Wheat and soybeans have now increased volatility and picked up steam to the upside. With such strong bullish sentiment in the grains today, I am no longer taking signals for short trades, until the buying shows clear signs of exhaustion, or profit-taking begins to drive prices lower.
Wheat
Soybeans
Soybeans trading has been highly erratic today, with more than 15 trades so far, and most have been very small. Fortunately, however, I've had only one very tiny losing trade. Soybeans prices have also set another new all-time high prices multiple times today, and will likely set another new all-time closing high, if price strength continues through the remainder of the session.
Today, wheat trading has resumed normal trading volatility, although volume is still a little light.
Look at the Bollinger Bands on this chart of the S&P 500 futures. They are absolutely flat, and have been for two weeks! The Bollinger Squeeze indicator in the bottom panel shows the red dots indicator of insufficient volatility to trade. This is the reason why many investors are sitting on the sidelines, waiting for stocks to get off dead center. Meanwhile, commodities continue to perform well.
I have posted charts for 7 different all-commodity ETFs on my other blog. You can view them here:
Commodity ETFs Continue to Perform
Eventually, I plan to write an article pointing out the various differences between the all-commodity ETFs and review each one. For today, the charts will suffice.
Trade #8 was too tiny for the arc to be seen, and was a small loss of 4 ticks. Trade 11 is still active at this posting, but the Klinger indicator has turned down, so I have tightened my stop in anticipation of this trade being closed out. Trade 10 started off very shaky, but has become one of the most profitable of the day.
Trading Win/Loss Ratio
Thus far, 9 of my 11 trades have been profitable, and the ones that lost money cost me only 5 ticks and 4 ticks. Good day! Working these up and down movements in the markets is what swing traders are most effective at doing.
If the trade looks questionable, I consider other factors:
Gold prices on the April 08 futures contract have struck a new all-time high price over $950/oz. during trading over the past few hours. After nearly two months of relatively flat trading, gold has regained its upward momentum.
Look at the blue circle in the bottom panel of this daily chart, which depicts the Klinger+ATR volume indicator, and heavy accumulation activity as fund managers continue to vigorously buy gold. I first noted this phenomenon several days ago on this blog before gold prices started to surge upward again. The Klinger Volume indicator shows unbelievably strong volume buying by funds. More fund activity is moving toward gold and commodities, and away from U.S. government debt.
There appears to be no end to the bullishness of soybean prices. They just keep setting new records day by day. This is the daily chart for the May 08 contract. New records have continued to be set overnight, with soybean prices moving 15 cents higher than yesterday's new record close.
If inflation is spiraling higher, then why have bond prices remained relatively firm? Despite the sell-off in U.S. government debt over the past few months (see the heavy volume of selling in the lower panel of the chart), bonds had remained relatively well-bid. Each time the stock market sells off, bonds tend to rise temporarily. I emphasize the word "relatively", because in fact, U.S. government debt has been selling off, and interest rates have been rising despite the best intentions of the Fed. The chart (above) doesn't lie.
Here is a superb article, by one of my favorite investment advisers, Michael Pento, explaining why. Pento is a well-read and superbly educated Senior Market Strategist for Delta Global Advisors (I have no affiliation with them of any kind, either as investor or client). I just like Pento! He is a practitioner of the Austrian School of economics. He is absolutely right about why this discrepancy appears in the markets between bonds and inflation.
7 Reasons Why the Bond Market is Wrong About Inflation
The Austrian School of Economics teaches that sustainable prosperity can only occur in a environment of free markets, unrestrained by government interference, productivity, savings, and retrained debt accumulation, both individually and nationally. They also teach the need for limited fiat money growth to restrict inflation. They have vast resource material available for study on the website named after the father of Austrian Economics, Ludwig Von Mises. This is likely the finest website dedicated to free markets and economics on the web.
Ludwig Von Mises Institute
Following the release of the FOMC minutes, crude oil prices have surged to a new record over $101/barrel. Hugo Chavez must be doing a gig about now! The GSCI futures have also risen higher.
