, April 14, 2008

It's Another Crude Record!

It seems almost cliche to say that crude oil has reached another all-time high record, but such is the case in trading tonight, reaching a new high of $112.48. The G7 summit's inability to halt the falling US Dollar is pushing commodity prices higher again, with anticipation of higher prices pushing crude oil higher still. Grains are trading modestly higher tonight also, with rice reaching two new records in the last two days. The broad-based GSCI Commodity Index futures are also nearing their all-time record high.

Grains Rebound

As expected following the sell-off before the weekend, grains traders are buying back into the market, creating a rebound today.

Sunday, April 13, 2008

US Dollar Trading Within TIght Range

Contrary to the claims of the ministers of the G7 nations, the US Dollar has been trading in a very tight range for the past month. The contracting Bollinger Bands are an indicator of falling volatility, not great volatility as they claimed.