#1 Trending Futures Instrument - Soybeans!

Last year, I bought soybeans at $10.36/bushel. After the blow-up and meltdown of commodities last year, I never thought I would see that price again. Now, soybeans is at $10.40/bushel. Who says inflation is dead?

Grain Bull Ends!

The grain markets have signalled an end to the bull trend that lasted throughout the month of December. The collapse in equty markets today appears to have been the cause. If prices confirm by moving lower during the next trading session (this evening or tomorrow), then a complete liquidation of grain futures is warranted.

Note: Grain prices moved lower across the board during evening trading, confirming the sell signal. The grain bull is dead!

Where Is the Momentum? Where Is the Trend?

Note in this chart that momentum seems to favor the short side. This shows crude oil on the 3 minute and tick charts since 10:30 am EST. This also demonstrates why I only trade one direction. Right now, until the trend changes direction (crude is currently in a downtrend on the daily chart-- not shown), I will only trade crude oil on the short side.

This chart is a good example why. Since crude oil prices have been falling strongly for several weeks, it makes sense that the greatest profit opportunity is in selling black gold, not buying it. Note in this chart that the red candles pointing downward are much more forceful than the red/green mixed candles that moved prices higher. Prices on this chart move downward very rapidly and with several successive red candles without any green ones in between. However, when prices move higher, they do it with mostly green or doji candles, but with several red candles intermixed. Prices only move higher laboriously, like spoiled children that are forced to do something, but who only go kicking and screaming. Why swim upstream when the flow is downward? There is good reason for this, as we would be wise to learn this lesson:

Don't fight the trend!

Is it a Bear?

The bull trend in corn didn't last long. Now, it shows some of the markings of becoming a bear, riding a wave of weather that suggests increased corn yields, and thus, lower prices. The volume on the daily chart is still pointed higher, but prices are pointed lower. Conflict usually means consolidation and range trading. The left chart shows this evening's trading on the tick charts, and the right side shows what may be the emergence of a new bear in corn prices on the daily chart. Note also that the Bollinger Bands on the daily chart are more suggestive of a consolidation than a new bear trend, since volatility is falling rapidly.

Personally, I don't expect prices to decline too much. Commercials are already beginning to buy up corn at what they see as bargain prices. I would be surprised if the price of corn drops outside of the recent trading range. But who knows? Anything can happen!

Today's Trends

Treasuries -- Lower Prices, Higher Interest Rates
Stocks -- Lower Crude Oil Stokes Stock Rally
Grains -- All Lower
Crude Oil -- Relief, FINALLY!
Rogers Commodity Index futures

Don't Just Trade With the Trend. Find It!

Instead of only trading with the trade, traders need to become more proactive than that. What if I am trading a futures instrument that isn't trending? Then what? If I just keep throwing money into a non-trending market, I'm just throwing away my money.

I am not suggesting that a trader abandon the old adage to "trade with the trend". To the contrary, I live by that adage. I believe in it, and I do indeed strive to "trade with the trend".

I believe that traders must not only trade with the trend. They must look for a futures contract that is in a trend, and then position themselves to benefit from that trend. I know so many traders that always trade the same futures vehicle, resolutely trading this one or that one, regardless of how stagnant the trading instrument is. Most amateur traders only trade the stock index e-mini's. I was short during the recent trend lower on the stock market e-mini's. But right now, the stock market is in consolidation following last week's rescue of the financial stocks by the Treasury Secretary and SEC. If I try to trade in a consolidating market, the amount of market noise and the stagnant, side-to-side trading will eat up my margin account and eventually take me out of the market. That is a losing game! Play it, and you will lose, too!

I am scanning the market constantly to locate the futures that are in a trend, and I am always trying to locate a futures contract that shows signs of being in the initial stages of a new trend. Those are where I make my best profits. Bodies in motion tend to stay in motion. Markets in motion tend to stay in motion. A market in a trend tends to stay in a trend, until something occurs to change it. It is a wise trader than positions himself or herself to benefit from the flow of the market. Go with the flow!

Until last week, the stock markets were in a downtrend. Lately, the grains have been in a downtrend, although I personally believe that the grains will likely consolidate at the same level that they consolidated before, since corn is now at the level where it traded for weeks just one month ago. Chances are, the commercial hedgers will start buying grains at these levels. Treasuries were in an uptrend until the past few days. They are now showing signs of a consolidation also.

Don't just trade with the trend. Find the trend. Then trade with it!

Crude Oil Uptrend Still Intact

I read an interesting article by Kathy Lien, the famous currency strategist, yesterday. She indicated that crude oil could drop another $10/barrel, and the longer-term uptrend would still remain intact. I decided to take a look at the weekly chart for crude oil, which I have shown here. She was right. The Uptrend for crude oil is still intact despite the strong red candle so far for this week. On the the bullish side, the 7-period and 21-period moving averages are still diverging.

Even still, on the bearish side, I notice that the latest highs for crude oil occurred within the Bollinger Bands, a sign of diminishing upward momentum, and the Klinger Volume indicator has just turned red for the first time in months, although it is stillwell above its moving average as well. The stochastic indicator has been overbought for many weeks, and the MACD is also overbought. Only time will tell.

Crude oil is $1/barrel higher during overnight trading.

