dt Newsletter - September 27, 2011  View Online | Whitelist Us

Check Out Our Featured Blog Posts!

Determining the Initial Stop Exit Plan
by Tim Chilleri

Determining the “initial stop exit plan” is a very important part of your overall trading strategy. However, it is only that — another small piece in your method of trading. While there are countless ways to approach placing initial stops  …

To read this blog post in its entirety, click here.

Dr. Copper’s Diagnosis is Not Good for Commodity Bulls
by John Payne

Since the middle of February, copper prices have fallen from a high of $4.62 to a fresh low of $3.45 — this has my attention; it should have yours as well.  …

To read this blog post in its entirety, click here.

Pros and Cons of Trading the E-mini Futures Contract
by Drew Rathgeber

Let’s start with a definition. An E-mini futures contract is a smaller version of a bigger futures contract. While there are mini versions of just about any futures contract now, the predominant market is  …

To read this blog post in its entirety, click here.

10 Things You Can Do to Become a Better E-Mini Futures Trader
by Drew Rathgeber

Guaranteed to be a better trader? Well, there are no guarantees; however, below you will find ten suggestions that, in my opinion, can only improve your knowledge of trading. If your knowledge quotient goes up, perhaps that puts you in a better position to become the E-Mini futures trader you wish to become.  …

To read this blog post in its entirety, click here.

Use the Ratio Spread to Stay in Winning Positions
by John Payne

The financial markets provide participants with difficult decisions in every situation. An envious but no less difficult position is one that involves a winning trade. There comes a point when the desire to take profits overcomes the desire to stay in that profitable position. The psychology involving  …

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 dt Futures Trading Blog posts.

- back to top -

Commodity Outlook  

The Track Toward Recovery Continues to Encounter Serious Headwinds.

Unfortunately, it is almost the end of September and the US Special Committee doesn’t seem to be any closer to a compromise to cut deficit spending by the requisite 2 trillion, and that issue continues to hang around the neck of the world economy. On the other hand, with the Euro zone debt crisis also weighing on global investor and consumer sentiment, the track toward recovery continues to encounter serious headwinds. In fact, traders only need to look at a chart of consumer confidence and/or a recent Commitments of Traders positioning report in the S&P 500 stock index futures contract to see that portions of the market have already factored in the prospect of a return to recession. As can be seen in a chart of the S&P non-commercial and nonreportable combined positioning, at least one sector of the stock market recently settled into the most pessimistic posture in “modern” times! Furthermore, classic brick and mortar-type sentiment was also plummeting, as a key bellwether market like copper saw a slide of 85 cents per pound (for a decline in excess of 18%) from the August 1st high to the September 20th low. Without a really serious deterioration in economic conditions, it is possible that some markets might be poised for corrective bounces. On the other hand, despite increased central bank assistance, economic skies are unlikely to brighten unless the euro zone debt calamity is brought under control with a definitive “too big to fail” bond fund and the US gets beyond political ideological battles and arrives at some spending cuts.

US Monthly Consumer Confidence Index

Another issue that might have inadvertently pressured physical commodities over the last 4 weeks was a flight of capital into the dollar. Somewhat surprisingly, the US Dollar over the last month became a flight-to-safety instrument (mostly because of the lack of alternatives) in the face of the latest financial disaster in Greece, and that has put an added downside element in physical commodity markets like crude oil, natural gas, gold, silver, corn, wheat, copper and cotton. In the end, all isn’t lost on the international debt front battle, as Greece now appears to have gotten the message on the magnitude of necessary government employment cuts required by the EU Troika. However, it isn’t clear whether those austerity efforts will result in even more violence and rioting or whether Greece will come up with the necessary cuts, live with them and in turn receive the next tranche of aid. A large measure of negative sentiment has been factored into commodities because of the Euro zone and the US situations, and therefore traders should be on the lookout for even a modest tempering of anxiety, as that could result in rather surprising technical recovery action. In the event of real positive improvements in either of the key headline issues, one could expect to see an extension reaction in commodity markets with supportive fundamental conditions. In our opinion copper, crude oil, natural gas and corn are cheap, while coffee, soybeans and sugar come into the end of September somewhat expensive.

December 2011 Copper

S&P 500 - COT- Futures and Options

Keep a pulse on the industry and access more commodity news.

