The Wizetrade Commodities Blog

An Alert was sent to me last Friday:

Two ships containing 40 tmt and 50 tmt of feed wheat from Brazil is said to be waiting to offload on the East Coast. The wheat is sourced out of Brazil. Now Brazil is a net importer of wheat. Just tells you how over priced US wheat is.

To me, this is an example of the long term supply and demand pendulum swing through markets.

If you remember, many pig “farmers” in South America gave up their pigs and started grain farming when prices were at their zenith in June of 2008. High grain prices cut deeply into profit potential especially in other countries where there is less subsidy as in the U.S.A. Subsequently, all cattle producers were forced to absorb increases as meat prices were falling.

The exporting of wheat is due to more farmers growing wheat and fewer end users of the feed grain in South America. Ninety thousand metric tons of wheat is a substantial amount to export for a net importer. Is the grain being exported to take advantage of high prices and a strong dollar with the intent of buying it back later, cheaper? Or is it a true indication of the glut of the wheat market confirming trend direction for 2010? Either way, it isn’t bullish.

What a sell off in Cocoa, Cotton, Coffee and Sugar today. I went short Cocoa at 3351 (on a Hollin Commercials recommendation) risking omly $190.00.  I am trying to learn day trading and only took $360 profit in an hour and a half on one contract. I don’t have time to figure out the long haul as in the past with LightWave getting ready to go public, so I took profits and went on to work. The market continued down another $1,000 after I got out, but I had to say, “I’m happy!” Return on $1,260 Margin was 28% and the time in and out was short, interrupted by an hour long Commodities Live broadcast and now I can move on to the next project.

Jim’s Single Method wasn’t in play for the e-mini Russell for the fourth day in a row (which is part of the reason I got out of Cocoa). The market was higher at 8:59 than at 8:30 (Central).I know this market is going to have a big move in the time frame and pattern I want, but I just have to be patient. Patience is the best friend a trader can have.

There may be a further series of run ups accompanied by exuberance in the stock markets as smaller investors chime in adding their money in the hopes of regaining some of what was lost in 2008. Certainly, the 60%+ gain in the DJIA since March, 2009 is compelling. On March 13, 2009, I wrote The Way the Game is Played, The Way the game is Played, Part 2 and The Way the Game Continues  as a think pieces as to how Treasury Secretary Timothy Geithner and Chairman Bernanke were going to get investors to buy Credit Default Swaps on subprime mortgages bundled as CDOs.

To review some of the ideas set forth in those blogs:

1. “Some criteria for the hedge funds involvement would be incentives to buy these toxic assets. Among these would be purchasing the assets at a discount.”
2. “The Stock market would have to rise above 9,000 with vigor and head for 1999 – 2000 highs (11,000 in the Dow).
3. The smaller investor would be wooed into the market with analyst’s projections of 20,000 Dow.
4. “The Recession is Over!” “The “Economy is Saved!!” would be the news headlines and quotes from those in “the know” and political leadership to fool people into believing in a false premise to bolster reinvestment in the markets

All these things have now come about. Within two weeks after my first blog, Geithner made "THE DEAL” with hedge funds to give away the toxic assets to Wall Street . The DJIA has reached 10,729. The smaller investors’ money is being placed back into the market through their 401K managed accounts. Both President Obama and Vice President Biden have marveled at the “recovery from the worst recession since the Great Depression”. Biden is surprised at the speed of the recovery. Bernanke seeing no threat of inflation points to the economic indicators and declares before Congress that “the worst has been avoided." The economy is saved. 

Who is fueling the recovery? Click here to hear how Charles Biderman sees it. The investors? The US Treasury! The Fed! We the people…..eventually! Among other clues, Biderman points out the afterhours running up of the Indexes Futures markets in overnight transactions. “Add up all the gains and they have happened overnight. Gains after the futures market closes at 8:15 am Central (the stock market opens at 8:30) until it opens at 3:15 (15 minutes after the stock market closes) have been negligible.”  

The amount of money necessary to fund a run up in the stock market would be $500 to $800 billion, but in the futures markets with leverage at ten to one, the same thing can be accomplished for $50 to $80 Billion. Certainly that amount of money most people don’t have underneath the mattress, but the Fed does. Biderman says, “Somebody is doing it! We just don’t know who.”

