Margins Lowered for First Time in Awhile

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.

Terrible Trading for Grains

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.

Grain Selling Continues, But Without Conviction

The selling continues today in the grain complex, but largely without strong conviction. The seems to be little follow-through of the Dollar's rise, which is apparently related. Crude oil has moved higher once again due to a military incident involving the U.S. and Iran in the Gulf, already reaching $119.50 on the June contract just a few days after the May contract expired.

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.

The Grain Bulls Push Back

The existence of erratic up and down movements in soybeans suggests to me that there is great turmoil in the market, and that the push back by bulls may be short-lived. I have a hunch that longs are selling into the rally. Unfortunately, a trader never knows for certain that erratic trading conditions will emerge, since we seek to enter at the earliest point of a change in sentiment. We must therefore manage the trade with astute attention in the early part of the trade.

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.

Bulls Battle Back Again

The bulls battled back a second time to end the day well off the session lows. This time, however, the buying is more forceful and convincing, compared with the erratic buying that occurred previously. Still, the day has ended below the EMA, so if tomorrow's session continues lower still, a short position on the daily chart would be confirmed for me.

No Deal! The Bears May Win One Today!

Note how solidly the selling appears in this chart versus the erratic buying in the one in my last posting. They are solidly red and moving downward quite strongly. When erratic trading conditions emerge, I typically will exit the trade as soon as I can assure myself of even a small profit. The sellers definitely have the upper hand today. Soybean prices appear poised to end the session today below the Exponential Moving Average on the daily chart, thus meeting one of the three conditions for a medium-term bearish posture that I wrote about earlier today.

Still, soybeans appear likely to close the session down only about 25 cents from yesterday's settlement. That is far from lock limit down!

Corn, Soybean Longs Liquidate

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.
  

Grains Soft, Even With Weather Problems

Rain continues to soak the grain belt of the United States, further delaying planting. Corn is particularly vulnerable, and delays tend to favor soybeans being planted instead. That is medium-term bullish for corn prices and bearish for soybeans. However, the strength of the Dollar this morning appears to be the dominant story for the short term, and is resulting in all the grains moving lower for the time being. Wheat has been on a definite downtrend for the past month or more, and with the global shortages of wheat, prices must eventually stabilize with this fact supporting prices. Australia, after two years of drought, is having a more normal rain pattern this year, and the wheat harvest appears to be more likely to increase global stocks.

Dollar Strengthens Significantly

The US Dollar has surged higher overnight, and significantly so. Note that on this daily chart (left), the greenback has broken out higher from its recent downward trend. Even on the hourly chart, shown here on the right side, the value of the Dollar has moved dramatically higher in the past 24 hours. Still, it remains barely within its recent range, as shown by the Bollinger Bands. The value of the Dollar would need to break out above those Bollinger Bands before I would consider this anything but a sucker's rally. There is a growing sentiment that the Fed may be close to completion of its interest rate easing cycle, and that they may soon stop, providing a fundamentals-based reason for the rally. This rally may very likely be caused by traders shedding their Dollar short positions ahead of the FOMC meeting next week. This should help to shore up the value of the Dollar somewhat short-term, and may put a top on commodity prices.

As a consequence, many commodity prices are moving lower, including gold, corn, and soybeans. Still, expectations for inflation are surging, with more and more companies announcing price increases due to the cost of commodities. Whirlpool made such an announcement this morning.

EURUSD - $1.60

The Euro has reached the $1.60 milestone against the US Dollar for the first time.

Soybeans -- Almost Lock Limit

Traders love soybeans. I certainly do today. I even like to eat them. They're delicious!

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.

Crude Closes In on $120/Barrel

Crude oil continues to march higher and higher, with prices now having reached $119.74.

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.

New All-Time Low for US Dollar

The US Dollar index futures briefly struck a new all-time low just minutes ago, before bouncing back within its recent trading range. The tick chart above shows the brief breakdown above.

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.

The second chart shows the daily price of the US Dollar Index futures. Even though it has been relatively stable for the past month, there is still a definite sinking sentiment, and prices continued to close mostly below both the 20-period simple moving average and the exponential moving average. Today's collapse may be the beginning of a new bear market for the Dollar, or perhaps the blow-out bottom needed for a sustained rally. We should see a break-out, either higher or lower, very soon! From a probability standpoint, however, the charts seem to favor a break-out lower.

As the Dollar Sinks...

So commodity prices just keep moving higher. Note that in this daily chart of the Goldman Sachs Commodity Index futures, the index price has now exceed the previous price high in March of this year.

US Dollar Sinks, Euro Reaches Fresh High

While the US Dollar has fallen this morning to near record lows, the Euro has reached new record highs against the greenback. The daily chart is on the left, and the 3 minute chart is on the right. The Euro is now less than 1 cent away from the $1.60 mark.

Crude Oil Keeps Moving Still Higher

Crude oil prices have already reached two new price highs today, having reached $118.47 this morning. Crude oil typically reaches its highest price points of the year during the spring and early summer in the Northern Hemisphere. They usually peak in early August, so prices could still continue much higher before prices back off.

Soybean Bulls Charge Ahead

Prices Gradually Move Higher

Trading conditions today have been somewhat challenging in early trading, but are now showing signs of considerable improvement, as prices rebound and move higher.

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.

Grains Showing Soft Prices

Grain prices continue to show softness across the board, although corn and soybeans were up modestly overnight. Corn and soybeans both opened higher during today's day session, but are showing signs of weakening, even in the opening minutes. This may be suggestive that the recent grain correction will continue, as the market anticipates an acceleration in planting in the grain belt. Personally, I think that market prices are somewhat too optimistic and therefore overly bearish, but I will continue to give the market what it wants, regardless of my own opinion. Weather has been somewhat uncooperative, forcing planting delays, especially of corn. If May arrives, and planting hasn't begun to catch up, bullish prices may rebound. The longer the delays, the more likely that prices will rebound higher.

Demand Pushes Commodity Prices Higher

I ran across an excellent article that used this graphic to expose the erroneous myth that speculators in the futures markets are causing higher prices. If I can remember where I found it, I will post the link here.

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.

Crude Oil Breaks $118

I have now changed to the June contract, too.

Crude Oil = $117.40

Ka-Ching!

You would think that all those oil rigs were wearing rabbit ears and beating a drum. The price just keeps going, and going, and going -- higher. Unfortunately, there appears to be no end in sight for the price of crude oil.

Was CPI Under-Reported?

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.”

If the correct figure for urban consumer inflation, as reported by the U.S. government, is .9% for one month, how much is it for a year? 4.3% so far, according to this same report. The reason this report doesn't garner much attention in the new media is that it measure inflation only in urban areas -- cities -- while the headline number measure inflation for everyone, including rural-dwelling people.

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.