Sold any $1,000 gold futures? Or $110 crude oil? Or $15 soybeans? Or $13 what? Or $20 silver?

Me either. Seems like we ought to be with prices at these levels, but who can take the chance? You certainly can't anticipate any "corrections."

I know traders are supposed to like volatility, but I'm cooling it for a while as many markets seem to be a little out of control. About the time it looked like the stock indexes were about to reward the bears with an extended downtrend, the $200 billion Fed intervention interrupts the move. And the hedge funds (or some other sources?) are making it tough to trade markets with a string of extreme moves -- oil, grains, soybeans, cotton, you name it.

So, in case you have been wondering about the lack of postings recently, I'm just being more cautious and reassessing things. No mystery about sittin' and spittin' for a while.

Posted by The Mystery Trader at 11:18 PM | Permalink | Comments (0) | TrackBacks (0)

Everyone’s excited about wheat these days. And with good reason. The U.S. Department of Agriculture says the wheat carryover at the end of this season will be the lowest in 60 years, and wheat is battling with corn, soybeans and other crops for a bigger share of 2008 crop acreage as all have hit unprecedented price levels.

As the only type of wheat not yet sown for 2008, the Minneapolis spring wheat contract has been leading the charge for wheat. Since topping an unheard of $11 a bushel on Jan. 15, it has had at least 10 limit-up (30 cents) days, and there is talk of $20 wheat.

But the exchanges have increased daily limits to 60 cents a bushel beginning Monday, sometimes a sign the end of a bull move is near. And one of wheat’s acreage competitors, soybeans, posted another shooting star candle top warning Friday on somewhat bullish fundamental news – a 15 million bushel decline in the carryover estimate – as traders rejected higher prices, reflected by the shooting star’s long upper tail.

It’s too late to get onboard the rise in wheat with a long position and too risky to go short at this stage. But while wheat is doing its thing, has anybody noticed what is happening in coffee? Coffee futures have broken above 2005 and 2007 highs – in fact, coffee futures prices on Friday surged to their highest level since early 1998 and have posted six years of higher lows.

Looking at the daily chart from VantagePoint Intermarket Analysis Software, the indications for an uptrend are all there: (1) short-term difference crossing above the long-term difference and above the zero line, (2) Neural Index moving to 1.0, and (3) a predicted medium-term moving average crossover to the upside, which would have gotten you into a long position in the vicinity of $1.35 a pound. To that, you might add (4) a multi-year breakout to a new high and (5) a big bullish white candle Friday on the breakout.

And take a look at cocoa futures, which may be setting up a similar scenario.

I am not a big fan of New York markets, but it's a good bet the hedge funds, the big players in various commodity sectors, have noticed. We’ll see what happens.

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Posted by The Mystery Trader at 10:31 PM | Permalink | Comments (0) | TrackBacks (0)

We're not saying that soybean futures peaked Tuesday, and we don't know what fundamental sent them to a new record high of 13.73 a bushel, March contract (other than panic buying in wheat, primarily the Minneapolis contract for spring wheat that is still in competition for acres with corn and soybeans this year). But when traders rejected the higher price levels and closed the market lower, it left what appears to be a shooting star on a candlestick chart (or a key reversal on a bar chart).

Maybe soybean prices aren't ready to sink yet, but note on the chart what happened after the last prominent shooting star on Jan. 14. VantagePoint charts based on intermarket analysis data show several signs of at least a temporary top: (1) the predicted short-term difference crossed below the predicted long-term difference, a sign of a weakening trend, and (2) the predicted neural index dropped to 0.0, an indication that the short-term trend will be lower.

The last shooting star didn't start a bear market but a $1.52 a bushel decline from the high at $13.41 1/2 on Jan. 14 to the low at $11.89 1/2 six trading days later left a lot of room for a short-term trader to make a nice profit on the short side.

