Fortunately, with the lower volatility in the grains markets over these past several days, margin requirements for corn and soybeans have been adjusted lower for the first time this year. The margin for wheat remains the same.
Friday, April 25, 2008
Except for the first few minutes of trading, most of the day provided poor conditions for grain trading. Even treasuries trading didn't offer much relief, since there was little movement there as well. However, these days happen from time to time.
Due to the weak movement in grains, I am trading treasuries today. Treasuries require less margin, so I can take larger positions. They also tend to move more slowly, so I can take my time managing each trade. No futures instrument in the world is more liquid.
Thursday, April 24, 2008
Important Note: This post was written earlier than the last two, but for some reason, Blogger placed it last. I have no explanation for why this happened. Please note the times when the posts were written rather than their placement.
The strong sentiment underpinning the US Dollar today is driving grain longs to liquidate their positions. Farmers who still have old crop in storage may be joining in, hoping to sell their product before prices go any lower, thus driving prices even lower. Why did these groups wait so long? The fleet-of-foot money wasn't long the past few days. We were trading in both directions, picking up a few extra dollars by taking advantage of the change in sentiment and the resulting chaos. If the following three requirements exist tomorrow, I will probably change my medium-term (a few days to a few weeks) outlook for the future.
- Prices close below the Exponential Moving Average today (they appear poised to), and prices move below today's low price tomorrow.
- The US Dollar continues to strengthen tomorrow. I will likely buy the USD if all conditions are met on the chart of the US Dollar Index.
- The Klinger Volume indicator continues to show the selling activity that first manifested itself April 16th.
Tuesday, April 22, 2008
We almost reached lock limit today. I'm glad we haven't, however, because when we reach lock limit, the CME automatically increases the lock limit for the next day, and this usually results in another increase of margin requirements. I expect a sell-off into the close, as day traders liquidate their positions before the close of the market. Still, "anything can happen," as Mark Douglas lists in his book as one of the 5 Fundamental truths.
It is no coincidence that the explosion across the board for commodity prices today is occurring simultaneously with new lows in the devaluation of the US greenback. The inverse correlation is striking and clear.
This is tremendously significant, because while a new low against the Euro means that the Dollar has sunk against just one currency, the collapse of the Dollar Index represents a collapse against a basket of currencies, which is something more fundamental in nature. This may be the beginning of the next round of US Dollar selling, and even higher commodity prices and inflation.
I have also been trading treasuries this morning. They are less erratic than the S&P 500 futures, so they are often my second choice after grains. Treasuries are extremely liquid -- as much or more than stock index futures. I could easily buy 300 contracts without causing even the slightest blip of change in prices.
There was also a good article on Marketwatch.com within the past 24 hours also. Yesterday, Bart Chilton, the Commissioner of the CFTC, testified before Congress that the rise in food prices is not due to speculation interests like hedge funds and traders. He presented factual data gathered by the CFTC to prove his point.
Monday, April 21, 2008
Sunday, April 20, 2008
This is a direct quote from the website of the US Bureau of Labor Statistics:
“The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.9 percent in March, prior to seasonal adjustment.”
While 4.3% may not seem too terribly high, the same report also indicates that the inflation figure for the past 3 months was 3.3%. And keep in mind that the most recent month's inflation was nearly 1%. In other words, nearly all the inflation was incurred this year! And inflation is still accelerating! The amount for 2008 implies that if it continues at the same pace, the annual inflation rate will be 13.2% for this year! However, since the inflation figure is accelerating in the most recent months, it is possible that inflation could be much higher still by the time 2008 becomes a distant memory.