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Announcements
Check Out Our Newest Blog Posts!
The US Dollar Index:
A Currency or the Pulse of the Futures Markets?
by Leslie Burton
Created in 1973 after the disbanding of the Bretton Woods system, the US Dollar Index is comprised of the exchange rates of the EuroFX, Canadian Dollar, British Pound, Japanese Yen, Swedish Krona and Swiss Franc. Its highs have taken us to around 160 and the lows about 70.
To read this blog post in its entirety, click here.
Futures Options:
Using a Delta Neutral Trading Strategy
by Drew Wilkins
Many traders are constantly looking for a way to manage risk. Employing a delta neutral trading strategy can help to manage exposure to the markets. This type of strategy will allow speculative traders to hedge their positions against adverse price movements.
To read this blog post in its entirety, click here.
We value your feedback and comments. Please feel free to comment on these posts and view and comment on other blog posts.
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Commodity Outlook
Many Commodity Prices May Be Soaring
The FOMC decision to provide for purchases of $600 billion in US government securities through the second quarter of 2011 may have been a little weak for some players. However, the Fed did suggest they would also purchase $250 to $300 billion in mortgages, and that might upgrade the market's view of the Fed's move to "middle of the road." It would appear that the Fed managed to walk a tightrope between not doing enough and doing too much, as they provided some added confidence to the marketplace but they temporarily have avoided stoking inflation fears. A number of physical commodity markets have recently been tracking very tightly to the action in the Dollar, and an overly aggressive QE2 move by the Fed would probably have pushed the Dollar sharply lower, and that in turn could have sent many commodity prices soaring.
Because the US Dollar still has a very serious set of debt issues to deal with and it still is unclear whether the US political situation will start to take the heat off the Greenback, it would be surprising if the Dollar were to suddenly stop going down and mount a sustained recovery. However, in the event that the December Dollar Index does manage a couple of closes back above 78.10, it could be just to signal for what we think is a badly needed technical balancing of physical commodity prices.
We have been using a composite of the non-commericial and non-reportable net positions from the Commitments of Traders Reports repeatedly in this letter over the last two months just to highlight the overextended technical condition of physical commodity markets. However, one should not take our short-term balancing call as a sign that we think the upswing in physical commodity prices has run its course. In the face of quantitative easing, mostly positive global economic numbers and numbers from the US that suggest the economy is still holding its own, we would consider a break in equities, corn, copper, crude oil, gold, silver, Canadian, Aussie or platinum as a buying opportunity.
Keep a pulse on the industry and access more commodity news.
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Markets to Watch
GOLD TECH TARGET
For the short term, the technical outlook for gold indicates that the December contract is in the process of a three-wave corrective off of the October 14th highs at $1388.10. Prices had been on a parabolic move off of the July 2010 lows at $1159.30, climbing more than $228 in less than three months. Meanwhile, the decline off of those highs has come on lighter volume, and a subsequent bounce was on even lighter volume and was accompanied by a decline in open interest. As a result of this structure, we expect a further slide in December gold below $1300 to mark the conclusion of the downside correction. We would be a buyer of gold at $1299 to position for a final advance back above the October highs into the $1410-$1420 area. The downside risk on the trade should be limited to a close below the 50% retracement of that rally, or $1273.
The market seems to be set up for a significant high in the 1st Quarter of 2011.
There appears to be a cluster of upside price targets at the $1450 to $1570 area, sometime between now and the 2nd Quarter. The price rally from the September 1999 low at $252.50 to the March 2008 high at $1003.20 unfolded in three waves. The total advance of $750.70 encountered a deep $300 correction through the sub-prime crisis of 2008. Using that seven-month correction as the mid-range of the rally projects a further upside price forecast to $1449.70.
However, we cannot rule out the potential for a more dynamic price advance toward $1600. A look at the uptrend off of the November 2008 lows at $699 projects a further upside push toward $1570. The first advance took 13-months to travel $181, and using the February 2010 lows at $1052 as a second push measurement (legs of equal proportion) points to a further upside charge to $1570 by the 1st Quarter of 2011.
