The Wizetrade Commodities Blog

For those who it hasn’t occurred to yet, the markets have rolled over into a bear continuum. It’s the same story we saw in 2000 and 2009 when the indexes were way over valued as to P/E ratios and Dividend to Earnings, so we should expect the same results as in those years.

If ever there was duplicity in conspiracy, the poster child is the Federal Reserve Bank Corporation. Sometimes I forget the fact that the controller of the “of the people, by the people, for the people” economy (recently confirmed chairman Bernanke has told Congressional Oversight Committees that the Fed is not accountable to the United States Government for expenditure of its money) is a corporation acting on behalf of its shareholders, whoever they may be.

The violations against its charter are innumerable. The latest one, Central Bankers are secretly meeting (the last time I heard, that was considered conspiracy) at the North Pole/South Pole to do what we have only one conclusion at which to arrive…replacement of all reserve currencies with a new one. Finally, the Central Bankers will have one currency whose distribution is totally up to the discretion of the Central Bankers. Hallelujah, I thought this day would never happen!

Now they can be totally private with our currency. Of course, it isn’t our currency because our currency, the “of the people, by the people, for the people” currency doesn’t exist according to the guidelines of the US Constitution, which was the CB’s intention all along. They made us debtors by burying us under social welfare program after program. Then they made a very handsome profit from the usury from giving us their currency to fund the programs. Old News!

Dow could retrace below 6400 by this time next year. Crude Oil could rise to $95 in May after this pullback, but the prospects of having any demand for it in a year from now doesn’t fit with a 5000 Dow. The Euro will find parity with the US dollar (Fed Reserve Note) because Europe’s socialist programs debt (coupled with shrinking US military occupation forcing them to provide their own defense) will break them. Small country’s economies (Poland, Greece, Portugal, and Spain) like Ireland’s and Iceland’s will falter with whatever currencies they use becoming worthless against the Euro and Dollar reserve currencies.

Commodities, because of shrinking US dollar value will skyrocket for a while in a crippling effect on household incomes vs. expenditures. If that scenario follows course, Gold would be at $1,600 to $2,000 by this time next year, but Silver would be a better investment. Gold is money; Silver follows.

This cycle we are entering is larger than anything I have seen in my lifetime. For this reason, the timing is harder to figure than in normal times. However some things are glaringly apparent. Our real national debt is $52 Trillion Federal Reserve Notes. It cannot be sustained in the near term or long term. The era of credit expansion has ended.

Timothy Geithner today stated “the US will never lose its AAA credit rating.” If that is true, as in a matter of a known and accepted worldwide fact, why bring it up? Why have to state it? Statements like that usually mark the end of the era.

Indexes: Monday’s and Tuesday’s lack of volume rally coupled with the small decrease in the USDX value gave a warning as to the strength of the upswing. Today’s action in premarket gives rise to the belief in Friday’s Non Farm Payroll Report being ineffective in causing a major change in trend direction. Volatility in the market will no doubt cause a wide swing in both directions, but at the end of the day I see the market coming back into the trend it was in before the report.

Metals: As with the Indices, the lack of volume and Tuesday's decrease in strength in the Gold rally without significantly inversely affecting USDX now becomes the factor in resuming the seasonal downtrend in metals. Copper closed yesterday at a 12 week low and below the 15 week moving average for the first time in a year.

Energy: Crude Oil has the same story as Indices and Metals as the seasonal downtrend continues through February into the first week in March. In my interview with Alan Farley yesterday on Trader Views Network revealed, if the trend for the last 25 years holds true, we could see lower prices in almost all commodity futures until early March.

Grains: Surprisingly, Wheat and Soybeans closed up in the overnight session, but with USDX rising, the open of pit trading could see a massive downturn. Look out below!

Financials: Interest rates pushing up from the 30 Year US Bond above the current 4.65% level would break its 29 year trend line and bode for increasing interest rates for a long time to come. Oddly enough, the increase in interest rates could spur some retail home buying as people try to take “lock in” before last remaining low interest rates disappear.

Currencies: Obviously, with a Rising USDX almost all currencies with falter against it especially the commodity based Canadian and Aussie dollar.

Meats: Live Cattle’s major downtrend resumes with some power in the charts. Lean Hogs sellers are trying to push prices lower, but the buyers haven’t let the market penetrate the 65.85 low set Monday on high volume.

No buy-hold-sell intended in these observations, but I can absolutely positively recommend “Don’t trade without a stop loss in place,” because trading is risky business.

Last week both March Soybeans and March Wheat closed on the daily and weekly lows. While this would appear very bearish to most traders, the signal set up a major COT buy signal. This is not my recommendation as I never trust signals given by anything but the charts. What I want to see is a key reversal day in which the market gaps down at the open and then retraces to close at least above of Friday’s high and preferably last week’s high of 488.5 in Wheat and 936.75 in Soybeans. This may not happen as it would be ideal, but I’ll take a “close as in hand grenades” to see if the market has increasing potential to the upside.

What normally happens (if anything is normal anymore) is a surge off the bottom with a pullback to test the low. This is when the charts come into agreement and there is a fresh cross on the Daily chart. This is what I am waiting to see. The move following this change in direction surge can be the strongest and fastest moving of all the moves. The risk can be a little easier to calculate, and I think it is worth the wait.

As I am watching, the market in Wheat has bounced up 17 cents…….

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!