If the markets are being manipulated upwards as suggested by Biderman, could they have been maneuvered down? Or, have they already been nudged that way in the past? If they are the buyer, what happens when they sell? Charles Biderman's replies, “…the market will crack!” We have a situation. We have no hiring, no mortgage lending no manufacturing rise. What’s propping up the economy?

The Game.

The USDX is significantly higher overnight and is helping bring lower stock index and energy futures for today. At 78.38 (high at 6:55 AM Central) the USDX is a full half point higher than yesterday’s high. This has helped push the Crude Light contract below 78, gold below 1140 an ounce and Soybeans below 960’0 per bushel.

US Bonds and Treasury Notes are rising with the dollar while major Currencies are falling minus the Yen. Sugar continues to rise after yesterday’s push through 28.95. A new contract high at 29.45 has been posted and strength continues to show in the charts. Orange Juice is up, but weak. The remainder of the Soft market is down against the dollar’s strength. If the trend continues, we could see significant pullbacks continue in major commodity markets.

The Grains continued down today based on the aftermath of Tuesday’s bearish USDA supply report. Wheat surprisingly continued its down trend in spite of the slightly flat report, but the term “a high tide floats all boats” comes to mind. The seasonal trend is for wheat to sell off in January, and this may lead to a wheat led recovery latter this month or in February. Soybeans tend to post a late January low, so the market may continue to sell for awhile longer. The problem with Corn is the obvious over supply with little increase is demand. Many farmers reported still-in-the-field status, but that may turn out to be a good thing this spring. More farmers are intending to plant corn next year.

Could an unforeseen problem be brewing? The public is becoming aware of the possible link to diabetes and high fructose corn syrup or HFCS (see article) that you find everywhere sugar should be. It accounts for nearly half the amount of sweetener used in the U.S. annually. The current “experiment” with Pepsi “Throwback” and other soft drinks (see article ) may be a marketing probe into the seriousness of that problem. If sales should switch to sugar based drinks dramatically, signaling a change in lifestyle choice for Americans, there could a downward spiral in corn prices continuing for all of 2010. We'll analyse these markets and more Monday.

Feeder cattle may be reduced to endangered species status. More next week.

Another blog for next week: “Is there an anonymous big bidder in Treasury actions?" For more information about this week's US Treasury auction results, click here:

The following information about Natural gas was collected and forwarded to me from Stephen Beilby, and to him I say “Thanks!”

“Statements gathered from many sources, here is why nat gas is choppy and can't seem to rise in this winter environment:

“1) Estimates are for 200 Billion cubic feet draw on storage report this Friday due to the current nationwide cold snap that is coming to an end - frozen wellheads contributed to supply problem.

“2) Cold snap ending takes pressure off rising prices.

“3) Rise in price has brought more wells online, highest number since last April.

“4) Seasonal trends are in a ‘selling off’ time.

“5) COT reports show overbought - vulnerable to small speculator liquidation if support levels are violated.

“6) Technical signals show crossing down in Moving Average tech signals, but several of the other signals like RSI, MACD, and Stochastics are showing oversold in certain timeframes, but not all of them yet.

“7) Industrial demand has not picked up yet.

“8) Support seems to be at 5.31 now.

“And, finally, 9) predators, ‘snakes in the grass’ (my terms for them), seem to want to hunt for stops in the downward direction the past couple days - will they become exhausted soon at these levels?”

In addressing these facts the following thoughts came to my mind:

Estimates are always wrong, high and low, but rarely are they on target.

This may not be the last cold snap for the entire nation, and the big Natural Gas traders have their own meteorologists to give the at least two weeks out guestimates on upcoming weather.

Placing wells on-line takes time, and they were shut down once before for oversupply.

In a downtrend, when Commercials add to their short positions, we sell.

Seasonal trends were off in 2009 more than in many years, but they bear watching.

Predators rarely tire of making money.

You've heard "trade with the trend?" That’s one of the fastest ways I know of to get it to reverse. All kidding aside, the market has more room to the downside, and I want to take advantage if it goes there.

In order to get Natural Gas to reverse and move up, what is needed is a prolonged winter (one you expect with global warming). A winter like 1978 that makes a 10” snowfall in Dallas look like child’s play; freezes all along the Eastern Seaboard down to Cuba; one where you can’t find Chicago due to the snow; and Mexico City is under a winter advisory; that sort of thing.  

