The Wizetrade Commodities Blog

Market Direction for September did not end exactly as I foresaw.

December Corn after testing the recent high at 347 ‘4, is sideways to down. I will hold to what appears to be a breaking down from recent consolidating to test 275 in October (if the 302 level fails to hold). If the market should penetrate the high, then this becomes a more bullish trend.

November Soybeans’ “good shorting opportunity” (see Monday 9/15/09 on Futures Focus) turned out to be exactly that. It fell to the 902 and therefore may indeed go to the 850 level in October, with Bean Oil and Bean Meal following the seasonal down trend.

December Wheat appears to want to slowly sell below the 400 level by October.

This has to be changed to mid October since October is here.

Copper sold off sharply but has retraced most of that drop. It may continue to decline and I still think Gold and Silver will join in the trend if the USDX trends to the upside target (80) or 82. The politics of these markets clouds the charts. Just remember, gold is a hedge against inflation and a safe haven in turbulent times. It is not a hedge against deflation, and I see deflation in almost every commodity/futures chart.

Bye, bye Hogs! Test out 40.00 for me and maybe 35.00 by October. This obviously did not happen as Hogs trended up to sideways and are currently where they were a week ago.

Live Cattle! Please go down to 82 in November. The Live Cattle market seems to be returning to the down trend.

Crude finally gives up this nonsense of $100/barrel and heads below $60 in the next month or so.  $30/barrel, like I said, possible sometime in January. This is still my first choice of time and price, but international politics can change this direction in a heartbeat.

The Indexes need to sell off for a while to get people’s attention. Continuous up trends get boring and people don’t have enough to worry about yet. So a good down turn should sharpen everyone’s vision and get the news talk off unimportant issues like the war in Afghanistan, bailouts, Czars, and government takeover by the revolutionary radical left at the expense of the Bill of Rights. Then, they may sell off further….and further. I see this is the beginning of a major move down. We never did test 6400, did we? We haven't hit 10400 like I thought either. Was today the day for this reversal to begin? The USDX is down and continued trending down will spoil the big drop theory.

As I said in May, interest rates needed to rise, “can’t help but rise.” At the present time, they have retraced to 118ish which is the .382 retracement level if you think Fibonacci numbers. (50% is the 120ish area) from the low of 112’ 25 and the high of 128 ’22.5. People might want to jump into notes and bonds if the USDX strengthens which I think it will. People need cash. But that means investing in US debt instruments, and only the Fed seems interested in doing that. It’s a tough world out here isn’t it, Ben?

Softs all point down to the floor, except maybe Orange Juice. These are probably going to be major corrections lasting months or even years.

So far, Cocoa is in the same place as it was on the 21^st of September. Coffee sold off big time. Cotton hangs around the same area as on the 21^st. Orange Juice, my “exception” sold off handily, but Sugar is up and up big. Surprises are always in store for commodities traders. I still think we will see lower prices ahead in the Softs.

Trade the Plan.

The House of Representatives now has before it a bill, the Federal Reserve Transparency Act, HR 1207, which calls for a complete audit of the fed by the end of 2010. I think Representative Ron Paul’s comments sum up the full meaning for all of us.

“An audit would expose the Fed as a massive fraud perpetrated on this country, enriching a privileged few bankers at the top of our economic food chain, and leaving the rest of us with massively devalued dollars which we are forced to use by law.  An audit would make people realize that, while Bernie Madoff defrauded a lot of investors for a lot of money, the Fed has defrauded every one of us by destroying the value of our money.  An honest and full accounting of how the money system really works in this country would mean there is not much of a chance the American people would stand for it anymore.”

December Corn appears to be breaking down from recent consolidating to test 275 in October (if 302 fails to hold).

November Soybeans continues to look like a good shorting opportunity as I said Thursday on Futures Focus as it falls to the 850 level in October, with Bean Oil and Bean Meal following the seasonal down trend.

December Wheat appears to want to slowly sell below the 400 level by October.

Copper is selling off sharply and I think Gold and Silver will join in the trend if the USDX trends to the upside target or 82. The politics of these markets clouds the charts. Just remember, gold is a hedge against inflation and a safe haven in turbulent times. It is not a hedge against deflation, and I see deflation in almost every commodity/futures chart.

Bye, bye Hogs! Test out 40.00 for me and maybe 35.00 by October. Live Cattle! Please go down to 82 in November.

Crude finally gives up this nonsense of $100/barrel and heads below $60 in the next month or so.  $30/barrel, like I said, probable in January.

The Indexes need to sell off for a while to get people’s attention. Continuous up trends get boring and people don’t have enough to worry about yet. So a good down turn should sharpen everyone’s vision and get the news talk off unimportant issues like the war in Afghanistan, bailouts, Czars, and government takeover by the revolutionary radical left at the expense of the Bill of Rights.

Then they may sell off further….and further. I see this is the beginning of a major move down. We never did test 6400, did we? We haven't hit 10400 like I thought either.

As I said in May, interest rates needed to rise, “can’t help but rise.” At the present time, they have retraced to 118ish which is the .382 retracement level if you think Fibonacci numbers. (50% is the 120ish area) from the low of 112’ 25 and the high of 128 ’22.5. People might want to jump into notes and bonds if the USDX strengthens which I think it will. People need cash. But that means investing in US debt instruments, and only the Fed seems interested in doing that. It’s a tough world out here isn’t it, Ben?

Softs all point down to the floor, except maybe Orange Juice. These are probably going to be major corrections lasting months or even years.

Trade the Plan.

