Saturday, August 16, 2008

"Don't Put An Age Limit On Your Dreams" -- Dara Torres

What a great motto! Following a second silver-medal swimming performance during the Beijing Olympics, 41-year-old Dara Torres, when asked what she would tell her two-year-old daughter about the Olympics years from now, said, "Never put an age limit on your dreams." And putting all things into perspective, she also said, "Life revolves around my daughter." As far as I'm concerned, she is the gold medal athlete of the Olympics for her perspective and her outstanding sportsmanship. Bravo, Dara! Bravo!

May we all remember her courage and tenacity.

Eight Is Great!

Wow! Who would have believed it! Michael Phelps accomplished his goal of eight Olympic gold medals in Beijing. Congratulations, Michael! Well done!

So Much for Peace With Russia!

As of this morning, despite signing a treaty agreeing to leave occupied areas of Georgia, Russian troops are instead digging in throughout those occupied areas. They are already in violation of the peace agreement they signed in the past 24 hours, ignoring their own promises! In fact, Russian troops today have instead moved closer to the capital of Georgia, and have set up positions just 14 miles from Tbilisi. Just today, after the agreemeent was signed, they destroyed a key railway and supply link between Tbilisi and the Black Sea. I supposed this means that Russia's leaders can not be trusted to keep their word. So much for trusting Russia! So much for peace!

Friday, August 15, 2008

Grains Near Limit Down Most of Day

Grains not only opened lower, but remained near limit down through the trading session today. Both corn an soybeans traded much lower. I exited my long positions (corn and wheat) last night when trading moved lower after the opened at 7:00 pm EST.

Surprise! The Futures Markets Aren't Picture Perfect!

After spending obscene amounts of money for various trading schemes, coaching, videos, books, etc., I learned that all those various trading programs don't truly match what's happening in the futures markets. How can that be? After all, they demonstrate their systems with screen captures, examples, etc. They explain just how to execute the programs, and they give specific examples when their systems worked. Often, they even give examples of profits made on trades (although they are usually just paper profits, not real ones).

Here's a revelation:
That's because they only choose examples for their products that are picture perfect! Would you expect them to choose pictures and examples of when their product or systems failed? That doesn't meet marketing objectives very well! But traders keep being suckers for these myriad systems that really don't work.

Most of the time, the financial markets, and futures in particular, aren't picture perfect. This is one reason why, after purchasing their expensive programs, most people consistently lose money. The futures markets don't really look like the picture perfect examples they provide. Those videos, books, tapes, coaching, etc. don't show an accurate picture of the futures markets because instead, they show a very selective picture of the futures markets. They are incomplete. They don't ever show the 99% of the time that the futures markets don't match their picture perfect examples.

Hence, people find, after spending hundreds or even thousands of dollars to buy overpriced trading systems with the expectation of easy money and big profits, that their own "commodity bubbles" are burst with the reality that the futures markets are very different from the picture perfect examples they were sold. They find out that, in reality, they were sold a "bill of goods".

There are more people making money from traders than from trading. It's a harsh reality, but it's the reality!

Treasuries Break Out, Interest Rates Lower

The 10 year treasury futures have broken out higher, leading interest rates lower.

Crude Oil Leads Commodities Lower

Crude oil today is leading commodity prices broadly lower, with prices reaching fresh lows.

Dollar Continues to Strengthen, Commodities Sag

Crude oil has given up its gains over the past few days, leading the commodity complex, while the Dollar has continued to strengthen. Despite this, commodity prices appear to be starting to consolidate.

US Dollar Index - 30 min
DJ AIG Commod Index - 120 min

Grains Sell Off Overnight

Following a nice two-day rally in grains that suggested a possible new bull trend, grains sold off overnight, giving up much of the gains in the second day of the rally. A surging Dollar is being given the credit for the selloff. This suggests that a consolidation phase may be more likely for the foreseeable future. This may be a more typical scenario given that physical commodities, as I mentioned a few days ago, tend to have bowl-shaped, flat bottoms, rather than reaching a bottom and then immediately climbing higher again. Remember: spike tops, bowl bottoms.