The Low set in Sugar this morning at 27.55 established the completion of a five waves down move. The 50% retracement from yesterday’s high at 28.95 became 28.25. The high so far today is 28.35 where sellers came in strong. The market may not set a new low for today, but Monday’s Open will be interesting. I hate to be in a market over a weekend and so we say goodbye to the move. (A drop to 26.08 would be a 1.618 multiple of the wave one [28.95 - 27.55] completion.)

There is little (but still some, because this could just as easily set up a run at a new High) doubt that the signals developed in candlesticks, e-wave, MACD and RSI supported a down move. If this works out to be the top in Sugar, we will have ample opportunities to enter on the downside. With the completion of this move, the market could find itself back at another larger 2 position and ready for a major drop into the single digit numbers. Price action has yet to declare the top is in, but today’s action turned the Short Term light red. In just one and a half trading sessions, Sugar went from a new 52 week high to a red light. Amazing!

Sugar (SBH0) set a new high price today, then sold off to close below yesterday at 28.04. This action turns in another bearish signal, a key reversal day (See yesterday's blog). Lower price action tomorrow is needed to confirm the reversal. Swing and Intermediate Trade Strategy Targets for profits could range from 25.00 all the way down to 20.50. Continued movement to the upside above today’s new high confirms the upward trend and the Fibonacci target at 32.00. Some analysts have say Sugar could reach 40.00. I say “The best Sugar trade will include a well placed stop loss.” Keep watching. (See the attached SBH0 chart)

Crude Oil is showing an inside day and in the afternoon broadcast on WTV Channel 2 from 1:00PM to 2:00PM Central I discussed the Larry Williams Inside Trade Strategy which some traders employ in the same scenario we currently find Crude Oil. I was interrupted in that chart interpretation by cheers for the University of Texas Longhorns in their National Title bout with the University of Alabama Crimson Tide tonight. I will  predict the winner of that game: Whoever plays the best will win.

Have fun...use stops!

Seldom are so many indicators and signals collectively pointing to change in direction for a commodity as Sugar has today. The candlestick on the daily chart from yesterday appears to be a shooting star. Price action today needs to confirm that reading. Today’s high of 28.35 shows more strength to the upside than yesterday’s 28.90.Will divergence set in giving us a shorting opportunity? If this market pulls back, the 28.5 area is 50% of the move from 28.90 to 27.30. 28.59, if you must have the exact location of the most common pull back area. 

There is continuing divergence in the MACD signal and the market ‘s latest rise. The divergence shows up in RSI as well. Even though the price continued to rise, the indicators grew weaker. Seasonally, for the past 30 years, the trend has changed around this time of year and the drop has been sharp. It may be the end for the E-Wave B count (if you are into that sort of thing). Wavers log in the spike to 28.90 as a blow off: 5(5)B to begin the retracement of the previous leg up.  

Finally, Commercials are beginning to buy according to the latest COT report. Some traders use commercial buying to initiate a buy themselves. They rely on the timing of “When the commercials quit buying, Buy!” to enter the market. Eventually all these indicators will catch up to the market and the selling will begin in earnest. When? That’s the big question.

Market Matters -Commodities-Oil January 6, 2010

by Scott McCormick, CMT

       Oil has been rallying for the last 4 weeks now, and maybe it's no surprise considering the cold snap that has hit most of the nation during that time. But as usual we all like to know where things are going, so here is my attempt at giving you the technical breakdown on this fossil fuel.

       After spending nearly 5 weeks, beginning in October, testing the $80-$82 level Light Sweet Crude Oil Continuous Futures Contract managed to close above this old resistance today at $83.17 (last print at 18:48 EST). Analyzing the price action since the June 2009 high Crude has formed a nice upward channel that is approximately 17 points difference from the lower channel line to the upper channel line.  So far, Crude has bounced 14.93 of the 17 points from its December low at 68.59. 

       In addition to the upper channel line there are two Fibonacci levels that I am watching that could act as resistance in the short to intermediate term.  The first Fib level is 90.24, which represents a 50% retracement of the entire decline from 147 to 33.  The second level is 93.92, or a 78.6% retracement of the difference from 110 to 33.  The reason I picked 110 is because this level acted as resistance after a two week rally from the September 2008 low.  These two levels also correspond with a range that Crude spent 9 weeks in back in late 2007 early 2008 spanning from 99-85.

       For now, it looks as though Crude will continue its march onward and upward.  Watch for resistance in the low to mid 90's, and should Crude close back below 80, then I would keep a close eye on the 68 level once again.