Some people believe that the oil market is manipulated by huge speculative funds causing the price to be artificially high. They quickly refer to the $147 per barrel price hit last summer. See Story (click here). The proposed solution is to increase government regulation and decrease the CFTC’s requirements to “prove” manipulation. It is ironic that these proponents never see that speculation also drove the price from $147 per barrel to $33 per barrel in the same year. These oil experts never say what the ideal price per barrel should be, because their only answer is bigger government.

Every politician tells us we need independence from OPEC. At the same time, US Government oil policy regulation decreases the ability to find and extract oil. Rep. Mike Coffman, (R-Colo.), complained the administration already is making it too difficult to drill for oil and asked about the canceled Utah leases. See story (click here).

Perhaps government regulation keeps the price of oil artificially high and speculators take advantage of the situation. The CME is setting forth limits on amounts of contracts speculators can trade as you read this article. See CME Market Regulatory Advisory (click here).

We need government to back off more regulation and let the market place correct the "problem." Once a trend begins, it gains momentum in that direction, and eventually, Wall Street puppets (our congressmen) will find a way to eliminate speculation in all commodities “for the good of the country.” Then the Black Market can open up and the consumer will get a real taste of high prices crippling the economy.

In an article today from Thompson Reuter a fairly good assessment of the recent drivers for the ebb and flow of Crude Oil prices is given. 

U.S. Energy Information Administration data showed distillates rose by 2.2 million barrels last week, far exceeding analyst expectations for a 1.3 million barrel build.

And while crude stocks fell by more than expected last week, analysts said this was because of higher refinery utilization rates rather than a genuine pick-up in demand.

"We see no current physical tightness or even an imminent shift to a supply/demand deficit to help push the market higher," said Citi analyst Timothy Evans in a research note, adding, "Some of the barrels have simply been moved downstream."

Gasoline stocks rose by 500,000 barrels in the same period.

Weakness in the dollar helped support oil prices on Thursday as it hit a new 2009 low against the Euro on Thursday as investors shifted money to riskier assets such as equities.

Oil prices tend to rise when the dollar falls because a weak dollar can make it cheaper to buy oil and other dollar-denominated commodities.

"We should remember that there is a big loss of confidence in the dollar and that will lend some support to oil," said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo.

Oil has moved in tandem with equity markets this year and these have helped tow prices up from around US$32 a barrel last December.

Analysts will be eyeing U.S. jobs data which is set to be released at 1230 GMT (8:30 a.m. EDT) for clues that the economy is really recovering in the world's number one energy consumer.

© Thomson Reuters 2009

This year’s WizeFest was the best one I’ve attended. I usually receive more than I give at these events, but this year was exceptional. There was a true dissemination of information among attendees and I took advantage of it.

Mark Douglas

One of the opportunities for exchange came when I was asked to fill in for Mark Douglas because flight delays had cancelled his class. I had nothing prepared. In his class Why Knowing How to Win is not the Same as Knowing How to Produce a Consistent Income Mark was to teach that “trading skills we need to produce consistent results are completely different than the analytical and technical skills we learn to tell us what trades have a high probability of success, where to put our stop or what our profit objective should be.”

The class of over 100 people, the vast majority consisting of Forex traders, listened attentively as I explained the Dow Theory which is the foundation of all technical analysis. I then moved on to the 10 day/20 day moving average crossover, MACD, RSI and other forms of trend confirmation. The idea is to get a series of “witnesses” to increase the percentage of probability for successful entry timing, management and profit potential.

Questions, questions, questions

Most of the class participants went into shock when I asked the first question, “When you see a FAST scenario, how much profit is there?” The question leads to a second question, “Why are you entering a trade if there is no profit potential?” That question naturally leads to another, “How can you justify any amount of risk when you don’t know the reward?”

About ten percent of the class raised their hands in response to “Do you Journal all your trades?” I think a majority of the “ten per centers” Journal their entries and not their exits, but at least they are attempting to keep some form of trading record.

The last question, “Are you the Guru of your account,” brought about my greatest surprise. Less than 30% raised their hands. If a trader is not the Guru’s of their account, who is? Whose information or strategy are they following to give them entry and exit?

In conclusion,

I found the class most revealing. Most traders enter a trade not knowing where the trade will potentially go and therefore have no way to justify risk in relation to the profit potential. Most traders don’t have any record of entries and exits. There are no records to utilize to improve chart analysis or entry/exit timing; the parameters of performance. Therefore, they don’t know enough about their past trading to acquire confidence in either their strategy or themselves.

Is it any wonder traders are apprehensive to trade real money?

LS Crude broke through resistance briefly to top out at $71, but has retreated closer to $70 as OPEC meets to discuss production.  OPEC has expressed pleasure at current per barrel prices, and it is widely held that production levels will be held unchanged.  A weaker USD post G-20 has allowed for commodity strength, but the risk taking in the equity markets has slowed after the open bell this morning.  We will need to see continued buying pressure in equities for oil to advance today.

I'm patiently watching Sugar prices as they have pulled back in three waves from a high of 24.85 to a low of 22.90.  Previous resistance may act as support for Sugar at these levels, but I need to see some buying pressure.

If Oil Inventories reflect a reduction of supply, it could provide a boost to energy prices today.  Futures are pointing lower for the US Stock Indices this morning, so energy will be fighting uphill unless the earlier ADP and Productivity news provides a boost to the equity investors ahead of Friday's Non-Farm report.

Oil has moved a little higher overnight in advance of todays Inventory Report and after following the equity markets lower yesterday.