Critically Important: Time to Write to Congress

From the CME website today:

"One of the farm leaders there said today that farmers will act in some unspecified way to limit trade in agricultural commodities to what is strictly necessary."

I had delayed writing this piece because I wanted to see if the threat was serious. I am now convinced that it is. The quote above is a follow-up to testimony before Congress last week by leaders of a few agricultural groups in which these groups tried to persuade Congress that they should eliminate the use of margins for all traders who don't provide or take delivery in the futures markets. They recommended to Congress that they should demand that market participants who don't provide or take delivery of products should be required to pay 100% up front to place a trade. 100%! In other words, they want to eliminate all leverage in the futures markets -- except for themselves! They want to ban everyone from the futures markets except hedgers and commercials! They want to ban you from the futures markets! Keep reading, because this has the potential to affect you even if you only buy stocks and Exchange Traded Funds because it will limit your investment choices!

Lest anyone think that this couldn't happen -- certainly not in America -- please keep in mind that the farm lobby is one of America's most powerful and most effective. They have used this power and influence in Washington to guarantee the most profitable and consistent tax-payer funded subsidies for decades. They even get paid from your taxes at times to not grow anything at all! Imagine! Wouldn't it be nice to be paid out of the pockets of the tax payers to not work?! Not many have achieved that status, but this group is so powerful that they have!

Now, the farm lobby wants to not only dig deep into your pockets for their own financial gain. They also want to limit market participants to just themselves. This selfish action needs to be nipped in the bud now, before it can gain any more traction. The CFTC, the Federal regulatory agency that oversees the futures industry, recently released a report debunking the absurd allegations of these farm groups. However, these groups don't care about the lack of factual basis for their absurd and false notions. They are pressing ahead with their erroneous self-interests, despite how it will hurt them in the long run.

Some traders may say, "Why should I care? I don't trade grains or softs!" But isn't it nice to have the availability of ETFs that trade commodities, like the famous gold, oil, and other Exchange Traded Funds? Do you want that option to be eliminated for you?

All traders should care because the same rules that will be imposed on grain traders and funds will almost certainly be imposed on traders in all futures, including treasuries, stocks, energies (crude oil), precious metals, etc. There is a provision in our government system of fairness called equal treatment under the law. This concept is a sword that cuts both ways. It both protects everyone, but it also brings an equal burden on everyone. If they can shut you out of the agricultural commodities markets, then it is a start down the slippery slope of shutting you out of other futures markets as well. Are you willing to run that risk?

Furthermore, even if you currently don't trade agricultural commodities, wouldn't it be wise for you to at least keep the option open of doing so? If the farm lobby shuts down that option for you, then that is one less avenue for you as a professional. Wouldn't it be better to keep that option available to you? It would be wise to take the time to find the website of your Congressman and write them to let them know that this would not only hurt you and your family; it would hurt the financial markets, also, because it would limit liquidity and limit your options as a trader.

Furthermore, you might also mention to Congress that if they shut down the futures markets here in America, you may be forced to send your money overseas to other futures markets in other countries like Europe, China, Singapore, India, etc. All these countries also have active futures markets. This would make the United States less competitive with these other countries! That would not be beneficial for the health and vitality of the financial markets of the United States, would it? It would make the financial markets of this country less liquid, less open, and thus, less competitive. It would also very likely reduce your tax payments to the U.S. government if your income is derived more and more from overseas! In a time of greater global competition than ever before, and a stagnant economy with fewer jobs, that's the last thing the U.S. economy needs, isn't it?

If you value your freedom to trade and participate in the financial markets, it is time to defend that freedom, or one of America's most powerful lobbies will take that freedom away from you!

I might also add that CFTC Commissioner Bart Chilton has already come out in opposition to this proposal from the farm lobby. He so testified before Congress in the same hearings as the farm lobbyists, and he issued the report from the CFTC that disputed and corrected the erroneous allegations of the agriculture groups who want to limit your freedoms! If the regulatory agency of the government is opposed to this nefarious plan of the farm lobby, then we have the strength of moral imperative on our side. Don't make the mistake of being apathetic on this issue!

It's time to write to Congress! Protect your livelihood, your investment options, and your freedom today!