Corn, Soybeans Plunge as Rising Dollar Cuts Commodity Allure

Thursday, August 14, 2008

Looking to Go Long Natural Gas

There are seasonal aspects to the price of natural gas. Right now, natural gas utility companies are buying natural gas for the winter usage of their customers. Prices typically reach their lows about now, so utility companies take advantage of the opportunity to buy and increase their storage of this valuable commodity. This year, the price of natural gas topped out at around $13.75 in early July. Last year, the price of natural gas bottomed below $7.50 in late August '07, moving higher in the fall. It then dipped again and bottomed a second time in early December '07. We're only about 60 cents above that price now. The chart shows a continued downtrend, but the momentum is waning (see chart). In fact, the Klinger Volume indicator (lower panel) suggests that heavy buying is occurring. I will be watching over the next several weeks to position myself for a long trade in natural gas.

Corn - Uptrend Confirmed

My new long corn position today was also confirmed. After yesterday's limit up, I knew it was time to look to position myself for a new uptrend in corn. When prices dipped early in the day, I took a long position as soon as it was clear that the low had been reached. The left chart shows this turning point about 10:45 am MST. Prices then closed higher for the day, providing an excellent position to be long if the price of corn moves higher throughout the fall and winter. The daily chart on the right shows this new emerging uptrend on the daily chart. As this trade progresses, I may reinforce it with add-ons later.

Wheat -- New Uptrend

This chart shows a confirmed T1 and T2 per the Cahen method of trading as explained in this book, Analyse Technique et Volatilite. It was somewhat more difficult to position it than the corn trade (next post), but is already in the profit. I consider this a long-term trade. For the first few days, I will manage it with great attention, possibly exiting and repositioning over the next few days, until the uptrend is confirmed. Quite remarkable given the tremendous strength the Dollar showed today!

Treasuries Headed for Breakout Soon

The daily chart of the 10 year treasuries shows a steady upward-sloping flag (outlined here with a light blue line) that should break out soon, despite very firm resistance that has held steady for two months. According to the charts, this breakout is more likely to be to the upside. However, look what happened to the previous flag (the earlier light blue line). It broke downward, albeit temporarily. In an environment where both the financial markets, and the Fed, are ignoring inflation risk to try to stimulate growth, even lower interest rates may be on the way soon!

Strong Dollar Resumes Upward Rally

Another Oil-Fueled Rally

After a strong surge in oil prices yesterday, based upon reduced inventory data from the U.S. government, oil has sold off somewhat today, fueling a stock market triple-digit rally on the Dow. Today's natural gas storage figures showed increased storage as forecast, leading to falling prices that have also affected the crude oil markets. However, crude oil prices are still higher than they began the day yesterday. Georgian officials have indicated this morning that Russian missiles struck the BP oil pipeline yesterday.

Crude Oil

CPI Ignored, Considered Passe

Despite that consumer prices rose last month at the fastest pace in 17 years, the financial markets are ignoring the CPI today because the retracement in commodity prices over the past 4-6 weeks is considered to have tempered the effects of inflation in recent weeks. However, the market often overreacts to such data because most traders don't consider that past commodity price rises take about 6-9 months before they show up in consumer prices.

We are only now beginning to see the effects of wholesale inflation on consumer inflation. This fall, we will begin to see significant price increases for food products at the grocery store, including 20% price increases from many major food manufacturers like Kraft, Sara Lee, Hormel, Kelloggs, General Mills, etc.

The Fed is betting on reduced demand for many products that contain commodities, in order to dampen prices. They are also betting that while prices have risen substantially over the past year, prices won't rise any more, thus bringing future inflation down. What does it say that the Fed must count on a poor economy and pain for consumers to reduce demand and control prices? And what does it say that the Fed intentionally creates inflation with the hope that we will soon forget it when prices stabilize -- at a much higher level? What cruel torture! And assuming that the economy rebounds, then what should we expect from inflation as demand increases again? The Fed will have to raise interest rates substantially to bring down inflation at that time. Thus, the Fed constantly perpetuates boom and bust cycles of inflation and high interest rates, alternately creating bubble, boom, and bust cycles. Again, what cruel torture!

Wednesday, August 13, 2008

S&P Moves Into Positive Territory

Remarkable considering that crude oil is about $3 higher today!

Crude Slugs Its Way to $117.50

Crude oil pushed more than $5 higher from Tuesday's lows before retracing back to the $116 area.
The daily chart (above) is showing more and more signs of a bottom and a consolidation. With lower prices, demand has begun to increase again, and that's why inventories dropped unexpectedly over the past week. We're buying more gasoline at these prices, folks!

