Grain Traders in Positive Mood Following Long Weekend

Posted on 03/09/2017 10:25 AM

Wheat: Argentina futures turned up the past two weeks as the five-week stochastic turned long suggesting a seven-week correction exhausted. Australian futures turned higher the past two weeks signaling an end to a lengthy intermediate cyclical downtrend. Indian prices has traded a four-week correction and are poised to reverse that trend this week. Chinese wheat prices a range bound since mid-2015. The spot chart of Canadian futures has extended an uptrend since August, while British contracts extend a downtrend since July. European prices erode to test the December low for the continuation chart. U.S. futures were higher overnight. The July SRW contract returned to major resistance of the 40-day moving average near$4.90. A Level 3 intra-month cycle low is due some time this week. Posson's Profit Watch (PPW): 11/24: rolled to March SRW if not stopped out in October. Otherwise: bought March futures 11/24: at $4.94. May trade in and out along the way.

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Corn: South African futures again extended a bull market since 2014. Brazilian corn in real is lower for start of this week relative to the continuation chart, but the overall trend since June is still up. But the overbought five-week stochastic is leaning toward a sale. Mexican futures are on the high-side of a range since July. Indian prices are eroding following a peak made in December, but still up significantly since June and the five-week stochastic is oversold. The Chinese continuation chart shows prices are trending lower into a Level 2 cycle low and the five-week stochastic is oversold. July U.S. futures traded higher overnight to extend a Level 3 cycle uptrend. A related low is due, which offers a brief setback some time this week. The five-day stochastic is nearing overbought and overnight prices touched the 40-day moving average near $3.78. PPW: 11/24: rolled to March -if not stopped out in October. Otherwise:11/24: bought March at $3.70. 12/28: Since this column is updated only in the morning, a backup strategy for this column will be an exit of reownership of an official Pro Farmer position intra-day. 11/24: Feed users should be at least 50% covered into summer.

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Soybeans: Canadian canola's uptrend since November or September is strengthening, while European rapeseed is trending lower since a top made in November. Brazilian soybeans are range bound since November. Indian soybean futures bounce from the five-week moving average increasing odds a correction exhausted. The continuos chart for Chinese futures made a new low within a downtrend since early 2015. July futures for the U.S. soybean market returned to the 100-day moving average during overnight trade and near $8.90. The five-day stochastic is overbought and a Level 3 cycle offers a setback. PPW: 10/21: long one unit March futures at $9.05 1/2. 12/31: sell stop on position at $8.66. Stopped out.

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Soymeal: Chinese meal futures are range bound with a slight upward bias since November. U.S. July futures are due for a Level 3 intra-month cycle low following a major intermediate, if not long-term bottom made earlier this month. PPW: 11/24: bought July at $290.40. 1/13: Calling Level 1 cycle low in place as of Jan. 4. If building a position consider a pullback as a buy opportunity. Risk below the recent low if a stop is desired.


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Cotton: Indian futures rally from an intermediate cycle low placed last week. Chinese futures trend lower to extend a very long bear market. The July U.S. contract is oversold with a potential positive divergence relative to the five-day stochastic. PPW: 12/18: Long July futures for a buyback on a stop at 65.00 cents. One can then risk to below a recent low.

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Cattle: Low range weekly close as traders worked on filling a gap made in December. Overbought five-week stochastic made a sell signal. The five-day stochastic made a sell signal on a gap lower on Friday. Daily lows are support down to the December low at $115.47 1/2 for the June contract. Level 2 cycle low is due early next month. Market over reacts to weak global equities. But a cyclical correction in box beef was on the table in recent days. PPW: 12/28: With use of the continuation chart, I must call a three-year business cycle low in place for futures, but there is not evidence in beef prices at this time.

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Hogs: Bulls in June hogs exhibit stamina. Overbought and due for a cyclical pullback. Futures can decline ahead of pork cutout values, which placed an intermediate low a bit too soon. PPW: 10/8: Risk of a correction has returned. Use of put options would provide a floor price to guard against lower than expected futures into November. 12/1: Time for a retracement higher.

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Milk: Second contract continuous chart looks impressive for yet another opportunity for a long-term three-year cycle bottom. Just a nice start though. September C3 enters window of reversal for Level 1 cycle last of this week. The earliest allowed. Five-week stochastic made a buy signal last week. PPW: 8/3: If concerned of supplies distorting cyclical behavior, then use put options to insure production value. One could sell calls as well and in order to create a range of price. A strategy known as collar.

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Stock market: Markets found support following China's 2015 at 6.9%. A Level 1 cycle low for the U.S. is due now to first week of February.

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Economy: 1/19: China home prices improved in more cities in December. China takes the high road for not allowing oil prices to decline for its consumers as fast as the free market. Assists with securing domestic supplies and fighting pollution. But it may line the pockets of oil companies. U.S. retail sales with a minor slip in December. But a strong gain for restaurants and home furnishings. University of Michigan Consumer Sentiment January Flash was up slightly, while the expectations component rose 3 points. Overall trend has been strong since October. PPW: 11/3: I have called a three-year business cycle bottom for the global economy in terms of the JP Morgan Global PMI. Economies should grow into 2017. Watch for signs of an end to the commodities bear market since 2011.