- back to top -

Markets to Watch 

Corn Strategies  

Unfortunately, we were a bit too aggressive in buying a minor correction in the corn market in the last newsletter, but the basic bullish fundamentals still persist. Outside market forces and the long liquidation selling trend from fund traders and speculators were more bearish than we had anticipated, and the market experienced a significant break off of the late August highs. Better weather in late August and early September and reports of better than expected yields on some corn fields helped to drive the market lower. While the USDA confirmed a lower yield in the September report, they also slashed the demand outlook, and traders took this news as negative. Clearly, the cheap price and high availability of wheat on the world market will help slow corn demand, but the USDA may have already cut the demand outlook enough to absorb this factor, and it may take some major cuts in livestock production to assume a further cut in feed or export demand for corn in the event of a further revision lower in corn supply.

The Quarterly Grain Stocks report at the end of September will set the beginning stocks total for the 2011/12 season. The stocks numbers have been very volatile in recent reports, and last year it appeared that some new crop production was included in the total for the September report, so we expect plenty of market volatility into this number. The corrective break of more than $1 per bushel may have been enough to pull corn down to a level where demand will be too strong given the setup. The USDA has cut its demand estimates to the bone, but we have not seen the corresponding hardships for the industries that are supposedly being impacted by higher corn prices. Corn export demand for the 2011/12 season is set at 1.65 billion bushels, which is already a nine year low, but on the break last week China was rumored to be looking to import 2-5 million tonnes. Cumulative export sales for the new crop season have already reached 34.4% of the USDA forecast for the season, compared with 25.2% as the 5-year average for this time of the year. China is clearly the wild card here. It is in the process of modernizing and expanding pork production. If China expands its hog poplulation by 10% from the current levels, it could use an additional 1.1 billion bushels of corn as feed. The USDA attache, in China sees broiler meat production for 2012 at 13.8 million tonnes, up 5% from this year. If China imports more corn for the coming season, the USDA may need to raise its export forecast considerably.

Corn: US Weekly Export Sales

The USDA has cut its feed usage forecast to the lowest level in 17 years, but even when we include DDG’s generated from ethanol production into the mix, we still see a very tight supply, and the USDA’s feed usage number is lower than what we would expect given the demand trends. Traders expect the USDA Cattle on Feed report, to be released on September 23rd (after this writing), to show September 1st feedlot supply to be nearly 8% above last year. Hog producers are also considering expanding, not contracting, their operations, and pork production is expected to remain above year-ago levels for the rest of the year and into 2012. Weekly eggs-set data suggest that the poultry industry will experience a contraction over the near term, but the USDA still sees 2012 production in the US higher than 2011.

US Corn Exports

Ethanol weekly production numbers have leveled off, but with 14 weeks in a row of profitability in the ethanol refining sector, production does not seem to be at risk of a sudden sharp drop-off. The loss of the blending credit at the end of the year may slow production slightly, but energy prices will be the key. In order to expect an emergency action from the EPA to slow or temporarily halt the blending mandate, it may take a corn price in excess of $8.50. Another reason we believe that the top is not in place yet for corn is that the technical action has not reached an overbought level or shown any kind of topping pattern. In addition, the speculative net long position has not even reached a historic extreme. We see a 400,000 drop in harvested acres due to the discrepancies in the FSA acreage data and also another revision slightly lower in yield for the October report, which will leave the market in a position to need to move to a higher price level in order to force further reductions in demand.

Receive daily information on Corn trading strategies.

- back to top -

Coffee Strategies  

After spending a large portion of 2011 in an extended downtrend, coffee prices saw a sharp rally during August that quickly took the market up towards 3 month highs. The key factor for coffee’s revival was an increasingly tight near-term supply situation, highlighted by ICE exchange coffee stocks holding near historically low levels. Reports that export firms in Vietnam were defaulting on shipments due to a near-exhaustion of coffee stocks in that nation helped to strengthen the August rally. Just as quickly, the coffee market turned around and gave back a large portion of those gains in September. A combination of factors inside and outside the coffee market led to a nearly 30 cent pullback over a three week period. While prices have stabilized as of this writing, we feel there may be further downside left to the selloff and that a retest of the August lows may occur soon.

World Coffee Production

One of the main issues for coffee prices was the erosion of global economic sentiment during the early part of September. Euro zone debt problems on one side of the Atlantic were matched by sluggish economic conditions on the other, creating a market environment that put pressure on coffee as well as other commodity markets. What may prove to be of longer-term importance will be next season’s production in several major coffee-growing nations. Brazil is forecast to have its highest “off-year” coffee crop in history in 2011/12, although the potential for dry weather during the critical flowering period may reduce some of the more optimistic estimates. A projected 10% increase in Vietnamese coffee production will certainly replenish their depleted stocks levels and could offset attempts by growers to stabilize prices by stockpiling a portion of next season’s crop. While Colombian coffee production has not returned to full strength, the upcoming season should show continued improvement from previous years. If some sense of resolution to Euro zone debt crisis and/or US risk concerns produces a “relief” rally in commodity as well as financial markets, the likely rebound in December coffee prices may produce an opportunity to enter the short side of the market for what may turn out to be an extensive downmove.