Finally, from the May 2006 peak to the March 2008 peak, the market carved out a monthly channel range of $350. As a point of reference, the 2010 low for gold was $1045.20, and the high so far is $1383.90, a move of $338.70. For 2011, the projected upper price range ranges from $1490 to $1600.
Receive daily information on Gold's Technical Target trading strategies.
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CORN STRATEGIES
The corn market faces a key USDA report this week. The last report showed an aggressive downward revision in US yield and a sharp drop in production, and March corn consolidated just under the $6.00 level in the month since. While we have seen a slight setback in export interest for US corn since the surge in prices, we have NOT seen a surge in breeding stock liquidation in the livestock sector. Nor have we seen ethanol plant closures, weakening energy prices or economic reasons to suspect less demand for feed grains on the world market.
Instead, we have seen an expanding world economy with the potential for increasing demand for feed grains from China, which opens the door for an increase in US exports. Cumulative export sales for corn are on pace to reach the current USDA projection; weekly ethanol production hit record highs for the past few updates; and ethanol stocks are on a decline. Poultry production is expanding, not contracting, and live cattle futures prices on the deferred contracts have move to high enough levels to encourage cattle feeders to place more animals on feedlots. Hog futures were already in a decline going into the October report, and the steep downtrend seems to be a function of seasonal increase in supply and not liquidation of breeding stock. All of this suggests that the corn rally to date may not have been enough to slow down demand. The market still faces the second tightest stocks/usage level in history for US corn and the second tightest stocks/usage level since 1973 for world coarse grains.
At 902 million bushels, 2010/11 US corn ending stocks will be high enough to avoid severe price rationing, but the market will need to be confident that 1) the profitability outlook is high enough to encourage an additional 5 million acres for the 2011/12 season, 2) weather will be sufficient for a near record yield for next year and 3) there are no further revisions lower in production or higher in demand for the coming season. But going into the November 9th USDA Crop Production and Supply/Demand reports, traders were looking for a drop of 1-
2 bushels per acre in yield. If demand numbers are left unchanged and the USDA drops yield by 2 bushels/acre, then ending stocks for the 2010/11 season would come in near 742 million bushels, down from 1.708 billion bushels last year. This would be the lowest ending stock level for US corn since 1995/96. This would result in a stocks/usage ratio of 5.5%, close to the record low of 5.0% set in 1995-96. Last year the ratio was 13.1%.
If we plug in a lower beginning stocks number for the 2011/12 season and assume a jump of 5 million acres planted and a record yield of 165 bushels per acre for next year, ending stocks would reach just 1.3 billion bushels, and the stocks/usage ratio would be 9.7%. Since 1973, there have only been a few times when the ratio fell under 10%. This illustrates how the current tight supply situation for corn could require two years of strong pricing to rebuild stocks to a more comfortable level.
If we assume a yield of 161 bu/acre next year, still the second highest on record and we still see a 5 million acre increase in plantings, ending stocks slip to just 970 million bushels with a stocks/usage of 7.1%. Clearly, the potential for extremely tightness this year and the outlook for a continued very tight situation next year is great if we do not see conditions favorable for an increase of 5 million acres or more for the coming season, which means high corn prices.
Receive daily information on Corn strategies.
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FEBRUARY GOLD
The gold market looks to enter 2011 with a list of bullish themes. Not surprisingly, historic gold price levels are being accompanied by truly historic conditions. However, after a decade long runup in prices, we think that the market is poised to make a rather fantastic top. With nearby gold prices almost six times as high they were when the market made its low in 1999, clearly the market has made a dramatic return from being on the trash heap of the investment world to what might now be called one of the world's most favored assets. When it put in its major low at the end of the 1990's, the gold market made what we consider a classic, "textbook" bottom. In looking ahead for signs of an eventual top, we suggest traders consider the inverse of the 1999 "textbook" bottom as a model.