Partial Rebound After 200 Point Plunge

The Dow rebounded after plunging 200 points, but now begins to show signs of weakness again. It is still down over 100 points. One must remain fleet of foot on days like today. I've been both long a short.

Grains All Limit Up

All the grains reached limit up today by 1:00 pm EST. It looks like the downtrend is almost certainly over! Additionally, the Deutsche Bank Agriculture Commodity Index has continued to move higher following the close of the grain markets, suggesting additional buying pressure that may continue after hours. The daily chart for the DB Ag Commodity Index is below, showing a very powerful resurgence today. In fact, commodities broadly are showing tremendous price strength today. Has the commodity correction bottomed out?

Inventory Drawdown, Risk Finally Cause Market to Take Notice

Today, crude oil prices have finally taken a significant leap higher. The surprising draw down in oil inventories announced this morning, combined with rising concern over the safety of the pipelines in Georgia, have caused crude oil to rise today. Commodities in general have rebounded stoutly today.

Stocks: That Incredible Sinking Feeling

Stocks continue to sink even lower! The Dow is now down over 300 points in the past two days. More manic markets. The daily chart, below, still shows stocks in consolidation, because prices still haven't closed outside the upper Bollinger Band. However, we should also note the higher lows (but not significant higher highs). A MACD bullish convergence and the Klinger Volume indicator both suggest a breakout is more likely to occur to the upside.

Soybeans Rally Above EMA Also

Wheat has been in a consolidation for several days, but soybeans is also rallying today much like corn. If prices close above the EMA today, and confirm by moving higher tomorrow, the downtrend will have ended.

Corn Rallies Off 50% Fibonacci Level

Corn's strong rebound for the past two days appears to have shown that the 50% fibonacci level has held. If today's rally closes above the Exponential Moving Average, and prices continue to rise tomorrow, then a bullish signal will be confirmed for me. Note also in this chart that the Klinger Volume indicator has been in a bullish divergence pattern for nearly two weeks. Buying has been building, despite the lower prices over the past few weeks. When such a divergence appears, I will automatically set my stop above the most recent candle. That way, if a reversal occurs suddenly or strongly, I can keep the vast majority of the profits obtained up to that point.

Crude Moves Higher on Inventory Data

Crude oil moved forcefully higher on U.S. inventory data, but traders are selling into the rally. This is a good example of how speculators can drive prices in both directions when prices become either overbought or oversold. Speculators follow the market, but they don't drive it!

Grains Rocket Out of the Gate

Just one day after the USDA crop report that brought buyers into the market, grain prices have moved strongly higher again today. This chart shows the Deutsche Bank Agriculture Index for this morning.

A Goal Unset... Is A Goal Unmet

When I was a young man, I made up a saying that I have repeated to myself many times since. That saying was the title of this post and is one of my favorites:

A goal unset... is a goal unmet!

Goals are a necessity for any successful trader. Without setting and working consistently toward specific goals, a trader will drift, lose momentum, and waste their trading account in arbitrary trades. Goals help traders achieve discipline and remain focused. Studies have shown that over a lifetime, people with written goals accomplish far more than people without them.
The photo in this post is a picture of Alexander Artemev, a gymnast for the U.S. Olympic Men's Gymnastics Team. Last night, he clinched the bronze medal for the U.S. Men's Gymnastics team with a stunning, flawless performance on the pommel horse. His routine was incredible! I've never seen such a masterful pommel horse performance that stood out above his peers. I'm sure that he never would have acheived such a performance without goals along the way.

I personally prepare goals weekly and I also use a daily activities checklist of 19 items (this week), using an Excel/Open Office spreadsheet. I examine my trading activity each week. I try to determine what my greatest weaknesses and impediments are, and then I set goals to help me focus on those areas to work toward improvement. Futures trading is a rewarding profession, but a difficult and sometimes excrutiatingly painful one, and people who don't treat it as such will be eaten alive by those who do.

Sour Sentiment

I'm surprised this morning that the stock indexes continue to slide even lower. I've also had some good trades on both the long and short sides of the Euro futures today.

Dow In the Doldrums

The Dow and S&P 500 futures have opened lower this morning, after moving lower overnight. Reported retail sales this morning were only slightly less than expected, but appear to have soured the sentiment even more, with the Dow quickly falling to triple-digit losses. Time to make money by shorting the stock indexes! However, without an strong news events thiss morning, I will also be prepared to the potential for a turnaround and recovery. Anything can happen!