Soybeans and Corn

Soybeans has sustained its price gains for the day (left chart), while corn has reversed and is very likely to close down for the day (right chart). This strikes me as an odd phenomenon, given that corn prices have been moving higher lately, and soybean prices have been sagging. Both are in a consolidation pattern on the daily charts. Perhaps this is occurring due to a change in weather patterns, but this is just a wild guess. Mid-session, the CME reported that corn "traders indicated that the tone is weak in export markets due to a lack of demand and a well-stocked pipeline." Perhaps this affected corn prices. However, demand for soybeans was relatively weak also, and prices closed higher! As I have said before, the reason is ultimately irrelevant. All that matters is that the phenomenon occurs.

Ouch! That Hurts! Pain is Good!

Pain in the human body is a signal from the brain that something is wrong, and that action must be taken to ensure survival. Pain inflicted by a hot stove tells a person to withdraw their hand immediately, or the survival of the hand (limb) or body may be in jeopardy. The reaction is swift and precludes severe damage to the body that could affect the survival of a person or irreparable destruction to the affected body part.

The same is true of the emotional pain of a bad trade. If a trader begins to feel the pain of a developing loss, it is a signal that something is wrong with that trade. It is a signal to exit -- the more quickly, the better! It precludes damage to the financial welfare of a trading account and ensures its survival also. Otherwise, irreparable damage to one's finances will be the result.

Trading Treasuries

One of the nice characteristics of trading treasury futures is a concept that Chick Goslin mentions in his book, Trading Day By Day. He expounds that the larger and more liquid a market is, the more gradually it changes direction. I think he compares it in his book to changing the direction of a large ocean liner versus changing the direction of a speed boat. A speed boat can change direction on a dime, but its movements are therefore more erratic and difficult to anticipate. An ocean liner, on the other hand, can't change direction or stop on a dime. It may take a half mile or more to bring itself to a complete halt. Its volume or mass simply can't be halted quickly. Therefore, its movements can be more easily charted and anticipated. Likewise, the larger the volume and open interest of a particular futures contract, the higher the volume of contracts in the opposing direction are required for that futures vehicle to stop and/or change direction, and the less erratic are its movements.

Stock futures -- at times -- seem to buck this rule for some inexplicable reason. Perhaps this is because they are the first choice of inexperienced traders, thus creating far more market noise and erratic price action. This is just a guess, however. I suppose I should be grateful that they stay in the stock mini's, where their influence is contained, if this is the case. More inexperienced traders in the other futures markets might bring with them this phenomenon of erratic movements and market noise. Who knows? That's just my opinion, and I could be completely wrong about it.

This size-of-market phenomenon can be an advantage to a trader. A small trader can therefore maneuver in these very liquid futures markets, entering and exiting trades several times with small profits or small losses in repeated attempts to accurately position himself/herself in the market to maximum advantage. Imagine a small speed boat (a small trader) racing around an ocean liner, making circles rapidly while the ocean liner slowly attempts to slow down and change direction. This is one of the reasons why tight spreads are so critical to traders. (Take heed of that point, Forex traders!)

Treasury futures are so liquid that even very large individual traders will have minimal impact on the market. I could easily place a position of 300 contracts without affecting prices in the slightest. Now that's liquidity! Using our speed boat analogy, imagine our little speed boat (us, the trader) on the vast Pacific Ocean of the most liquid financial futures. While the Pacific Ocean has the capacity to easily destroy a careless small speed boat, the little boat also has the advantage of adept handling and maneuverability. One must understand both the power of the ocean and the advantages we have as small traders in order to remain safe on that ocean and properly take advantage of it.

Another advantage that this size phenomenon afford to traders is that since the market moves somewhat slower, it makes a good training ground for beginning traders. Beginners can practice and learn how to achieve good and accurate executions, and critical skill to develop.

On the other hand, I could take a position of about 25-30 contracts in soybeans (about 50 in corn) without affecting the market much. When the day arrives that I am trading positions of that size, I will may switch permanently to trading treasuries. At that point, the Law of Large Numbers kicks in. I'm not there yet! I have a long way to go before that occurs. Once I am trading positions of that size, I may remain in the grains markets and just limit myself to trading positions that keep me from the reaching the limitations of the Law of Large Numbers. Even at that level, I can be very satisfied with the income level it will provide to me.