However, while we see the gold top drawing near, being able to predict the actual price high could prove difficult. The gold market is currently drawing capital from almost every corner of the earth off of a long list of themes. For a couple of years now we have been suggesting that the final rally in gold probably would not come as a result of flight to quality issues but instead come on a real, bona fide inflation event. And while we think gold will forge a major historical top sometime in 2011, that top could be $1,500, $1,600 or even higher. When the time comes to determine whether the gold has indeed peaked, we will look to the key factors that caused the 1999 bottom for a signal that market has factored in all of in its bullish fundamentals.
By the late 1990's gold prices were under heavy pressure. Prices were falling to the cost of production; banks that owned gold were loaning it out; the futures trade was posting record short positions; and gold producers were even forward selling their production far into the future. Not surprisingly, this pervasively bearish environment prompted central banks to make the now infamous suggestion that gold was "no longer an investment class instrument." To add insult to injury, the Dollar was in the midst of a sharp appreciation that led many to conclude that the Greenback, and not gold, was the ultimate safe-haven instrument. Lastly, the sharp runup in equities that started in 1994 and was burning hot by 1999 created the impression that gold investors were missing out on the huge rates of return that were being offered by mutual funds and other equity vehicles. In short, by 1999 almost everyone that would or could normally participate in the short side of the gold market was doing so, including central banks, producers, banks and futures and options traders.
If we take the lessons from the past, we can look for the opposite extremes for signs that the gold bull market is about to burn itself out. The first place to start for a physical commodity like gold is production. Because gold production did not really start to show signs of recovery until midway through 2010, it is premature to call for a top based on classic supply factors.
It is also possible that Central Banks could signal a sign of a top, but so far we have only seen indications that Central Banks are moving from being net sellers to net buyers. We have to think that the gold market will probably benefit from that shift for at least a couple quarters more. And in the event that major central banks like China move to expand their gold ownership, it is possible that central bank gold buying could continue through 2011.
While the speculative positioning in the futures managed to post a number of new record longs throughout 2010, the breadth of speculators participating in the market suggests that it could take a noted expansion in those readings, perhaps to a net long in excess of 370,000 held by a combination of non-commercial and non-reportable traders, to signal a top.
Another element that could point to a market top would be evidence that producers are once again selling their production forward. Currently most major producers are still unwinding their hedges, and there is no sign that they are resuming their hedging activity.
Inflation - The Final Act for Gold?
Gold is still considered one of the few viable flight-to-quality instruments in an environment where economic and political uncertainty continues to reign.
Clearly, many markets are expecting US Fed policy to remain loose, as the FOMC continues to make it clear that quantitative easing will be aggressively utilized until the US economy responds. Surprisingly, the gold market has seen almost a decade of gains without classic inflationary psychology serving as its driving force. However, as the sub-prime/sovereign debt crisis recedes, we think gold and other markets will see an extension of the rally off of inflationary expectations.
In order to fully embrace an inflationary view, the markets will probably need to see evidence that the US economy is getting back on a positive track. But while the bull camp looks to retain control over prices, periodic corrections of $50 per ounce or more might become more commonplace as the gold moves to factor in the remainder of its historic bullish case. Just a normal retracement of the July through October rally in December gold could produce a setback to $1,300.
The top of the current uptrend channel in December gold comes in at $1,401 on November 9th, with that level rising to $1,415 by December 1st.
Receive daily information on February Gold trading strategies.
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DECEMBER NATURAL GAS
By most classic, fundamental arguments the downtrend pattern in natural gas
looks like it can continue. The lack of a weather threat, abundant US storage
levels and a no imminent change seen in US energy policy suggests that the bear
camp could retain control over prices for a while longer. However, with the spec
and fund position in natural gas having recently moved to more than 92,000
contracts net short and some commodity funds reportedly moving to increase their
allocation into natural gas, it could be a signal of an end to the downside
pattern.
While it might require some forward movement on tax credits for diesel
engine conversions or news of a genuine effort to bring about a new energy
program that would force the increased use of natural gas, the pressure to
consider natural gas as a supplemental source of energy could be set to increase
directly ahead, as nearby crude oil prices last week managed to climb back above
$85.00 per barrel for the first time since May 13th.