Receive daily information on Coffee trading strategies.

- back to top -


The wheat market has been in a steep downtrend since peaking in late August, as the emergence of Black Sea exporters and a long liquidation selling trend in corn and soybeans have exerted pressure. Over the next six weeks, we could see some concerns develop for the 2012 production outlook. The southern US plains remain in a drought, and unless that area receives 6-10 inches of rain in the next few weeks, the winter wheat crop could get planted late or not at all this fall. In that case the market will be forced to count on spring-planted winter wheat or spring wheat next year. Argentina’s wheat growing areas are also dry, and dry weather is threatening to cause issues with Ukraine’s plantings as well. While soft red winter wheat stocks in the US are plentiful and world stocks are ample, the USDA could lower its 2011 US spring wheat estimate in the Small Grains report on September 30, as excessive rains this past spring likely reduced harvested area. Also, US feed wheat consumption has could have been driven higher because the drought in the southern plains pulled cattle off of pasture and onto feedlots. In the September Supply/Demand report, the USDA projected feed usage at just 240 million bushels, but the enclosed chart shows plenty of years in which it totaled 300 million bushels or more.

US All Wheat Feed & Residual

The winter wheat crop was only 14% planted as of September 18th, compared to 19% last year and a 10-year average of 22%. This level ties with the previous record low set in 2000 (with data going back to at least 1985). Texas was only 8% planted vs. 21% on average, and Oklahoma was 4% planted vs. 16% on average. A forecast for drier weather for the southern plains for the next few weeks could delay plantings even more. Kansas winter wheat crop insurance for this season is set at $8.62, up from $7.14 this past year, and this should boost efforts to get the crop planted. However, producers will be planting on any land possible. If it is too dry, they can collect insurance and plant a summer crop in the spring.

Receive daily information on Wheat trading strategies.

- back to top -

E-mini S&P 500  

Over the last 30 days the December S&P 500 has recovered nearly 57% of its July-August downdraft. The 268 point break from the July 8 high indicated a market with a trend that clearly pointed to the downside. We think that the rally from the August 9th low of 1072.00 has been nothing more than a corrective rally in a bear market that presents a selling opportunity for another downside move.

The Commitment of Traders data as of September 13th showed non-commercial and nonreportable traders with a net short position of 167,146 contracts. While the aforementioned corrective bounce had reduced the net spec short positioning by 86,100 contracts since the August 30th report, it was still 278,313 contracts away from the extreme levels reached in November 2008. For this reason we think it is quite possible that the December E-mini S&P 500 has not yet reached the extremely bearish sentiment that it registered during the 2008 financial crisis. Coincidentally, the extremely low levels achieved during the November 2008 timeframe produced a print on the S&P 500 of 739, 38.0% below the current level of 1193 (as of this writing). While we think a lot would have to happen before those extreme levels were challenged, we feel that a slide toward the 1000 level is likely in the coming months.

The corrective advance from the August 9th low unfolds in a three-wave pattern, with the third and final wave appearing to last too long and falling short of its price target. The first two advances lasted 8 trading sessions and covered 128.50 and 118.00 points, respectively. As of this writing the third wave has lasted 9 days and has only covered 91.0 points, suggesting a loss in upside momentum. There is a cluster of resistance around 1238.75 to 1248.25, and there is a 61.8% retracement level of the entire May 2nd through August 9th decline at 1248.90. The break from May 2 to June 16 also leaves a key level of resistance above the market at 1248.25.

December 2011 E-mini S&P

When we look at the entire decline in the S&P 500 from the May 2nd highs, we see a breakdown that has unfolded in a four-wave pattern that has one more wave to the downside to go before completion. Based on the May 2nd through June 16th decline of 109.75 points, we forecast a downside target at 974.00.

Weekly Nearby E-Mini S&P

Receive daily information on E-mini S&P 500 trading strategies.

- back to top -


At its low last week, December copper was down from the September high by as much as 85 cents per pound. December copper also showed some RSI divergence between the early August washout low and the mid-September washout low. It also appears that that low volume attended the mid September washout in copper, which might be a sign that the sellers are running out of momentum. In the September 13th COT positioning report, the copper market registered a net spec short position of 4,062 contracts. The market then fell another 27 cents, which could have resulted in the largest net spec short position in copper since mid 2009. Furthermore, it would seem like the $3.73 to $3.80 level on the weekly nearby chart was some form of pivot point or consolidation support back in 2010. Copper didn’t seem to make a bottom that year until the week of November 15th, but the market did manage a fairly impressive fourth quarter recovery of roughly $1.06 per pound! In the short term, the market’s ability to respect the autumn, 2010 consolidation support of $3.73 to $3.80 could be a signal of the beginning of a bottom in copper. Not to confuse technical traders, but the copper market last week did see news that Chinese refined copper imports for August were the second highest tally of the year after the January total. This could send a signal to the trade that some measure of demand is holding together. Fibonacci retracement analysis from just the August and September washouts provides a modest upside target of $4.0275. A shift to a renewed uptrend pattern might be confirmed with a rise back above the 50% retracement of $4.1275.