Exponential Moving Average Break-Out

As suggested in my previous post, once prices closed above the Exponential Moving Average in the 15 minute chart (left), prices were likely to move higher. The bears had exhausted themselves, unsuccessful in forcing prices any lower, and once prices close above that level (the EMA), technical traders were emboldened to push treasuries higher.

I am also keeping in mind, however, that on the longer-term, daily charts, the trend in treasuries is still down. For some reason, Blogger is not permitting me to post this daily chart, even after more than a dozen attempts. There are signs of buying in the treasuries, however, as the Klinger Volume indicator has turned up. This suggest conflicting signals between higher interest rates and a strengthening Dollar -- turmoil in the markets.

Trading In Stagnant Markets

Trading when markets are stagnant and consolidating is very difficult, but certainly possible, if liquidity remains good, as with the treasuries market. Fortunately, the treasuries futures have both excellent liquidity at all hours of the day as well as tight spreads. I don't recall ever seeing the 10-year treasury futures trading with more than a one-tick spread. Ever!

I have seen countless patterns like the one above in which a sudden move occurred, but there was little or no follow-through activity. From my experience, one never knows whether prices with break up or down at the end of such a pattern. I've noticed that the Exponential Moving Average tends to operate as support or resistance (as in this case). However, once a price bar closes on the opposite side of the EMA, as they appear poised to do here, the likelihood of a move in the new direction increases. In this case, the treasury bears haven't been successful in pushing prices lower. They appear to have exhausted themselves. Once prices close above the EMA, higher treasury prices are much more likely. Just the same, "anything can happen" (Mark Douglas, Trading in the Zone). I have also seen examples where prices pushed through an EMA, and then the opposing forces rallied and were finally able to force prices back through the EMA once again. Like I said: anything can happen!

In a situation like the one shown above on this 15 minute chart, I will trade fewer contracts than I would in a rapidly-moving market, and I will exit very quickly as soon as my charts show the slightest hint of moving in the wrong direction. I will be satisfied to take just 2-3 ticks of profit, or even just break even. Profit is profit. It is a temptation, since the profits are small, to increase the size of my position so I can squeeze more profit from these tiny trades. However, the higher risk of these small trades must also be considered, so there is a definite trade-off there.

One of these days in the near future, I will discuss Chaos Theory and fractals. It's a fascinating subject. I look for fractals as add-on or re-entry points in my trading. Understanding them is very helpful in trading.

Corn Takes Off Also

Corn has ignited also. Corn is just a few cents away from another new all-time high price. The last high was April 9th at $6.28 6/8 per bushel. Liquidity and volatility have returned to the grains markets. Good!

Crude Oil Moves Higher, Soybeans Supported

Crude oil has once again begun a push for higher prices, and the oilseeds are following them higher as well, including soybeans. While the correlation isn't something I would trade on, the connection between the price of crude oil and biofuel grains is real. When crude oil prices rise, the grains that are used to create ethanol tend to follow. This is almost inevitable, since the fate of the two are linked.

Crude Climbs Higher

Crude oil has begun moving higher again, apparently due to Turkey's bombing of the Kurds in Iraq.

Erratic Trading and Poor Liquidity Today

Thus far today, trading in the grains markets has been poor. The chart patterns are erratic and unreliable, and liquidity has dried up. Spreads are too wide. I am always vigilant of the grains charts, because they can change at any time, but today, I am currently trading treasuries and the S&P 500 futures. No strong news appears to be driving the markets one direction or another. Monday, another crop report will probably have great impact on trading.

Finally, A Rebound!

You can't keep a good bean down for long! I just love those little beans!

Soybeans Toy With Lock Limit

The lock limit price is the light blue dotted line.

Stronger Dollar Overrides Corn Concern

Despite the concern for planting delays, corn is following many other commodities that are also priced in US Dollar, and the greenback gains strength one day following the Fed's decision. The financial markets have interpreted the Fed's statement yesterday as suggesting a pause, and the Dollar is much stronger today as a result. Even bullish planting delays for corn can't push prices higher. This seems to underscore the influence of the currency, despite statements by the Chairman Bernanke to the contrary.