With the change in the
Congress from the recent election and a temporary call for bipartisan action, it
is possible that the tea leaves might be starting to line up for the bull camp
in natural gas. Some will suggest that supply is so burdensome that Washington
will have to play a role in any bottoming of natural gas prices. On the other
hand, on the day of the big spike down low on October 25th, the natural gas
market finally saw volume and open interest fail to confirm that new low move,
and subsequently the market was able to climb back above a series of key
downtrend channel resistance points. This could be the start of a technical
bottom. If nearby crude oil prices were to rise back toward $90.00 a barrel or
Congress were to toss around ideas of changing the energy policy, it could be
enough to invoke a rather significant short covering rally.
Receive daily information on December Natural Gas trading strategies.
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MARCH COFFEE
March coffee has experienced a tremendous rally of over 50% of its value off of
the May 2010 lows. A number of factors have contributed to the rally, not the
least of which is the breakdown in the US Dollar. Coffee prices have been a
beneficiary of the "risk trade," and that has taken prices up toward their
September 1997 highs at $210.00. During this time the spec net positioning has
reached a 3-year extreme, suggesting that the excitement over the runup is
likely overdone.
On top of that, there are a number of factors that we think
makes coffee ripe for a downside correction and perhaps more. Price momentum
indicators have turned lower after diverging from their late October levels,
which suggests that the market has become overbought. A closer look at the May-
October rally highlights a high degree of symmetry between the wave structures
and further suggests that the latest run over the $206 level satisfied upside
price objectives. The advance unfolded in a three wave pattern with the average
wave spanning $32. Furthermore, prices have begun to break down out of the late
October trading range, which suggests that a significant and tradable decline in
price is setting up in March 2011 Coffee.
Receive daily information on March Coffee trading strategies.
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DECEMBER BRITISH POUND
While able to lift away from the spike lows in late October, the Dollar remains
near the lower end of the recent downtrend and close to 10-month lows. The main
pressure continued to stem from widely held expectations that the Federal
Reserve would begin a fresh round of quantitative easing measures in order to
stimulate the economy. While recent US economic numbers have not been that
consistently bad, there has not been any "game-changing" data that has dampened
the market's consensus that the monetary easing program would begin at last
week's FOMC meeting. Even with the FOMC meeting and the US mid-term elections
out of the way, turbulent trading with the Dollar is likely to continue as the
Fed will need to be very careful with how much inflation these quantitative
easing measures could generate. With that in mind, there may be an opportunity
to benefit from a currency that appears to have a less volatile outlook during
the upcoming weeks.
After a late summer pullback, the December Pound has been able to resume a
recovery rally from lows made in the wake of the UK Parliamentary elections in
May. Although there have been ideas that the Bank of England may start up
quantitative easing measures for the UK, support for that type of action on
their Monetary Policy Committee has been limited to a few members at most. One
reason for this has been the new budget austerity measures announced last month,
which are intended to cut average department spending by 19% and to eliminate
budget deficits within 5 years. While one result of these budget cuts will be
the loss of nearly 500,000 government jobs over the next 4 years, unemployment
levels for the UK have been running below those for the Euro zone and the US. It
may be too early for these austerity measures to have a direct simulative effect
on the UK economy, but improved sentiment numbers over the past few weeks could
help to limit any easing actions that the Bank of England may take. Even though
the December Pound has been close to new highs for this move, a near-term
pullback may present a better opportunity to catch this longer-term uptrend.
Receive daily information on December British Pound trading strategies.
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***This report includes information from sources believed to be reliable and
accurate as of the date of this publication, but no independent verification has
been made and we do not guarantee its accuracy or completeness. Opinions
expressed are subject to change without notice. This report should not be
construed as a request to engage in any transaction involving the purchase or
sale of a futures contract and/or commodity option thereon. The risk of loss in
trading futures contracts or commodity options can be substantial, and investors
should carefully consider the inherent risks of such an investment in light of
their financial condition. Any reproduction or retransmission of this report
without the express written consent of The Hightower Report is strictly
prohibited.***
Discuss Trading Strategies with Us!
