Friday, May 16, 2008

Corn Collapse

Weather continues to favor more corn acreage and less soybean acreage. The charts of the two tell the story today.

Take Your Profits and Run!

Now, we are starting to see soybean traders take their profits and run for the hills today.

Wheat -- Buying on Daily Charts

This chart for wheat shows the daily on the left, and the intra-day market noise on the right. I am not trading wheat today for obvious reasons. The most significant aspect of this chart is the left one, bottom panel. It shows that heavy buying is stepping into the wheat market, following a drop of 40% over the past two months. I have mentioned this before over the past several days, but it appears obvious that there are some big players beginning to buy wheat. It looks like wheat is forming a bottom. At this point, wheat could simply trade sideways in a consolidation pattern for a time. (We often erroneously assume that prices trade only two directions -- up or down. Not so! Prices can trade sideways for very long periods of time.) Or wheat could begin a rebound. Much will depend upon fundamental factors like harvests in Australia and weather in the Northern Hemisphere. I will be watching wheat closely for signs that a new bull market may begin soon.

This Feels Like Something Significant Today

There is powerful movement in the financial markets today. Much appears to be related to a plunging US Dollar, as commodities are universally higher and the Dollar is taking a bath. Note here these charts this morning for three major currencies. Of course, when these move rapidly higher, the Dollar plunges. Many other currencies are also higher against the Dollar; these only only three examples.

British Pound

Stocks Retrace From a Bull Run

Stock indexes have been moving steadily higher in recent weeks on a bull run by climbing the proverbial "wall of worry". However, the daily chart on the left here shows that stock prices haven't risen that much over the past two weeks, and the Bollinger Bands are suggesting a trading range and resistance at the 200 day moving average. Today, shown by the intra-day chart on the right, stocks are showing some selling volume.

Soybeans - Temp Top, Anything Can Happen

Soybeans have now formed a top, at least temporarily. Anything can happen now. Prices could sell off through more profit-taking, or we could see still another round of buying. The daily chart at the far left shows that soybean prices started a bounce from their lows about a week ago off the Lower Bollinger Band, but prices are now at the Upper Bollinger Band resistance point at a price of about $14 per bushel.

"Anything can happen." -- Mark Douglas

Gold Back Over $900/Oz.

Commodities are broadly moving higher again, and the US Dollar is moving lower. The Dollar rally appears to have fizzled. Against all major currencies, the US Dollar is lower today. However, the US Dollar Index futures haven't shown much weakness. I have no explanation for that.

Is this the commodities bull round II?

And Crude Approaches $128/Barrel

Crude oil is on such a tear, that it appears it will never stop. Goldman Sachs issued a report this morning suggesting that crude oil will reach $141 per barrel for the second half of 2008 on strong demand from China. $5 gasoline isn't far away! That hurts!

Second Rise in Prices

Here comes the second wave of buyers. This is very typical behavior for the markets. The first wave occurs at the opening bell, and then some profit-takers will exit with quick profits. Then, after a few bars print across the screen, the second group of buyers will step in. This second group is typically much smaller than the first, and will result in a smaller rise in prices. Then, anything can happen, including a strong sell-off. However, I would be very surprised if the soybean market doesn't hold most of its gains from yesterday and today.

Meanwhile, corn and wheat are flat to modestly higher, but trading volume appears light.

Profit-Taking Requires a Fast Trigger Finger

I lost a little time on these two trades -- and a little of my profits -- due to an improper setting in my software that required a second confirmation.

Profit-Taking 1

Profit-Taking 2

It's a Bean Explosion

Soybeans have benefited from the rebound in crude oil prices after yesterday's brief sell-off due to options and contract expirations.

Thursday, May 15, 2008

Wow! What a rebound!

Look at the spike in corn prices after being relatively subdued through most of the session.

Roller Coaster Day

Wheat has returned to the upside, and soybean prices have recovered half the losses for the day. When I mentioned in my last post that the selling was weak, this is what I was waiting for. Wow!

More Soybean Selling

The selling has resumed again, but there is no wind beneath the sails the second time. This suggests to me that volume is without conviction. I will wait now for greater strength in the next trend.

Wheat and Soy Rebound

This chart shows a stout rebound taking place now with wheat, but soybean prices also are now rebounding near the lock limit price. I have no idea if these rebounds occur due to profit-taking by traders who have shorted, or fresh buying at lower prices. I suppose that it really doesn't matter. After a rather stagnant week of trading, it is a welcome relief today to see some forceful volatility. I suspect that this sell-off is perhaps related to a similar rout in the price of crude oil today. The Dollar has remained relatively stable. Gold moved significantly higher for the day, but has since sold of somewhat, probably suffering somewhat in sympathy to other commodities.

Soybean Rout

The soybean sell-off has turned into an absolute rout. At this rate, we will likely lock limit down today, a 70 cent decline from yesterday's settlement price.

Prices Collapse

Corn and soybean prices have collapsed after sideways trading. On the daily chart (far left for soybeans), both corn and soybeans are in a consolidation pattern, and both have reversed in recent days at the Upper Bollinger Band. Corn penetrated the Upper Bollinger Band just a few days ago, and has been in a reversal pattern ever since.