Soybean Slump

The combination of a much stronger Dollar and delayed planting for corn is pushing soybean prices even lower still.

Global Currencies Break Down Against the Dollar

Euro
Canadian Dollar
British Pound Sterling
Australian Dollar
Swiss Franc
New Zealand Dollar

Meanwhile Gold, Crude Plunge

This appears to be the emergence of a true pivot in the financial markets, as gold and crude oil are also plunging much lower today. Crude oil is trading around $110, and gold is close to $850, more than $180 off its most recent high of $1033. A Dollar rally appears to be under way.

Crude Oil
Gold

Dollar Sets Up for Bullish T1

In these two charts, we see that the Dollar has now moved briskly higher. Note in the 10 minute chart below that the rally has been brisk, beginning in the overnight session.

The daily chart (see below) also shows the emergence of a T1 set-up for a bull trend for the greenback, if today's candle closes outside the Bollinger Bands, as shown below. This candle is not yet complete, since the day session is on-going. It is also noteworthy in this chart that volume has been bullish for more than a month.

Corn Rallies on Planting Uncertainties

In contrast to the price of soybeans today, corn has rallied off the brief opening swoon, and is moving higher for the day (see chart below). We are now beginning to see corn and soybeans diverge significantly in their chart patterns, as poor planting conditions for corn (bullish for prices) are resulting in more planting of soybeans (bearish for prices).

The daily chart for corn (below) still shows a consolidation pattern on the Bollinger Bands, but the conditions for a new bull trend in corn may be in the initial set-up stages leading to a T1. Note in the 2nd panel that heavy buying is occurring, even though prices on the longer-term basis have not yet begun to rise.

Straight Down!

The price of soybeans has dropped precipitously this morning, along with corn and wheat. Corn is beginning to stage a rally. The planting delays for corn are beginning to become critical. After May 15, every day that the corn is delayed will cause greater and greater yield reductions, thus increasing the acreage dedicated to soybean production instead.

In Europe, there are ETFs dedicated to each specific commodity, so that we could short soybeans and take along position in corn. In the United States, I know of no way to do this. Our ETF companies are late to the ball game in this respect.

Fed Undercuts Dollar

Disappointing the financial markets today, the Fed issued what is being interpreted as a surprisingly dovish statement, sending both the US Dollar and stock markets lower. Note that the price plunge on the US Dollar Index futures chart occurred immediately following the issuance of the Fed's statement at 2:15 PM EST. This may be supportive of commodity prices. Gold moved higher as the Dollar moved lower. Ironically, even the stock market indexes sold off following the Fed's move.

It's Argentina -- Again!

News events related to the conflict between the socialist President of Argentina and its farmers are apparently causing the high volatility in soybean prices today.

Prices Sag at $13.50

After reaching $13.50/bushel, soybean prices have now sagged and collapsed, perhaps on weak fundamentals news that may have provided price support. In a matter of minutes, prices have retraced more than 20 cents from today's high. This surge higher and collapse have changed today's trading activity from the category of "average" to "outstanding".

Soybeans Just Higher and Higher

This is somewhat surprising to me, especially given that gold, crude oil, and other benchmark commodity prices are soft today. The Fed rate decision is still 45 minutes away. It seems to suggest that there is some fundamentals-related news in the soybean complex. The mid-session report from the CME was silent on this phenomenon.

Soybeans: This IS Rocket Science!

Soybean prices have surged, surpassing even corn for moving higher. Wow! This feels a little overheated to me, but I could be wrong. I will give the market what it wants.

Back to Flat for Soybeans, Wheat

Corn continues to make ground, but the soybean and wheat futures have now rebounded back to the flat line today. While prices have been somewhat choppy today, there have been some nice bright spots and some good trades.

Considering that the week so far has been fairly humdrum and flat, profits have been good and trading has been very beneficial. For any given week, there are usually one to two days of solid momentum trading in which profits are very strong. I have yet to see a day of that type this week, but perhaps after the Fed...

Then, there are a few days in which trading is brisk, but prices weave back and forth, requiring small, profitable trades.These are the most typical days, and I would classify the first three days in this category. This is my favorite type of trading.

Then, there is usually at least one day during which the markets sag and we see choppy trading that is difficult, and not very profitable. Thus far, I consider today to be mostly average, but with some periods of choppiness.

