Weekly Strategy:
1) Get “gambling” under control. Focus on how to offset with minimal losses or maximum gain.
2) Leave corn out of my portfolio.
3) Use more charting in my strategy.
Monday October 3
Sunday night open contracts: 4 long corn, 2 long soybeans, 7 long wheat.
Sunday night Fundamentals Research
Corn:
(-) USDA finds extra corn
(-) Grains stockpile could be indicative of demand slump
(-) European wheat prices down making them more attractive compared to US wheat
Strategy: bid for 5 short contracts on corn, soybeans, wheat.
Outcome: failed to enter market for wheat by bidding too high; positive profits on soybeans, negative profits on corn and net positive profits from open contracts.
Lesson: getting out of the corn market as there are too many factors to take into account.
Tuesday October 4
Monday night open contracts: 1 short corn, 3 short soybeans, 7 long wheat.
Monday night Fundamentals Research
Corn: no significant news
Soybeans: no significant news
Wheat: no significant news
Overnight trading
Corn and soybeans seemed bearish.
Strategy: heed Jim and Andrew’s warning of too many open contracts so offset by bidding on 4 short wheat contracts, leave my open contracts for other two commodities.
Outcome: Bid too high on wheat and failed to enter the market thereby making negative profits from open 7 long contracts.
Lesson: start to pay more attention to resistance levels when going short and support levels when going long. Combine with last week’s strategy of using overnight trading as reference point.
Wednesday October 5
Tuesday night open contracts: 1 short corn, 3 short soybeans, 7 long wheat.
Tuesday night research
Fundamentals research:
(+) not much fundamental action going on with corn and soybean but pay attention to wheat for a rally because prices seemed to have found a bottom.
(+) la Nina would have biggest impact on wheat raising concerns of drought
Technical Analysis:
Corn: overnight trading seemed to be bullish.
Soybeans: overnight trading seemed to be bullish.
Overnight intraday wheat trading:
According to Pittnews.com: 596.75 should be support with resistance at 637. I checked overnight trading and price for wheat was around 610.4
Strategy: since corn and soybeans overnight trading was bullish and I held open short contracts, today would be a good day to offset them and possibly make a profit. Since I failed to offset my open long wheat contracts yesterday and took a loss on them, I decided to let them ride today to recoup some contracts rather than offsetting by going against the grain (pun intended).
Outcome: Positive profits across the board.
Thursday October 6
Wednesday night open contracts: 7 long contracts of wheat
no major changes in fundamentals but lots of outside market influences: European finance ministers agreed to help struggling banks; euro rose against other currencies
Strategy: offset 4 of my long contracts to bring myself within a day’s bid of a quick turn-around in anticipation of the Non-Farm Payroll release on Friday. Building on Tuesday’s lesson, using 596.75 as support and 9 day moving average 633.2 as resistance, I decided to bid at 631.9 (0.1 cents below overnight high price):
Overnight intraday trading:
Outcome: success
Friday October 7
Thursday night open contracts: 3 long wheat.
Thursday night fundamental research
Soybeans: (+) Next year Brazil’s output in soybeans predicted will fall for the first time in three years. Using the Intertemporal LOP, lower supply of soybeans in future will raise the price of soybeans today. Looking at overnight trading, Aug 2012 contracts dropped 2 cents (compared to other future contract expiry months this was the least) from prior day’s settle. But September Expiry I noticed a big price drop of 5 as cents as well as further decreases until November which indicates a stock-out.
(-) (-) (-) “The Cropcast estimate for 11/12 world oilseeds production is 438.05 MMT, up 380 TMT from last week due mainly to improved rains in Brazil soybean areas” so increased Brazilian supply will lead to lower US prices. Also limited rains in will help harvesting to go well. In Brazil and Argentina more will allow planting and germination there to improve for next year’s crop. Using Intertemporal LOP again this should depress current prices.
Wheat: (-) (-)(-) Rain would help the US, eastern Europe, western FSU, Argentina, and South-eastern Australia.
(+) Yesterday’s report of US wheat exports was in line with USDA expectations.