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Posted by The Mystery Trader at 02:01 AM | Permalink | Comments (0) | TrackBacks (0)

Amid a volatile week in a number of markets and more talk about recession and bear markets, it may be hard to remember that there’s a war going on – not a shooting war as in Iraq or Afghanistan but a war over planted acreage in the U.S. heartland.

Some have declared the bull market in grains and soybeans and commodities in general – notably oil and metals – is over, and it was easy to think that way after limit-down days last week. But, almost as quickly, there were limit-up moves so one can’t be too sure about any long-term trend. Many of the headlines center on the near-term, 2007 crop contracts, but the real battle involves prices for 2008 crops. Which market will be the most attractive at planting time?

That question still seems to be far from resolved. After last week’s erratic price action and talk about the seasonal “February break,” new-crop corn prices lost only 5 cents a bushel for the week and new-crop soybeans 20 cents. So little has been decided yet.

Hard red winter wheat is already in the ground for 2008. The main factor here is weather, and you can expect the crop will be “killed” at least several times before harvest, if past history is any guide. The main battle is between corn and soybeans and, to a lesser extent, spring wheat traded in Minneapolis and cotton.

We are still more than two months away from the U.S. Department of Agriculture’s first official estimate of acreage for 2008, the planting intentions report due March 31, but several of the most knowledgeable sources are already out with their estimates. As you see the play back and forth in prices during these cold months, keep these estimates in mind when you look at what farmers, analysts and traders are thinking about 2008 crops:

American Farm Bureau economist Terry Francl – 88 million acres of corn and 69.5 million acres of soybeans.
Informa – 90.048 million acres of corn and 68.97 million acres of soybeans.
Pro Farmer – 88.17 acres of corn and 71 million acres of soybeans.

The estimates may look about the same, but just small shifts from these guesses could have big impacts on prices because the lower end of acreage estimates may not be enough to cover projected usage next season. And that’s with trendline yields. If the current La Nina condition (cold Pacific Ocean water) continues into July, odds are high for drought in the Plains and below-trend yields, according to some long-range weather forecasters.

Which will give first? Prices? Acreage of one crop or another? Demand? Look for 2008 to be a very interesting, volatile year for agricultural markets.

Posted by The Mystery Trader at 07:56 PM | Permalink | Comments (0) | TrackBacks (0)

Can the Fed and other central banks shape economic conditions and induce stock market rallies? Lots of people seem to think they can, believing the surprise 75-point cuts in the Fed funds (from 4.25% to 3%) and discount rates Tuesday will help the economy avert a recession and lift stocks out of their recent funk. Others see the latest Fed interest rate cut as an ominious sign that "Hey, things are really bad," especially since it came a week before a regularly scheduled Federal Open Market Committee meeting.

So far, the Fed and central banks have thrown a lot of ammunition at the unfolding economic problems sparked by the downturn in housing: (1) Injecting large amounts of money into the banking system to provide credit liquidty and pushing banks into making loans they might not want to make, (2) cutting Fed funds rates four times since September including Tuesday's big reduction, with another possible 50-point cut at next week's FOMC meeting and (3) developing a "stimulus package" that President Bush will probably reveal in his state of the union message.

My take: (1) Throwing money into the system seems to me to be inflationary, the exact issue the Fed has been trying to battle, and debts are just being pushed from one pocket to another. (2) Is the interest rate weapon a six-shooter -- what do we do when we run out of those bullets? (3) Short-term fixes may be good for temporary relief (questionable in the current situation) but just slide dealing with the real problem back and, most likely, making the problem progressively worse.

What do the Fed or Administration have left to manipulate the economy away from a recession? In the mid-1970s when oil prices rose sharply, commodity prices hit record highs, the stock market tumbled -- any of this sound familar? -- the wise thinkers of government came up with wage and price controls. That led to shortages, long lines at gas pumps and other nightmares, and it didn't do much for the stock market either. One can only hope today's leaders don't try to repeat that mistake.

