Stable Financial and Commodity Markets this Week

Posted on 03/09/2017 10:24 AM

Wheat: An odd Level 3 top this week for wheat in that it did not meet ideal minimum requirements. This normally relates to large players throwing out analysis and trading for the sake of making a trade. Price had been high enough apparently. Fundamentally, this may relate to Russia on again-off again export tax alteration. And this time with a twist toward elimination. And only days before there was news of keeping it in that aggressive exporting has caused higher domestic food cost. Weather issues are apparently not serious enough. The market is due for a Level 3 cycle low next week. Larger intermediate intra-year trends are a grind, but forecast price support. Look for signs of support near last week's low for July SRW. 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.

_____________________________________________________________________________

Corn: Prices may be combining two Level 3 intra-month cycles, which suggests the trend is down into a low due next week. This is likely a sign of going along with wheat and beans and has little to do with micro/macro for corn. The five-day stochastic led the slippage this week by far, in fact it is now oversold. Support should be in the low $3.70s for July futures. Larger intermediate intra-year trends are up into late February to early March. So yesterday was the first visible correction of such trends. News is lacking and fundamentals are old. Prices have trended sideways since fall for the continuation chart, while individual contracts erode carry. A sign the market has dialed in bearish fundamentals known for some time and that corn is at a value level. 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.

______________________________________________________________________________

Soybeans: Yesterday's breakdown of a potential flag is not necessarily bearish as either Level 3 or Level 1 business cycle lows are due. This allows for a last minute break to load up on laggard bears, which can later cause short-covering. But the five-day stochastic is not yet oversold and it is close, however. Look for signs of support around $8.77 to $8.73 for the July contract and a low may not be found until next week. The forecast remains for a rally next month, but range trade since fall may persist. Closes above $8.92 opens the door for $9.10s to $9.20s. Major support is in the $8.60s. Concerns over China persist and traders assume lack of export business with the coming Chinese New Year, Feb. 8-12. But the former may be an overreaction as Chinese soymeal, rapeseed, wheat and corn show some strength. PPW: Range trade with potential for a swing higher next month. China New year Feb. 8.

_____________________________________________________________________________

Soymeal: The sharp break lower seen yesterday is likely an exhaustion into a short-term low rather than a start of a sustainable trend. But crush margins have been weak and supplies adequate and yet the swing was still likely overdone. 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. 1/27: If looking for a point to forward buy meal consider a buy stop at $281.10 basis July. When filled, a stop could be placed in the low $260.00 area and then trailed to break-even over time.


____________________________________________________________________________

Cotton: Odds are on the rise for Level 1 and 3 cycle lows in place, but more upside is required for evidence. The oversold five-week stochastic may make a buy signal this week, if a higher close today. 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.

____________________________________________________________________________

Cattle: 1/27: June cattle trade around the 40-day moving average near $122.94 as the five-day stochastic turns overbought suggesting the average is more likely to be an economic level of seller interest. But a swing toward resistance around $126.77 should be considered. This market is likely range bound into a Level 2 cycle low due next month. Seasonally boxed beef corrects from January into February then works higher into the summer grilling season. 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.

____________________________________________________________________________

Hogs: June hogs are performing very well for a Level 1 uptrend from the November low, which may last to near end of next month. $81.00 is still an objective and higher is feasible. The Level 2 cycle that was to cause a correction along the way related to marking time -a hesitation and a sign of a strong market. Cash hog and pork prices add support to funds on the buy path. PPW: 1/25: The November low may have been a long-term three-year business cycle bottom.

____________________________________________________________________________

Stock market: Shanghai Composite reversed the prior day's decline as the Nikkei turned sharply higher. And so, S&P 500 futures rallied overnight, but a cyclical low due next week still offers a dip. 1/28: China's stock market is likely to remain soft into early next month. Japan's shows a sign of strength, but does not have to bottom for an intermediate trend until next month. The U.S. market has likely bottomed long-term, but should decline into next week and there is chance the more important low has not been placed.

____________________________________________________________________________

Economy: 1/28: The Fed left rates unchanged as expected, but the U.S. stock market sold off anyway. From a cyclical perspective it is due for a downswing. Rates rebounded then retraced. The Fed may have signaled it will focus more on its inflation goal, which for now, would suggests infrequent rate hikes this year. Although the Fed stressed it is watching markets for signs of risk to its outlook, it may have shown signs of leaning toward less concerns of the stock market and more toward other factors. 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.