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Interest Rates: 1/19: Volatility jumped last week and in favor of bears for the 10-year note. Rates has been range bound since August. Extremely slow uptrend in three-year cycle since start of 2015. The rate briefly dipped below 2% last week. Support is likely 2.0% to 1.9%.

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Dollar: 1/19: Index struggles higher into a Level 2 cycle high due early February. If over 100.51 from now until the peak, then support may be seen into April for a more important Level 1 top and yet another opportunity for a three-year cycle high. Otherwise, the December peak was a Level 1 and for now, it is assumed to be a three-year cycle high. Trade below 98.049 on a weekly close would be bearish. Chinese offshore yuan was stronger against the dollar past two weeks.

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Energy: Oil: 1/19: Trade below $28.57 for spot chart (Feb.) creates Critical Point objective for $27.61 to $27.06. Level 1 cycle low is due. Three-year cycle bottom remains evasive. Ethanol: Only a start, but last week's positive reversal was at a time for an intermediate business cycle low. Oversold five-week stochastic made a buy signal. Natural Gas: 1/19: Trending lower into Level 2 cycle low due early next month. PPW: 1/8: buying July oil and risking to $36.30- stopped 1/11. Buying July heating oil and risking to 1.1230 -stopped 1/11.

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Climate: 12/21: Since 1896, years ending in six were of higher prices by end of June compared to the close of the prior year for 92% of the time. Some of the up years were with higher yield and production, but the better of upside performance related to lower yield. Five-to-seven year climate and corn yield cycles offer a crop problem some time 2016-18. El Nino is the strongest in decades. Such events in 1972-73 and 1982-83 occurred ahead of adverse crop events. We should watch for signs of a return of La Nina starting in 2016, which could cause problems for U.S. production.

Education: 1/19: Welles Wilder created the RSI, which was published in New Concepts in Technical Trading Systems in 1978. A common setting is 14-days and the indicator uses a scale of momentum from 0 to 100. Most traders assume overbought begins at 70 and oversold starts at 30. But more experienced traders use favorite or optimized settings. Extreme readings suggest stronger momentum of price. The indicator uses a ratio of higher closes to lower closes. Wilder posited that divergence of RSI to price was an important characteristic and that adding trendlines to the indicator may at times be more important that finding trendline support and resistance on the price chart itself. Traders using the indicator for signal normally favor a more into the overbought or oversold zone and when the indicator leaves that region the trend has likely reversed. Reference: John J. Murphy (2009), The Visual Investor: How to Spot Market Trends (2nd ed.) John Wiley and Sons.

12/29: Stochastic indicator: During the 1940s and 1950s, George Lane was part of a group of researchers and educators of stock and commodity traders. He was instrumental in development of what is a well used indicator known as stochastic. In his own words, "As a result of all the hard work (the 14-hour, mostly by hand, no-pay days), we decided that the most reliable indicator was %D for '% of Deviation.' The basic premise of %D is that momentum leads price." I do not care for the fast version and so my analytical discussion will speak of the slow stochastic as -stochastic. The stochastic uses averages to smooth data and performance for a better looking fit to price trends. This form of indicator requires three input settings; %K periods, %K Averaging Periods and %D. Some charting programs will also allow for selecting the type of average for what is called "%D Method." I favor this indicator over others in that it often turns closer to bottoms and tops than other varieties or techniques. The indicator is range bound and when it is in the lower portion of the range the market is said to be oversold. If in the upper portion of the range, that market is assumed to be overbought. Oversold and overbought conditions suggest the trend of the market is reaching an extreme according to the time followed (settings), which in turn is an alert to watch for signs of a reversal otherwise known as a low (bottom) or high (top). Since the indicator shows two lines (%K and %D), some traders will use the crossing of the lines as a buy or sell signal. I find this indicator is useful in relation to cyclical patterns -trends. It can be applied to a variety of time frames such as daily, weekly and intra-day prices. At the Pro Farmer website, you can create a chart and add this indicator. Change settings for a best fit characteristic to meet your hedging/trading requirements. The concept behind the indicator is that "As prices move down, the close of the day has a tendency to crowd the lower portion of the daily range. Just before you get to the absolute price low, the market does not have as much push as it did. The closes no longer crowd the bottom of the daily range. Therefore, Stochastics turns up at or before the final price low." (Getting Started With Stochastics, by George C. Lane & Caire Lane, 1998, pg 2.) My stance on all indicators is that they are just an indication and should be used along side something that is of another perspective. An example would be, the fundamentals are bearish, so be cautious of buy signals and pay strict attention to sell signals. I find a weekly version of the stochastics makes for a fine backup, if I have been probing for a cyclical high, but the market starts down without me.

Twitter: rich_posson

 

 

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