Choppy Trading in Grains

Here is a quote from one of my favorite news sources for morning grains reports:

Choppy action could be the order of the day in most markets, while traders await news from the Federal Reserve on interest rates.

It may seem surprising that the price of grains would hang on news related to interest rates and the Federal Reserve, but such is the case. And the writer of the above was right, since trading in the grains is quite choppy this morning. Trading at the open was solid, but has become unreliable since. Corn is somewhat higher following firm prices overnight, but soybean and wheat prices are soft and volume is weak.

With crude oil prices falling rapidly over the past few days, there is also a very strong possibility that the biofuel grain prices -- those for corn and soybeans -- may also be adversely affected. Falling crude oil prices may be bearish for these grains as well.

Crude Plunges on Inventory Data

Crude oil prices plunged following the weekly U.S. inventory data release, trading below $114/barrel.

Easy to Trade

Both corn and soybeans today were easy to trade. This chart shows corn in early trading. I was surprised that corn moved lowered and stayed there throughout the day. I suspect this may have been caused by improved drier planting conditions, which would increase the supply of corn yields this fall, and thus pushing prices lower. The sell-off may also be Dollar-related in anticipation of the Fed ending its interest rate easing cycle.

Another very nice benefit to trading corn is that the margin is half that of soybeans and about 1/3 that of wheat, so I can take a larger position with little additional risk, but with even better liquidity and tighter spreads. What's not to love?

Back to Flat: Soybean Rebound & Resistance

Soybeans and other grains have now rebounded and appear to be meeting resistance at yesterday's settlement price (see burgundy dotted line) of $12.97 4/8. It is remarkable how consistently this phenomenon occurs. I plan on it and often liquidate a trade at the prior day's settlement price. This has once again become a good day for trading grains. While many commodities are somewhat on hold today awaiting the Fed rate decision tomorrow and the fate of the US Dollar, grains are showing solid activity.

Given the current weather circumstances, and the favorability for planting more soybeans, it seems strange to me today that soybeans are the only grain that has rebounded back to flat today. Corn and wheat are both still lower. It is also an interesting circumstance that soybean prices found support at the same level (around $12.80) where it was established yesterday.

Little Limerick on Interest Rates

The Fed was BOLD,
So oil became GOLD,
It may seem COLD,
But now it's time to HOLD.

Sinking Soybeans, Grains

What began as a good trading session with solid moves and good profits has now become a day of sagging prices and somewhat more erratic price structures. The emerging sentiment in the financial markets is that the Fed is close to ending its rate easing cycle, and that the US Dollar may consequently firm up, or even rebound. This is driving traders to sell commodities across the board, including gold and crude oil as well.

We'll keep plugging away...

Clean Corn

Trading corn today is good clean fun! Look at how clean and solid the trends have been in both directions today. This makes for excellent trading conditions and solid profits.

Liqjuidity Matters

Many people have the erroneous idea that liquidity equals high volume or large Open Interest. I don't disagree with this idea, but I believe that good liquidity also requires a second component -- tight spreads. When I chose which futures instruments I will trade, I look for two things:

1. One of my mentors taught me not to trade any futures instrument that has Open Interest less than 10,000. However, over time, I decided to tighten my restrictions even more. I won't trade any futures instrument with Open Interest less than 100,000. This requirement creates a fair short list of trading instruments for me.
   
2. I also add a second criteria. I won't trade any futures vehicle with a spread of more than 1-2 ticks. During the day session, I won't trade any futures instrument with a spread more than 1 tick, but during evening trading, I won't consider anything with a spread of more than 2 ticks. I believe that any else is financial suicide. Fortunately, trading with the CME and CBOT, there are a fair sizable number of futures than have spreads of just one or two ticks. I will consider trading futures on a longer-term basis that have tight spreads but relatively low volatility, including some of the "other futures" that I mentioned in one of my earlier posts today.
   

Renminbi in Ruins?

It may seem surprising that in recent weeks, the value of the Chinese Renminbi has been sagging. That chart doesn't lie!