Soft Soybeans, Corn

The two charts shown at the top of this post are 3 minute charts of corn and soybeans. They are decidedly bearish today, but the bearishness lacks strong conviction. This is understandable, given the strong fundamentals for continued global demand for grains. However, note also the strong selling on the daily soybean chart at the bottom.

In these two charts, the Bollinger Bands are very important. The Bollinger Bands on the soybean chart are forming a "bubble" pattern, and the Bollinger Bands on the corn chart have formed a "parrallels" pattern, per Philippe Cahen in his book, Analyse Technique et Volatilite (yes, written in French). Both are profitable, but the bubble pattern tends to burn out more quickly and be less profitable, whereas the parralels pattern tends to extend itself over a longer period and be more profitable in the long run. Interestingly, a series of bubble patterns on a shorter-term chart will often form a parallels pattern on a longer-term chart.

Soybeans

Corn

Soybeans Daily Chart

The two primary indicators that I look for in deciding whether to go long or short are a crossover of the Exponential Moving Average, and a downturn in the Klinger Volume indicator that crosses above or below its moving average. Both of these conditions are showing right now on the daily soybean chart, shown here below. However, today hasn't closed yet, so until this occurs, a bearish trend in soybeans has not been confirmed. The bulls could easily step in and drive prices higher, perhaps even reaching a higher close today. Even if this happens, the bullish momentum on the longer-term charts is showing signs of waning, and exhaustion appears to be in the cards (see daily chart below). This has been a great bull run!

Most likely, at the end of a very strong trend, we are more likely to see a consolidation of prices at a fairly high level, rather than a complete reversal. Even if a consolidation occurs and a trading range sets in, this sets up my favorite trading conditions as a swing trader. Further, after a consolidation period of several weeks or even months, another break-out could occur and prices could move still higher.

Musings On the Commodity Trend

There are more and louder warnings of the possibility of a commodity bubble. I honestly don't know if there is a bubble forming or not. However, I have the opinion that the rapid rise in commodity prices has either one of two causes:

1. From the standpoint of a technical analyst, as I mentioned in my previous posting, when a market -- any market -- rises so rapidly beyond two standard deviations and continues in such a rapid rise, energy tends to expire and dissipate itself rather quickly. Volume dries up rapidly, as buyers overheat the market and exaggerated extravagance exhausts the available supply of buyers. When this happens, the bubble can burst and prices can plummet from the stratosphere as rapidly as they entered, falling like a dieing satellite back to earth. Commodities are known for price movements that rise and fall like the tide that heaves beyond its bounds and then washes back out to sea. If this is the case, violent contractions and convulsions could cause commodity prices to retract like an over-stretched rubber band in agonizing rapidity, sometimes with catastrophic and uncontrolled transmutations in the larger financial system.
   
2. Perhaps an even larger, more ominous and sinister bubble is forming. This boundless and almost excessive flow of capital into commodities may be the early warning signs of an even more indulgent and profligate response to the growing fear that decades of libertine financial and indebted excess, spurred continually upward by unrestrained fiat currency creation, is reaching its zenith just before its crushing collapse. If this is the case, we may in the beginning episode of a hyperinflationary phenomenon that American history has never before seen. This virtual flood of capital into the commodities markets, some are saying, is a flight to something solid that will have value even as the American economy collapses in upon itself like a self-imploded building. This could be a phenomenon manifesting itself as the beginning of the end of an empire.
   

I genuinely have no idea which of these scenarios is being played out. Perhaps it is just another heaving and huffing action in the global financial tides, that will quickly vanish like mist in the morning sunshine. In all frankness, perhaps it doesn't matter. I will simply watch and respond, giving the market what it wants, whether that be a paroxysm of price heights or a convulsion of price depths. I will give the market what it wants!

To me, the commodity bull is simply a trend -- today's trend. And when it ends and tomorrow comes, many will cry, "Bubble, bubble. Another bubble!" So be it! If it's a bubble, then we'll recognize it, learn the lessons of today, and the caravan will move on. My job, as a trader, is to merely recognize that trend -- bubble, if you will -- and give the market what it wants. Tomorrow, when another trend emerges, it will be my job to recognize that trend and give the market what tomorrow desires.

This requires a great deal of mental discipline and a willingness to forgo the taste for indulgence in bias. Bias creates blindness to reality and results in losses. I must learn to recognize my bias and countervail its effects. Subliminal advertising, it has been proven, has its greatest effect on those who don't recognize it. When we recognize its concussion, it is annulled. By acknowledging and admitting our biases in the markets, we begin to see more clearly, and our judgment is improved. By domesticating and regimenting our market inclinations, we bring orderliness and acuity back to our investment choices. Give the market what it wants, not what you want to give it.

If you give the market what it wants, then the market will give you what you want in return.

Wheat Appears to Bottom

This appears to be the bottom of the recent wheat sell-off. Prices are marginally, albeit insignificantly, higher than when the rally began more than a week ago. I am now preparing to take long trades again. Note the higher lows on all three time frames of the triptych. If a higher low and a higher high define a trend, then a new uptrend has begun on the two charts on the right (tick, 3 min).

Coffee Prices Continue the Trend

Wheat Touches Trendline Support, Moves Higher

Wheat has touched trend line support at around 907, and has rebounded resolutely higher. Note that the 50-day moving average is also providing on-going support for wheat prices. Both the trend line and the moving average are depicted on this chart in light blue. If this continues, we should see a break-out, either up or down, within the next few days or weeks.