Commodity prices continue on a roll, per the Goldman Sachs Commodity Index in this chart.
I had a good belly laugh today reading this from an article on FT.com.
"Just imagine Chairman [Ben] Bernanke standing in the middle of his office, closing his eyes, clicking the heels of his ruby loafers together three times, and chanting 'there's no core inflation, there's no core inflation, there's no core inflation,'" added Mr Stanley.
Gold is very close to reaching another all-time record high price. The left chart is the daily chart for gold. Note the explosion of volume higher for the past several days as funds buying has reached mania proportions. Also note that prices broke firmly through the magenta trend line yesterday, and then again today. The right chart is the 2 hour chart, and shows the exploding price over the past few days. Virtually ever class of commodity has moved significantly higher in recent days. Gold had been the lone hold-out -- until today!
Many traders are in the process of transitioning from the March to the May contracts. Volume is split across both contract months, and is therefore lower than usual for either month. I am sitting this one out until volumes resume normal levels, probably within the next day or two. I am trading the May 08 contracts for corn, wheat, and soybeans.
It's no surprise to commodities traders, but inflation is rising, approaching its business cycle highs of the past few years. Here are the headlines and links on Marketwatch, Financial Times, and Bloomberg:
Inflation Remains Hot in January
Consumer Prices in U.S. Rise More Than Forecast
Rising Inflation Reinforces Challenge to Fed
These three charts represent some of the most liquid ETFs for U.S. Treasuries. They are being sold, even though the Fed is promising lower interest rates. Bond prices move inversely to interest rates, so the selling on these charts indicates that interest rates are rising. So what are investors buying instead?
Commodities, including gold, energies, and agricultural commodities.
The three blue boxes on these three S&P ETFs indicate that stock prices are in a trading range too tight to trade on a daily basis. The left-hand chart is the ultra short ETF. The middle one is the long ETF, and the one furthest to the right is the ultra long one. It matters not whether a trader is long or short -- the market is still stagnant. All three of them show that the Bollinger Squeeze indicator has contracted to the point that it is fruitless to try to trade on the daily charts. I won't trade any of them again until prices close outside the Bollinger Bands.
Soybeans surpassed the $13/bushel mark on 1/11. Today, soybeans prices pushed through the $14/bushel handle very forcefully. Soybeans prices appear to be positioned to reach another all-time closing high today also, even though prices have retracted well from the highs reached earlier today and last night. The settlement price from last Friday is shown in this chart as the white dotted line at the bottom of the price graph at $13.73 6/8. Retracements of this magnitude are very common for the grains markets, but as this chart indicates, prices are still well above the closing settlement price from last week.
Fund buying of gold has caused a break-out to higher prices. Note that for several days, the Klinger Volume indicator has shown heaving buying activity, even though prices remained flat. Today, gold prices have finally surges higher as volume has pushed through the range of the past few months. Gold appears poised to reach new highs now that the break-out has occurred.
The first chart shows the daily activity, and is an update of the gold daily charts I have posted over the past few weeks. As you can see, gold has broken through the trend line and is now moving forcefully higher once again.
The second chart shows the buying activity for today on the tick and 3-min charts.
Crude oil is above $98/barrel today, and it appears that $100 and higher is coming soon.
Soybeans are beginning the day session today at all-time high prices. Sugar, cotton, crude oil, gold, platinum, coffee, cocoa, wheat, copper, and various other commodities prices are all significantly higher. Inflation is on the march! This chart for soybeans shows prices only since last night, but it is typical for commodities almost universally.
Only the U.S. Dollar continues to sink!
Soybeans prices have reached new all-time high prices -- three times -- during the overnight trading session, closing at a new all-time high of $ 13.98 4/8. The day session should be vigorous!
This has occurred so often, it is becoming routine!
Here is the link to John Mauldin's newsletter for this weekend. John Mauldin is no bear, but is sounding increasingly bearish. This newsletter has some very good information and education on auction rates, monoline insurance companies, and P/E ratios for the S&P 500 based upon current and projected earnings. Very interesting stuff:
What Would Warren Do?