Natural Gas Explosion Sends Prices Higher

This explosion wasn't a physical one. It was a financial one. The price of natural gas continues to move higher and higher, even now that the season for home heating has largely passed. Tight supplies of petroleum distillates caused by refinery incapacity and high prices for oil is shedding more light on natural gas as a potential alternative fuel source. This is sending prices from high... to higher still! The same is occurring with gasoline prices, although the last few days are showing signs of a potential top for gasoline prices.

Other Futures

Here are the charts for three other futures that I have started following. Note the similarity between their charts, as shown here on the daily charts.

Fed Funds

LIBOR

Eurodollar

Strong Soybean Buying

Note in this chart that on the 3 minute chart on the left, the Klinger Volume indicator suggests that very solid, strong buying of soybeans has set in now. The two green arrows inside the blue oval show that very strong volume-based buying has not only put in a low for soybeans, but that some very large market players are buying very heavily, even though prices remain toward the lower end of today's trading range.

Great Trading, Super Volatility

This is becoming a superb day for trading soybeans, more than making up for last Friday's poor conditions. The strong, sustained moves today are outstanding for profitable trading!

Bottom and Possible Rebound

It appears that the influence of soybean selling has caused corn and wheat to sell somewhat too, but it appears that perhaps a bottom has been created for soybeans, and the rebound has begun. This is good, because prices were only about 20 cents from lock limit down. I'm always happier, as a trader, when prices remain vibrant, dynamic, and continue trading throughout the day.

Soybean Sell-Off, Corn Solid

Corn has opened firm after rising to half its lock limit amount overnight, but delays in planting are supplying price support, while the same conditions are contributing to a sell-off in soybeans. The expected delays are apparently increasing the acreage being planting in soybeans, thus contributing to a solid sell-off of the oilseed at the open of the market today (see the soybean chart).

Another Perspective

I have invited a local futures broker in my area to write an article for this blog. He is primarily a grains broker and specializes in spreads, the seasonal aspects of agricultural commodities, and the relationships between contract months. This is a subject about which I confess complete ignorance. He may also be able to provide valuable services to part-term or even passive traders who would like to take advantage of the profit potential of the commodities markets, but who don't have the time necessary to do the necessary research. He also has good ethics and I trust him. He is not a pushy sales type. I hope that he will post here to this site sometime soon.

Why I Rarely Trade Stock Futures

Over the weekend, I had a discussion with a fellow futures trader who prefers to trade only stock index futures. More power to him! I wish him much success and generous profits! However, he consistently loses money or barely breaks even in his trading.
Several people have asked me why I don't trade stock futures very frequently. I started trading the futures market by trading the Russell 2000 stock futures exclusively. I liked them because they were exceptionally liquid and showed greater volatility than other stock indexes like the S&P500 and NASDAQ. However, I found it difficult to make money.

Liquidity and Consistency are My Criteria
However, as I began to examine the charts of more and more futures, I came to the conclusion that there were other futures that were very liquid but that showed much greater consistency in the trading patterns.

Treasuries and Grains
One of those futures that shows both liquidity and pattern consistency is the treasury futures. Others are the grains. The treasuries are just as liquid as the stock futures, but have about half the margin requirement and more reliable trading patterns. By the way, reliable trading patterns are a necessity for consistent profits.
Corn futures have more than 1/2 million contracts of Open Interest. So do sugar #11 futures. Soybean futures are the favorites of many experienced futures traders. There are good reasons for this. Between the beans themselves, the meal, and the oil, the Open Interest for the soybean complex is about equivalent to that of corn or sugar. Beans also show superior liquidity, good volatility and consistent trading patterns. That's why they are the #1 choice of most commodity traders.

Softs -- Sugar, Cotton, Coffee, Cocoa, Etc.
I haven't traded the softs very much -- yet. I plan to, however. The only softs futures that I believe are sufficiently liquid to trade are the ones I mentioned in the headline above this paragraph. The softs only began trading electronically about one year ago. Since that time, they have become much more liquid and the patterns have become progressively more and more reliable ever since. You should have seen the softs charts before they began trading electronically! They were awful! Yuch!

Crude Oil
I also like to trade crude oil. However, I have learned that while the patterns are good and liquidity is excellent, execution is extremely difficult for traders, and it is difficult to get good consistency. It is very difficult for me to enter and exit crude oil futures with reliability and consistent profits because of the difficulty of getting rapid and reliable executions. Crude oil futures prices simply move too rapidly for me to get in and out in a timely way to be consistently profitable.

