Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I am going to change the date to Saturday but will write the post anytime on Friday evening or Saturday…


I am adding this section to profile different things I am looking at or expecting. There are quite a few things I want to opine on (energy, interest rates, etc.) but I thought it pertinent to opine on the sector that I am trading the most right now, the softs.

I will probably never profile this sector again except for in rare and unusual circumstances simply because there is not much to say. I am also going to group the grains into this category. These markets mainly trade on supply and demand with intermittent weather scares. Unless you are an analyst it is moot to even think about these issues, a trader cannot out-guess the guys that do this for a living. Analysts live and breathe these numbers, something we, or at least I don't have the time for.

When I first started trading I got the Hightower report and… Farmer's something or other. I dubbed myself an analyst. Every time I traded the fundamentals I was either half right and lucky or wrong. I even tried to monitor pork consumption in my area to ascertain the demand for pork. That was an exercise in futility. I was right (about the move in pork bellies) but it had nothing to do with my research.

Trying to be an analyst is stupid because the best indication of supply and demand is right in front of us, the price chart. I am not advocating ignoring the fundamentals in these markets, on the contrary I think one should be aware of the fundamentals. I am saying it stupid to try and trade them. Trade the charts, be aware of what is moving the price, but trade the price action. If an opinion is formed as to which way the markets are going to move based on the fundamentals the only thing that can achieve is to create a reason to hold onto a position that going the wrong way, the ultimate sin in trading.

There are only two places fundamental analysis has in these markets. The first is to understand what is moving the markets. This is basically being aware of what kind of market is being traded; a weather scare, a demand induced shortage, etc. Also being aware of when potentially market-moving reports come out is quite advantageous, especially if the report could send the market limit.

The second place fundamental analysis is useful is in creating a long-term bias; super cycles, fundamental changes in the market (ethanol?), etc. I rarely do this but rarely doesn't mean never.

In summary I will give an example based on a current trade; Cotton #2. I am short but the fundamentals are all bullish, or at least they seem to be. Demand is expected to go up marginally and supplies are expected to drop marginally. In addition it doesn't sound like this is a very good year for the cotton crop in general. In the face of that, the market is dropping. If I were trading the fundamentals I would be on the sidelines waiting to go long, instead I am short and making money. Nuff said.


It seems that everyone is short the dollar or waiting to go short. I am beginning to entertain the possibility that the next major move for the U.S. dollar may not be down. As a matter of fact if the move were up that would create a nice looking bottom pattern. If the dollar is unable to accelerate to the downside fairly soon I will begin seriously looking at the long side of this market. It would be a bonus, possibly a huge bonus if the move is up as there will be a lot of people caught on the wrong side of this market which could create a very robust upside breakout.

The Canadian Dollar is still trading in its channel, the longer it remains in this channel the more excited I become. The bigger the channel; the better the break. I previously said I thought the upside breakout looked unlikely, I take that back. Could we see the loonie at parity???


Crude broke above its declining trendline and kept running. It would have been a good trade had I taken it. But the other energy markets are simply not confirming the move. And I think an upside break should be stronger than this drift higher that we are seeing. Momentum is essentially flat. I am not ready to put a short on my watch list but I am paying a little more attention. In the past some significant tops in this market have been made near the end of the summer into fall. Also note, the price action on Thursday and Friday points to near term weakness.


Corn got a lot more volatile all of a sudden. When I said I would look to short corn in the mid to upper 60's I was expecting it to drift up there and roll over. Corn laughed in my face, put on a jetpack and rocketed back up to the trendline and above it's 50-day MA. The December contract doesn't show as much damage as the continuous chart but enough for me to pull this off the watch list for now because I can't see a low risk short developing in the next week.

Soybean oil completed it's upside break but I don't think there is enough momentum here to play a bull run. I will place this on the watch list but even if I play it I will use tight stops simply looking to catch a quick run. Soybean oil can't rocket too much higher without the other grains, especially soybeans and soybean meal. With the weakness in meal an oil/meal spread could be a valid play. However, I am not plotting the spread it would be more of a long oil / short meal play, shorting meal as a hedge.

Interest Rates

Interest rates are looking prepared to run up to their declining trendline. This could be an intermediate-term bottom. With the inverted yield curve I am looking at the 2-year / 30-year spread. Curves never stay inverted. However, caution must be used because the inversion could get much worse before it normalizes. It all depends on Bernanke. I am pulling this off the watch list because trendline resistance is a good distance higher. I expect the market will consolidate here with the double bottom providing support. I will continue to watch for a tradable pattern with an eye to a downside break.


Lean hogs and pork bellies are falling. Both feeder and live cattle's rallies have stalled. Nothing tradable.


I don't see the bull case here. I can't see any good place to get short but I definitely don't want to be long. I am going to throw a short silver on the watch list because if I see a good setup I am going to take it. Right now September silver is just under resistance from its tops in March and April as well as its 50-day MA. With the volatility in this market I am likely to take a small position with wide stops and will look to add to my position if the market does confirm that it is rolling over.


Sugar #11 broke though upside resistance and momentum is decidedly up. I will still consider the short if the price shows signs of rolling over and momentum begins pointing down so I am leaving it on the watch list. But because resistance has been broken I will need to see confirmation before shorting.

I was stopped out of my OJ position on Friday at a profit. After the spike higher on Wednesday, Thursday didn't confirm the break so I moved my stops up right under the market. I am glad I did because the sell-off on Friday was brutal. I don't know if it is the thin market or if OJ is trying to put in a top but I don't like the price action here. I will stand aside until another pattern is made.

Contrary to OJ, my Cotton #2 short is doing quite well. The price broke down on Friday and I added to my short position. I don't like the fact that it was able to close so far away from it's low. I will tighten my stops a little but still keep them wide enough for this market to move a little because I think there is more potential on the downside.

Cocoa continued to run higher. Getting long is like trying to catch a run-away train. I am still looking for a place to get long, wishing I already was. C'est La Vie.

Lumber is still resting on a long-term uptrend support and coffee sold off from its oversold bounce.

Indexes (Stock Markets)

I am still solidly bearish and volatility still remains high. If the sell-off on Friday continues into next week that will be enough to turn momentum lower and get me short the Nasdaq. Looking at individual stocks makes me think we are due for an oversold bounce, but I know from experience taking positions that don't feel good are usually the best one's to take.

The Nikki 225 bounced off its 50-day MA as expected and is looking poised to break out of its bear flag to the downside. Contrary to what I said last week, because this pattern looks so much cleaner than the action in the Nasdaq I will likely take the short in the Nikki and the Nasdaq, but I will make sure my positions in both are a little light. With a clean break down out of the bear flag the downside price target would be around 12,000.

Open Positions (average true range)
Short Dec Cotton #2, (0.95)

Potential Trades
Short Sept US Dollar Index
Sept Canadian Dollar
Long Dec Soybean Oil
Short Sept Silver
Short Sugar #11
Long Sept Cocoa
Short Sept Nasdaq
Short Sept Nikki 225

Long Sept OJ

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.