Crude Oil Markets Respond With Yawn

Crude oil prices haven't shown any significant response yet to the Russian aggression in Georgia. This is likely because there is no perceived long-term impact on future prices yet. This would probably change if Russia takes control of the pipeline in the south of Georgia or if there were damage to the physical facilities themselves.

Cold War II !!!

CNN, BBC, and Fox reporters on the ground in Georgia this morning are reporting that Russian troops and armored personnel carriers are on the road and moving toward Tbilisi, the capital of Georgia. Both CNN and Fox reporters are also reporting that a few Russian troops are looting cities, including Gori, outside the South Ossetia conflict zone.

Russia's leaders, Putin and Medvedev, have lied to the global community when they said yesterday that they had imposed a ceasefire and a cessation of hostilities in an agreement brokered by French President Sarkozy. They continued the invasion following the agreement. There is no reason to invade the entire country of Georgia in order to protect the citizens of one province. This is nothing short of an invasion and a shameless land grab. Since when does a government (Russia) freely distribute passports to the citizens of another sovereign country, just so they can claim them as “citizens” with the intent to invade? This was a clear set-up from the start.

Tell me how can Russia claim it is simply protecting citizens in Ossetia when it carries out attacks throughout the entire country of Georgia, with a vastly inferior military? And how could Russia have just suddenly had such a huge invasion force conveniently ready and waiting just over the border that was several times larger than the peacekeeping force the UN authorized for them in Ossetia? The Russians have been fomenting rebellion in the region with the intent of provoking a rebellion that the Georgian government would be forced to respond to. They were intentionally baiting the hook and provoking a necessary response from Georgia's elected officials!

Those of us who work in the finance industry should not underestimate the implications of this invasion. At the very least, as Russia uses its military to impose complete control on all (formerly) independent oil supplies between the Caspian Sea and the Mediterranean, this will have horrific implications for supplies of oil to Europe. Europe, if it allows this aggression to be completed, will become entirely dependent on Russia for its energy supplies. Ronald Reagan warned Europeans against building an oil pipeline to Russia, telling them that they would become dependent on Russia for their energy. The pipeline was built anyway. Now, Western Europe is so beholden to Russia that they are afraid to do anything that might provoke their petroleum benefactor. Russia has already threatened Europe's oil supplies if it doesn't get Europe's cooperation. This is a recipe for disaster.

Several years ago, I remember reading interviews with a former Soviet general in which he warned the West that the turn toward greater freedom in Russia was temporary. I don't recall his name, but he was the highest-ranking military person to ever defect to the West. He told of being present and a participant as a plan was created by Russia's military to temporarily liberalize Russia with the intent to deceive the West into disarming.

There are those who claim that Georgian President Saakashvili initiated the conflict by seeking to quell an uprising in South Ossetia. That's absurd. Since when does a country NOT have the right to put down insurrections within its own borders? Article IV Section 4 of the U.S. Constitution provides the executive branch of the federal government the authority to put down domestic insurrections and foreign invasions WITHOUT a declaration of war (although attacks on foreign countries DO require one). Would the United States ignore the threat if Mexico suddenly started shipping arms to the illegal aliens living within the borders of the United States, and supporting revolt against the authority of the U.S. government? Of course not! Would we deny that same authority and response to Georgian officials elected by their own countrymen? The Civil War in America would have ended very differently in the U.S. without that provision of the Constitution, which was employed by Abraham Lincoln.

Others have suggested that the Russians are only doing what Europe and the United States did in Kosovo. One big difference between Kosovo and Ossetia that the Russians prefer that the world ignore in their faulty comparison: Europe and the United States never helped the Kosovars achieve independence as a land grab for themselves. Furthermore, Europe and the United States never colonized Kosovo with their own citizens so as to dilute the local population, as the Russians did in South Ossetia. Europe and the U.S. had nothing personally to gain, and a lot to lose. The Kosovars were victims of constant, repeated, and systemic attempts to eliminate their very existence. The Ossetians have never been such victims. They were citizens of Georgia in revolt from their own government. There is NO moral equivalency! In Ossetia, the Russians seek to annex Ossetia into adjacent Russia, a blatant land grab. That alone speaks to motive. Ossetia will live to regret the day they pined to be part of the new Russian dictatorship. The twin KGB Kings — Putin and Medvedev — will make sure of that!