Copper - COT - Futures and Options

Receive daily information on Copper trading strategies.

- back to top -

March Sugar  

The sugar market appears to be forming a large topping pattern between the 30.60 and 25.40 levels. March 2012 sugar has spent more than two months inside this range and is in the process of challenging the lower end of that range at the August low of 25.38. A closer look at the chart for March sugar shows the market forming a double top pattern that has very bearish implications. Measuring the distance from the late July high of 30.14 down to the early August low of 25.38 points targets a further slide to 20.62. While March sugar has not confirmed a move below 25.38, the 14.9% decline from the August 24 high indicates that the bears are in control and the market will ultimately penetrate that level.

Price momentum indicators showed a bearish technical divergence on the advance to a new contract high of 30.60. The weekly chart for sugar shows three signs of weakness since then: failure to break resistance at 32.00, a negative high-volume weekly reversal on the week of August 26th, and finally the bearish outside weekly reversal on high volume that occured in the week ending September 16th.

March 2012 Sugar

The latest Commitment of Traders report as of September 13 showed non-commercial and nonreportable traders combined with a hefty net long position of 182,996 contracts. While the speculators have slashed their long positioning by 21% from the 2009 extremes, they still hold a historically large net long position. This suggests that the sugar market could see further long liquidation before it reaches more neutral readings near 100,000 contracts. We like the short side of March sugar and would sell rallies into the 27.00 area. Confirmation of a close below the August 8th low 25.38 puts the double top pattern in play, with downside targeting below at 20.62.

Receive daily information on March Sugar trading strategies.

- back to top -

***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.

- back to top -

In This Issue
checkmark Announcements
checkmark Commodity Outlook
checkmark Markets to Watch
checkmark Premium Offer
checkmark Featured Video
checkmark Upcoming Webinars
checkmark dt Subscriptions
checkmark About dt
Trading Tip
Never add to a losing position.

Analyze your losses. Learn from your losses. They’re expensive lessons; you paid for them. Most traders don’t learn from their mistakes because they don’t like to think about them.
Did You Know?
Daniels Trading offers a variety of Trading Advice options, including expert advice from our professional dt brokers.

Learn more about our services and choose which is best for your trading style here.
Interact with Us!
facebook  twitter  linkedin  digg
youtube  RSS Feed  WordPress
Premium Offer 
dt Pro and IMA Combo Offer Register for your FREE dt Pro Futures Trading Software Demo and Insider Market Advisory (IMA) Trial

Gain an edge with our premier online platform and daily commodity futures market updates!

Trade hot commodity futures like gold & crude oil with our flagship trading simulator. Plus, stay on top of important news & market events with our Insider Market Advisory trial!

This premier futures service includes:
  • Access to streaming real-time quotes and charts
  • Trade analysis and recommendations for various markets
  • Key market technical numbers including RSI, stochastics, moving averages, support, resistance and pivots
  • Direct Market Access and trade in both pit and electronic markets worldwide

Activate your complimentary trials today!

Register Now

- back to top -

Featured Video 

Accept Risk/Reward

Learn how to accept the concept of Risk/Reward, balance your expectations, and manage both of these concepts while trading with Daniels Trading.

Click here or anywhere on the video image below to launch the “Accept Risk/Reward” video page on the Daniels Trading website.

Choose Your Commitment

- back to top -

Upcoming Webinars
There are no webinars currently scheduled for the week of September 27.  Webinars will resume the week of October 3.

- back to top -

dt Subscriptions 

Get notified by email whenever we publish a news article or blog post.

Subscribe to daily dt Commodity News email updates via Feedburner.

Subscribe to daily dt Futures Blog email updates via Feedburner.

- back to top -
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.

Watch our "About Us" video.

Visit Daniels Trading

- back to top -

If you did not register the email address above and believe you received this message in error, please call us toll-free at +1.800.800.3840, or click the following link below to remove your address from the mailing list: http://www.danielstrading.com/subscription/unsubscribe/?email=%%EmailAddr_%%.

(It may be necessary to cut and paste the above URL if the line is broken)