John Payne and I just recorded our weekly podcast. See below to take a listen…
Fresh Podcast: Inside Commodity Futures Jan 19 Podcast
MACRO MARKETS: The US stock market continues to face selling pressure on any sizable rallies. The market could not hold this morning’s gains and the march futures settled at 1873 after trading as high as 1907 earlier in the morning. It is impossible to know when the selling will stop but if we break below support the next level is around 1800 (see chart below).
Regardless if you call this a Bear Market or just a correction, the bias is to the downside. Like many of you I prefer it when we are in a bull market but as long as China is an issue, US earnings are sluggish, and crude continues to fall, it will be hard for stocks to rally. For now the market sentiment remains to sell rallies.
Emini S&P 500 Futures
GRAINS: Corn and Beans are higher about 15 and 30 cents respectively since last week’s newsletter. While there have been some short term bullish catalysts for these markets (mildly bullish WASDE, weather issues in South America, firmer cash market), the overall fundamentals are still bearish.
For corn to continue to rally I think we need Crude Oil to go higher or Brazil’s safrina crop runs into issues, neither of which is happening now. The gains in the March/May corn spread is interesting considering how abundant supply is for corn, which leads us to believe farmers are not selling (supporting basis) and lower production in the Eastern Corn Belt (ECB) is having an effect on delivery points.
We are bull spread July/Nov Soybeans as a way to play a potential rally in the Soybean market. We entered at a carry and now that spread is trying to trade as an inverse. I like this spread in case we get serious production issues in South America of the US later this year. SN/SX has limited downside due to full carry only about 20 cents away while the upside has more potential. We also continue to hold our Wheat spreads. I still think March KC vs March Chicago Wheat can trade up 10 to 20 cents (KC over Chicago)
July/Nov Soybean:
March KC Wheat vs March Chicago Wheat
LIVESTOCK: I like bear spreading Live Cattle. I think the summer months (June 16 and Aug 16) are overvalued compared to the fall/winter months (Oct 16 and Dec 16). The index rolls out of Feb LC and into the deferred months (Goldman went to April while others went to June and Aug) will all soon be finished and I think the spreads will come down further. Fundamentally 2016 should be a year where the supply and demand for cattle and beef will come back to equilibrium (after 2 years of a historic bull market) and the charts are breaking down. This is the kind of trade I will put on and give it plenty of time and room to work out.
AUG/DEC Live Cattle
JUNE/OCT Live Cattle
CRUDE OIL: Interesting development happing in Crude right now. While the flat priced futures continue to head lower (see first chart), the spreads are starting to show support at these levels (2nd and 3rd chart). To me this is the first sign of a possible bottom in crude oil. With Iran oil now coming on the market we certainly could go to $25, but we are getting to levels where there is more risk to the upside than the downside. If I were going to take a shot at getting long crude, which is definitely like trying to catch a falling knife at this point, I would look at the spread market. The outrights are too volatile and the options cost a pretty penny due to all the volatility. The spread market seems to me the best way to hedge risk and take a bullish crude position IF you think we have a bounce coming.
CNBC | Societe Generale says Crude Oil could rally more than 35% from here
March Crude:
March vs June Crude:
June vs Dec Crude:
March vs Dec Crude:
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