______________________________________________________________________________

Interest Rates: 1/25: Level 1 cycle lows for the 10-yr Tnote was placed in January and August. A related low is due now and might have recently been forged. Level 1 highs occurred in June and November. A swing higher from this cycle may support rates into April. The first chance for a three-year cycle high was during November to December, while the latest for a peak is November of 2016. Consider a range of 1.9% to 2.4% in coming months.

______________________________________________________________________________

Dollar: 1/25: The dollar index is working higher into a Level 2 cycle high due early next month. A respect of 100.51 could be a sign of range trade that eventually develops into a bear market of the three-year cycle. Violation of 100.51 may be a sign of support into April/May for final opportunity for placement of a three-year cycle high. The dollar was acting weak against the Canadian last week. The dollar is likely within a bear market against the yen and relative to the three-year cycle.

______________________________________________________________________________

Energy: Oil: Open interest rose more dramatically alongside a smaller upswing than the robust rally late August to early September. This was a sign of large seller interest, but also a bit larger buyer interest. The continuation chart surged to the 40-day moving average on speculation over Russia and OPEC and the eased back on lack of confirmation. Prices should retrace next week into a Level 3 cycle, but if only a 50% to 60% correction then higher, then oil placed a Level 1 cycle low last week. 1/26: The five-day stochastic is overbought for the second contract continuous chart. So, even if a major low was recently placed, upside potential should be limited and another swing lower should not be ruled out. But I like the response to the recent storm/cold. Suggests low prices. 1/25: Level 1 cycle lows were placed in March and August. A related bottom is due. Volatility seems too high for a confident and accurate call of such a bottom. But odds favor a low was made last week and it does not have to occur until early next month the latest. Need trade to above $36.24 as a bit of evidence. Ethanol: 1/25: Level 1 cycle low as of week ended Jan. 15 for the continuation chart. That low is a risk point for the forecast. Subject to revision due to oil drama. 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.

______________________________________________________________________________

Climate: 1/25: Cosmic rays trend in a nine-year cycle similar to sunspots. That cycle bottomed in 2014 with second chance as of early 2015. 100% of the time a crop problem with a drop of 7% to 28% occurred within five years of the low. Most of the time a weather-related crop problem occurred within the first two years. The five-to-seven year cycle for climate is due to strike 2016-18 with a preference for hot and dry, but can be of combinations throughout spring and summer. Corn is very sensitive to temps. The Corn Belt has been sheltered by that cycle and a nine-year version that protected crops from global warming cyclical trends. But this protection can disappear in 2016-18. A similar cycle is due for low corn yield and production for the same period. Global weather remains volatile.

Education: 1/27: Trendlines: Traders often draw trendlines on charts to show levels of support and resistance. Lines are drawn through two or more bottoms for support. Tops are used to create resistance lines. More creative users may use a combination of top and bottom or vice versa. When only two points are used the line is unproved or tentative, but still often used as a price objective or potential support/resistance. When there are three points or more the line is proven and taken more seriously. Violation of a line can be used as a signal that the trend has reversed or has exhausted. It suggests a breakdown or waning buyer or seller interest. Lines can be used to locate entry or exit points. Trend channels for an uptrend are created by drawing a parallel line through a top that occurred between the two bottoms selected for creation of the support line. This then provides resistance and support levels for an uptrend. The opposite concept is used for a downtrend. Trendlines are normally linear, but some traders will use flexible, arc or exponential lines for markets that are speeding up or down (although many traders may switch to an average to keep up with the market). Also see Technical Analysis of the Financial Markets by John Murphy; Technical Analysis Explained by Martin Pring.

1/25: Moving averages: Averages come in many varieties such as simple, exponential or weighted. I favor simple. You need to select an average's setting that reflects the type of trading or hedging desired. A five-day moving average may provide signals one or more times per month, while the 40-day version may provide a few per year. I favor the five-, 40-, 100-, and 200-day moving averages. Media suggests most traders favor the 50-, 100 and 200-day, while there is some discussion of 9-, 10-, 20-day averages. The 40-day has increased in popularity in recent years. Averages can be applied to various time frames. In example: a 10-minute average or a 40-week. Averages may serve as a flexible trendline providing support and resistance levels to watch for signs of entry or exit of a hedge or trade. This study can be used to detect a trend reversal (an end to a price move). Some traders use two averages for a crossover bullish or bearish signal. A Death Cross is often when the 50-day turns below the 100-day. I do not care for crossover trading systems as it seems the signal is rather late compared to other technical analysis such as patterns. But like trendlines, averages can show price levels when supply and demand reverse. The more important insight from averages is how the market responds when trading to such a level. I believe the averages I follow reflect an economic level.

 

 

Twitter: rich_posson

 

 

Add new comment