The Fed and the government tend to follow the market and come up with reactive "solutions" they hope will work but are short on proactive answers. Instead, they seem to interfere with natural economic cycles and ultimately make conditions worse than they might have been. It is amazing to me that bankers, who should be the smartest people, do some of the stupidest things (how could they forget the savings and loan debacle a generation ago?) and that someone will package their mistakes so that the burden is shifted onto the public.

In any case, it looks like the R word is here now and that it will be a rocky time for many markets.

Posted by The Mystery Trader at 04:55 PM | Permalink | Comments (0) | TrackBacks (0)

Another one bites the dust – another record high, that is. It’s become almost a daily occurrence. The $100 record for a barrel of crude oil – and lots of bets on $200 crude – and the move in gold above $900 an ounce have been well publicized.

Now, in the aftermath of the U.S. Department of Agriculture reports Friday, corn and the soybean complex are getting in on the act, following the path of wheat, which set its record above $10 a bushel in December.

How many chances have farmers ever had to sell corn futures above $5 a bushel? I can only recall one other time in 1996. And they have never had another opportunity to sell soybean futures above $13 as they have the last few days. Finally, beans in the teens, long after that that chant began when prices hit the previous record of $12.90 a bushel briefly in June 1973 when most farmers had no soybeans left to sell at the time.

But are the highs in after Monday’s price action? Is it time to go short these markets? History suggests yes, jump on this opportunity. So do the daily candlestick charts for 2008 soybean futures, where Friday’s action looks like a big shooting star, a bearish formation.

But are we in a monumental turning period in history where old price levels no longer apply, just as happened in the 1970s? This does appear to be a new demand era, with corn for ethanol acting as the catalyst and creating another major battle for acres for the 2008 crop. This battle is far from resolved and appears capable of continuing to keep the drive going for 2008-crop futures.

In short, it won’t be easy to go short in a falling-knife situation, but a drop below $12.50 in March soybean futures would create a tempting VantagePoint medium-term downside crossover.

Posted by The Mystery Trader at 05:22 AM | Permalink | Comments (0) | TrackBacks (0)

If you trade the grains or soybeans, Friday is a big day for you, even if you seldom look at fundamentals. The U.S. Department of Agriculture will release a series of reports Friday morning that generally simply tweak estimates that are already widely known. However, in this sensitive year with prices at record levels, even small changes in those reports could be very significant for the ongoing direction of prices. In fact, the surprise might be if the reports don’t have any surprises.

The first report is the final summary of 2007 production. Often, that just amounts to minor changes from the November crop report. This time traders expect it to show some reductions in yield and production for both corn and soybeans.

The second report provides the Stocks in All Positions figures, which is a clue to the rate of usage during the first quarter of the crop season for corn and soybeans. The first quarter is usually the biggest consumption period for corn and soybeans so it acts as kind of a gauge for the whole year.

The third report combines those two reports in the latest Supply/Demand estimates for the year. (The report really should be called Supply/Usage or Supply/Disappearance – demand and usage are two different things.) The crops appear to have some big usage numbers so far, and this report will put some numbers on how things are going. One number traders will be watching will be any significant changes in the end-of-season stocks or carryover estimates for this season. Those estimates should be getting smaller, if reports on exports, ethanol and other usage are correct.

Perhaps the biggest report of all on Friday will be the number of acres seeded to winter wheat. Prices have gone up – and down – rather dramatically since U.S. farmers began sowing wheat in September. How many acres were attracted to wheat by historically high prices? The average trade guess is a little under 49 million acres. If farmers fell somewhat short of that, it could send wheat prices to the $10 level again and could increase the area devoted spring wheat in the competition for acres with corn and soybeans. If farmers sowed more than 50 million acres, it could mean the highs are in. Historically, farmers haven’t often had a chance to sell wheat for above $5 a bushel, and with prices nearly double that, a lot of traders are thinking wheat has to be a short candidate at some point.