Grains All Over the Map

Grains continue trading very erratically today, with corn and soybeans selling off modestly at the open and trading sideways ever since. Corn is down only a few cents this morning, and soybean prices are only down about 10 cents. Continued drier weather is providing hope that more corn will be planted, even though current crop plantings are only about 1/2 to 1/3 of normal at this date. Corn requires warm soil that is not too moist because it is highly vulnerable to cold and soggy soil conditions.

Wheat is modestly higher and holding its higher prices. I believe we are beginning to see early signs of a potential bottom in wheat on the daily chart (see chart at bottom of this post) despite the slight acceleration to the downside yesterday. The price of wheat has fallen 40% in the past two months, but that doesn't seem to draw much media attention. (If a trader had shorted wheat precisely at the top, that trader would be $25,000 per contract in the profit right now.) The downside acceleration yesterday was somewhat weak compared to the past, and may be suggestive of a consolidation (see the daily chart at the bottom of this post). Given that Australia is having a very good wheat growing season after two years of drought, it is hard to see a significant rise in wheat prices unless weather or yield prospects deteriorate significantly.

Of course weather can always change rapidly, and the situation can shift on a dime. I don't anticipate significant and lasting trend patterns until or unless the summer begins to show signs of either a bumper crop potential or degradation of yields (which can have innumerable causes). The bottom line is that it is just too early to see any long-term patterns developing. We are trading the weather and crop reports almost day by day.

Oftentimes, we will see sell-offs on Fridays as traders liquidate their positions before the weekend. We will then see traders place new trades following the Monday afternoon USDA crop reports, which give us clues to the progress (right now) of seed planting and the impact of weather for the previous week.

Corn -- Trading Sideways
Soybeans -- Early Selling, Sideways Trading
Wheat -- Modestly Higher Today
Wheat Daily -- Are We Forming a Bottom?
Note the heavy buying in the volume indicator.

Wednesday, May 14, 2008

Soybeans: Radio Static

Prices for soybeans today ended almost flat. The chart (above) looked like radio static, without any strong momentum either higher or lower. This is very poor follow-through on yesterday's strong soybean rally, and must certainly disappoint traders, farmers who would sell, and commercials alike.

Corn and wheat both sold off, with the long-term downtrend in wheat still intact, as mentioned on my previous post today. I barely eked out a profit in trading, and that was mostly from a small trade in 10-year treasuries and a better one selling corn. I should have sold wheat, but I let that one get away.

Wheat - Long-term Downtrend

Often, with all the talk of high commodity prices, the news media tends to ignore that many commodities prices are moving lower. Many of the soft commodities have been flat to lower over the past few months, including sugar, coffee, cocoa, and cotton. Both industrial and precious metals are also well off their highs from earlier this year. This chart for wheat is another example. The price of wheat has fallen 40% in the past two months -- more than $5.00 per bushel! The left chart is the daily chart, and the two in the middle and the right side show today's activity on intra-day charts. That daily chart for wheat has shown prices falling for more than two months!

Crop Plantings Fall Short of Normal

USDA reported yesterday afternoon that crop planting for corn and soybeans are only at about 1/3 to 1/2 of normal for this time of year. This falls terribly short of what we would normally expect for mid-May. It also begins to suggest that crop yields this year have the potential for also falling short of expectations. This is long-term bullish for prices.

CPI Data Flawed -- Again!

Last month, the US Government reported that gasoline prices at the pump fell 2%. Here is the daily chart for the price of gasoline future for April and early May. In fact, prices rose 13% -- in one month! You decide how accurate the government's reporting of the data was. Needless to say, the calculation and reporting mechanism for inflation by the U.S. government is fundamentally flawed. While all other developed -- and most developing -- nations' central banks are expressing strong concerns of future inflationary pressures, only the United States' central bank focuses only on "core" inflation and continually understates its impacts. The answer for "why" probably lies in the governments incentive to mislead so they can continue spending irresponsibly and suppress Social Security cost of living increases.
Food price inflation was reported at the highest in 18 years -- 8.4% annually!

Tuesday, May 13, 2008

Surging Soybeans

Better, drier weather across the Midwest has changed sentiment in the grains markets today. Corn prices have fallen with the greater prospects of more corn being planted, and soybean prices have exploded much higher with the greater likelihood that land will be planted in corn instead of soybeans. Prices have increased more than 40 cents from the bottom that printed at the open of the session.
While corn was down for the day, it also lead a late-session rally that erased most of its losses for the day.

Diversity of Futures Instruments

Lately, due to the growing number of voices trying to blame traders for higher commodities prices and seeking to ban our participation, I have been trading other futures instruments with greater frequency.

I have traded the 10-year treasuries and the S&P 500 futures with considerable success. They are both extremely liquid. However, I have a preference for trading treasuries. I have found that I can get better executions. I can also take larger positions, since the margin requirements are lower than for stocks. I have also found that they tend to move more smoothly and with less market noise than the S&P futures.

I have found that for evening trading, nothing can beat the S&P futures. They trade almost 24 hours a day except for 15 minutes in the afternoon (4:15-4:30 pm Eastern). However, I have found that during the off hours, executions are a little slower, even though spreads are still only 1 tick. I take larger positions and exit with only a few ticks of profit.

Oil Reaches $127

Crude oil prices have now reached nearly $127/barrel just minutes ago. The new record of $126.98 continues to push oil prices still higher.