Gold
I like to trade gold at times. However, gold also tends to trade somewhat erratically on a short-term basis. Gold also tends to be the futures vehicle that is almost excessively volatile. This is one of the unique aspects of gold futures. It has some of the wildest swings of any futures instrument.

This is probably due to its nature as a place of refuge during times of fear in the financial markets, as a hedge against inflation, and the rock solid loyalty and following of "gold bugs" who believe in buying gold no matter what the market is doing. I recently finished reading the book, "Empire of Debt" by Bill Bonner. It's an excellent book for studying the nature of empires throughout human history. It is superbly written and researched. I came away persuaded that the United States has become an empire, and that the empire is waning and will eventually collapse, probably sooner rather than later. However, one could avoid all the reading by simply skipping to the last page of the book and reading the last sentence, which is what Bill recommends in preparation for that collapse: "And buy gold." Bill must be a gold bug.

I own gold, and I believe in using it in my own long-term investment strategy. I believe in gold. However, the futures are a different matter. They are not as easy to trade. The one consistent thing about gold is that it always seems to go higher -- eventually! But the markets have a capacity to remain irrational much longer than the typical futures trader has enough money to wait for the market to turn around and become rational again. Thus, gold isn't my first -- or second -- choice for trading!

Stock Index Futures
I have noticed that the stock index futures tend to show more erratic trading patterns and much more market noise. I don't know the reason with any certainty. Perhaps this is partly due to the high volumes of inexperienced traders that enter and exit the markets erratically, causing greater market noise and negatively affecting the reliability of the chart patterns. That's a guess, but I still wonder why this phenomenon exists. The bottom line is that they are just more difficult to trade!
Another phenomenon in stock futures is that they have an overwhelmingly bullish bias. It seems that no matter how bad the news, stock futures always tend to rebound fairly quickly. Chick Goslin, in his book, Trading Day By Day, mentions this phenomenon and suggests that it is probably due to the influence of government interventions from the Fed and the President's Working Group on Financial Markets. The PWGFM is also affectionately known by some people as the "Plunge Protection Team", a term coined by Brett Fromson of the Washington Post. Chick Goslin, a very successful trader, says that these interventions tend to adversely affect the financial markets, and stock markets in particular.
I am not biased against trading stock index futures. However, the nature of the trading patterns, perhaps for some of the reasons I've mentioned here (and perhaps not), make it much more difficult for me to trade profitably with any consistency.

We as traders must never become so stuck on one pattern, one trading method, or one trading instrument that we are willing to sink the ship in loyalty to our own preferences and biases. Move on if what you are doing doesn't work.

I trade what works! And that's the only criteria I use! The bottom line:

Whatever works!

Grains Move Higher Overnight

This chart of corn overnight is symbolic of the strength of grains. Corn is up by 15 cents -- half its lock limit -- overnight. In recent weeks, many funds and traders have been liquidating their grain positions before the weekend to avoid the risk of uncertain weather, and last week, this phenomenon was amplified even more in anticipation of the Fed's rate decision this week. However, the following Mondays (Sunday evenings), these traders have a tendency of late to reestablish those same positions in anticipation of further price strength, largely due to strong global demand, the biofuels fad, and continued weakness of the Dollar. Without these fundamentals factors, funds and other traders would probably walk away from grains as an investment.

USD Backs Off Highs

The US Dollar has backed off slightly from its surge higher last week, as shown in the first chart above in this post. I am closely watching the daily chart. The Dollar Index futures, shown here, still haven't closed outside the Upper Bollinger Bands, so a new trend higher hasn't been confirmed. If the US Dollar Index remains above the Exponentilal Moving Average, it is possible for a Cahen pre-parallels pattern to occur, a highly profitable pattern.

If, however, the value of the Dollar slides below the 8-period Exponential Moving Average, then the surge in the Dollar was just a temporary increase based upon short-term news. Interestingly, the Goldman Sachs Commodity Index futures have continued to show considerable price strength (see the 2nd chart, below). Just in case you noticed the inverse correlation between the value of the Dollar and commodity prices, it's not coincidental!