If you'd like to discuss trade strategies to determine the best execution strategy for you regarding the market, contact us or call us toll free at 1.800.800.3840.
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Survive! In futures trading, the ones who stay around long enough to be there when those “big moves”
come along are often successful.
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Daniels Ag Advisory: Market Opportunity Snapshot
Corn Opportunity
The corn market has seen a tremendous counter seasonal rally starting with the June 30 stocks report. The USDA cut the stocks on hand by 300 million bushels starting the current bull market.
In this Market Opportunity Snapshot, you will discover the following topics:
- The USDA October Market Shocker
- The 2010 Corn Crop
- The Ethanol Mandate
- The China Corn Crop
- 2011/2010 Corn Outlook
- Corn Opportunities
- Trade Ideas
Don’t miss out on this exclusive corn futures report!
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Featured Video
Choose Your Commitment
In order to participate in the futures markets, commitments must be made in two specific areas; capital and time. These vary from trader to trader depending on available risk capital and chosen trading style.
Click here or anywhere on the video image below to launch the “Choose Your Commitment” video page on the Daniels Trading web site.
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Upcoming Webinars
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Brian Cullen |
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Technical Analysis SIMPLIFIED:
3 Webinars in 1 - A Fast Track Technical Primer |
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Tue, 11/09 |
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02:00 PM CST |
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You've seen the many features in our Technical Analysis SIMPLIFIED series. Now seasoned technician Brian Cullen has consolidated his other presentations into a Fast Track Technical Primer. Brian will cover critical ground in a short time without skimping on the details. You'll learn the required chart patterns and set ups every technical trader should know and understand to identify major breakouts, reversals and trends. Fast track your technical trading knowledge in little time with this exciting new webinar opportunity. |
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Day-Trading With Market Profile |
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Register now for this LIVE web event hosted by seasoned day-trader, Kevin "Huddy" Hudson. During this one-of-a-kind presentation, Huddy demonstrates how he dissects the eMini S&P seeking worthwhile risk/reward setups. Huddy reveals how he applies Market Profile tools from Trade Angle Strategies (TAS) to pinpoint entries and exits with precision. Attendees qualify for a special Daniels Trading offer at the conclusion of the webinar that you won't want to miss. This is an event that may change the way you trade forever! Register NOW!
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Huddy is the Founder of Channel-Trading.com and a professional day-trader who trades for a living. He operates a popular online trading education room where he teaches other screen traders how exploit high probability trades, control emotions, and execute a trading blueprint built for success using Market Profile. Huddy's personal touch and presentation skills are top notch which consistently earns him rave reviews from both novice and experienced traders alike. |
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Capture the Move Webinar Series: "The CFRN Indicators" |
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The Tools that Make Sense in Intraday Trading!
Identifying and profiting from trend changes in intraday trading may look easy in hindsight, but in the heat of a trade, traders often lose for many reasons. CFRN Indicators are designed by traders who trade for a living for traders who want to trade for a living. The developers have been through the costly lessons in trading and bring to you the structure and discipline that their indicators and the structure of their trading package provides.
Why try to re-invent the wheel when you may try out the CFRN Indicator Package with DT Pro Simulator to experience the benefits of trading with constant support of a community of traders who trade for a living? Key filters can pay for themselves in exacting buy/sell signals and garnishing profits while keeping a manageable risk parameter to your trades. Your hosts DeWayne Reeves, Michael Bourque and Burton Schlichter will be pleased to show you the CFRN Indicators and address any of your questions or concerns in trading. |
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About Daniels Trading
Daniels Trading is a relationship-focused commodity futures brokerage located in the heart of Chicago's financial district. Founded in 1995, we have a history of providing effective and reliable trade executions to both individual traders and institutional investors around the globe. In addition to our focus on relationship and execution, Daniels Trading is a leader in providing ongoing education opportunities and resources for our customers.
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