In addition to U.S. crops, other reports Friday will cover the world situation including the soybean area in South America and the outlook for Australia, China and elsewhere.

Friday’s reports shape up as a key marker on the path of 2008 grain and soybean prices, and the action could be volatile when the regular trading session opens at 9:30 a.m. two hours after the reports are released.

Posted by The Mystery Trader at 04:55 PM | Permalink | Comments (0) | TrackBacks (0)

Well, the votes are in. We’re not talking Obama or Clinton or McCain or any of the dozen others running for president in 2008 but the stock market.

Market lore is that as the first five trading days of January go, so goes the month of January and as January goes, so goes the year. That makes the outlook pretty grim for bulls since the S&P 500 Index recorded one of its poorest early January marks ever by sinking more than 5%.

Will this little bit of market legend hold up this year? Time will tell, of course, but it has held up about two-thirds of the time over the last 35 years. However, this is a presidential election year, which is supposed to be good to stock market bulls, and it is a year ending in 8, which is also supposed to be an up year for stocks.

We’ll be watching how January plays out . . .

Posted by The Mystery Trader at 09:15 PM | Permalink | Comments (0) | TrackBacks (0)

Everybody seems to be talking or going "green". They even announced another new exchange in New York to trade carbon emissions Wednesday, appropriately named the Green Exchange (see www.greenfutures.com for more details). I don't presume to know how these new contracts work, but apparently I will need to learn, based on the hype for this new frontier in futures.
But I'm not so sure about the outlook for a darling of the green movement, ethanol. One of the fuel blends, E85 (85% ethanol, 15% gasoline), is supposed to be the fuel of the future for U.S. vehicles, but very few vechicles can even use that blend. And, even if there were such vehicles, where would they get E85? An article in the Waterloo, Iowa, Courier indicated that in the whole Cedar River Valley area, there was ONE station that sold E85. And that was in the middle of corn country and ethanol plants!
And even if there were stations that sold E85, the price would have to be about 25% less than unleaded gasoline because mileage with E85 is reported to be about that much less than with gasoline. Ethanol has a number of other disadvantages, including the fact that it corrodes pipelines and production facilities and is difficult to move over distances. We won't even go into the argument about whether it actually saves energy.
But the government has mandated ethanol usage, and its push has resulted in record-high prices for corn, the main source of ethanol. High corn prices have raised soybean and wheat prices, so it's no surprise that food and fuel prices in Thursday's Producer Price Index contributed to the highest inflation rate since 1973 -- remember the days when President Gerald Ford was flashing those WIN (Whip Inflation Now) buttons.
The U.S. needs to be less dependent on Mideast oil, and I am sure the government ethanol policy is well-intentioned. But with the auto and oil industries not cooperating very well, the ethanol demand may be having consequences that were not expected. And now the Fed and central banks has another idea: Get banks to take more money to increase liquidity. But that's a subject for another entry . . .

Posted by The Mystery Trader at 04:08 AM | Permalink | Comments (0) | TrackBacks (0)

Anyone who thinks old-line stocks don't carry a lot of risk should look at the performance of Sears Holdings this week. We've been watching the retail sector because this is supposed to be a make-or-break period for the big-box retailers, providing some clues about whether consumer spending can hold off an economic recession.

Share prices for Sears were up as much as $11 Thursday from the low of the week before closing at $116.34. Then prices collapsed as much as $20, falling below $100, Friday after Sears announced earnings of 1 cent a share versus $1.57 for the same period last year and expectations of 53 cents. What a ride, especially for those who got caught up in buying Thursday's rallly!!!! Sears accountants, executives or other insiders could probably see what was happening with the numbers, but what about the individual investor or even the pension fund managers? No wonder I and others are so wary of individual stocks, where we seem to be totally at the mercy of whatever news a company releases and the fickle responses of traders reacting to the news.

Posted by The Mystery Trader at 09:16 PM | Permalink | Comments (0) | TrackBacks (0)