The Russian bear has awakened from hibernation and is hungry to cannibalize its former children. We in the West had better wake up to the reality of the new world. The cold war is back!

Tuesday, August 12, 2008

Corn Price Has Head Above Water

With such a bearish price forecast for corn this morning, based upon the USDA crop report, it is surprising to see the price of corn higher than yesterday's close. I consider this a bullish sign. If commercial hedgers are stepping into the market to buy at what they consider to be bargain prices, perhaps this is suggestive that the 50% Fibonacci level is the bottom for this season. This seems to underscore once again what I have observed in the past -- that fundamentals-related news can often be misleading. The market surprises me all the time! We must always remember that "anything can happen"!

Corn Opens Lower, Climbs Higher

As the futures markets often do, they have surprised us this morning. Corn opened lower, but has clawed its way out of the pit and is currently very close to yesterday's closing price. I have no idea how to interpret this, but I keep remembering that 50% Fibonacci level. Soybeans, as expected, opened slightly higher. Perhaps the lesson today is to stick with soybeans!? :)

USDA Crop Report Looks Bearish for Corn

The USDA report this morning indicates that the corn crop for this year will be better than previously thought, yielding the second largest crop on record. That's great considering the destruction due to last spring's flooding! This suggests possibly a bearish impact when markets reopen this morning. Soybean prices, on the other hand, may be a different matter. The soybean crop appears less than expected, suggesting support for prices. Also, a smaller crop from Brazil may also be supportive. The late season for the plants' maturing may still put them at risk later in the season, if fall frosts damage the delayed grain crops. Typically, the August and September crop reports are the most favorable for crops, and the most bearish of the year for prices. When fall weather sets in, yields typically slog downhill from there.

BP Shuts Down Oil Pipeline in Georgia

Crude oil prices have risen modestly this morning on news that BP has shut down one of its oil and gas pipelines in the South Caucusus region of Georgia due to the hostilities there. Ironically, Russia is saying that they have ceased their military aggression in the region, despite conflicting information. If indeed the hostilities have ceased, I suspect that crude oil prices will dive again very soon, just as they did after the pipeline through Turkey was bombed last week. Traders would use the rise as an opportunity to join the downtrend.

Russian Attacks Continue on Georgia Despite Russian President's Calls to Halt

Monday, August 11, 2008

Strong Dollar Trumps Armed Conflict Today

The financial markets appear to have shrugged off the broader implications of armed conflict in Eastern Europe today. While the Dollar began the day relatively unchanged, it has now strengthened, and both crude oil and gold have sold off, showing market expectations of limited duration and impact of the armed conflict in Georgia. Crude has sold off again, with prices collapsing below $113/barrel. The stock market has continued to show greater strength, too.

I am paying close attention to the conflict, however, because now that Russia has escalated the conflict throughout Georgia, if Russia imposes itself militarily upon all of Georgia, as it now appears they will, and takes control of the Georgian oil pipeline in the south, Europe will be licking the hands of the Russians for decades to come. They will be paying a very costly crude oil tax to Russia. This can only mean more costly oil. We must keep in mind that this oil pipeline to Europe passes through Georgia, but has its origins in some of Russia's other breakaway former states that were once part of the USSR. Is Russia seeking to impose itself as a global military power once again, now that its pockets are lined with oil-derived gold? Will the conflict spread to Ukraine, where the Russian fleet has a port, if the President of Ukraine fulfills his threat to close the port to the Russians? The world has become a more dangerous place in the past few days. I'm just not sure we realize it yet!

May I suggest that in a time like this, the place for the U.S. President to be -- is here at home?! It strikes me as somewhat of a "let them eat cake" attitude for him to be partying in Beijing with the enemy while serious conflict breaks out in the world. Couldn't he leave Kissinger and former President Bush there to shake hands with athletes and hobnob with world leaders? If matters should get worse and this conflict suddenly escalated to a broader or (heaven forbid) global scale, could he even get back home? Would they let him even leave if things worsened? The United States would be faced with not only a global national security crisis, but a Constitutional one, also.

Sunday, August 10, 2008

Crude Oil Higher, Euro Lower on War Premium

As expected, the increased and escalating nature of the hostilities between Russia and Georgia have caused crude oil prices to rise upon the open of NYMEX trading this evening. Not surprisingly, since Western Europe is heavily dependent upon the pipeline that traverses Georgia, the Euro has also taken a hit this evening.

Crude Oil