(-) (+) EU granted export licenses for 349,000 tonnes of wheat but cumulative exports of wheat were almost half compared to last year.
Technical Analysis: my usual site was down so I turned to overnight trading which I address further on.
Macroeconomic factors: Non-farm payrolls
(+) non-farm payrolls predicted to be optimistic
(+) this link corroborates the above link
Strategy: Andrew’s lecture on Tuesday suggested that non-farm payrolls have a pretty strong effect on commodity prices.
Soybeans: Given the demand group’s research that global demand for soybeans has fallen this year, and prices have fallen 15% over the last 4-5 weeks (http://www.thecropsite.com/news/9238/soybean-prices-down-on-consumption-uncertainty). Given that we are in a stockout situation, the low prices should have stimulated consumption especially since soybean harvest is ahead of schedule (http://www.argusleader.com/article/20111007/NEWS/110070312/Season-wild-weather-produces-hit-miss-harvest). So I postulate that forces driving a lack of demand for soybeans beyond income are at work and decided to go short on soybeans for 3 contracts.
Outcome: made a positive profit.
Wheat: According to Rick from 502 consumption of meat increases with income and wheat is used as livestock feed. Furthermore, exports of wheat were in better shape than corn and soybeans. Demand group research showed that Japan, Mexico, Korea and Taiwan are the top importers of US wheat so aggressive pricing from the Black Sea region would have less of an impact on US markets. Thus, the income effect from the non-farm payrolls should have a much more significant effect on wheat. I went bid for an additional 3 long contracts of wheat on top of my 3 open long contracts.
Outcome:
The chart above shows my predictions were probably correct as the non-farm payrolls were released we see a huge jump in the prices. But then prices crashed probably due to outside markets.
Lessons: Research the link between wheat and copper to incorporate into my bidding strategy. Find out exactly what happened after 10 am.
|
Daily Profit Summary |
||||||||||
|
Market Open: Open Contracts |
New Contracts |
Market Close: Open Contracts |
||||||||
| Date | C | S | W | C | S | W | C | S | W | Net Profit |
|
Sep-30 |
1 |
3 |
-2 |
-5 |
-5 |
-5 |
-4 |
-2 |
-7 |
-25750 |
|
Oct-03 |
-4 |
-2 |
-7 |
5 |
5 |
0 |
1 |
3 |
-7 |
1910 |
|
Oct-04 |
1 |
3 |
-7 |
0 |
0 |
0 |
1 |
3 |
-7 |
-2540 |
|
Oct-05 |
1 |
3 |
-7 |
-1 |
-3 |
0 |
0 |
0 |
-7 |
6990 |
|
Oct-06 |
0 |
0 |
-7 |
0 |
0 |
4 |
0 |
0 |
-3 |
-40 |
|
Oct-07 |
0 |
0 |
-3 |
0 |
3 |
-3 |
0 |
0 |
-3 |
-1260 |
haha! Nick! I also relied on these charts pretty much! You get your work pretty organized. News, analysis, decision, all clearly posted. But I saw you bade kinda lots contracts every time you decided to bid. Is that kinda risky? If you predicted wrong, that would be a terrific disaster.
I’ve come and gone from terrific disaster lol… to keep in line with the class policy of limiting large open contracts without strong justification I’m going to employ a new strategy which uses 1, 2, or 3 new bids depending on the “strength” of each portion of my research. Hopefully this should lend an element of scope and magnitude to my overall approach.
Good job Nick. it’s wonder that your profit is negative with such these strategies.
Anyway, I have a question. Could you please explain “non-farm payrolls” and their effects on prices?
Thanks,
My profits stopped being negative as of Monday brotherman hahaha… But they went very negative when I played really risky strategies. I think that’s one of the main intentions of this game. To show us that economic fundamentals cannot predict commodity price movements =) Plus my interpretation of the given data is probably very different from many other speculators’. Betting against the trend rarely ends well I think, but even knowing what the trend will be is difficult at times. E.g. during tutorial and the demand group this week touched on how commodity funds (which have diversified portfolios which include gold, other commodities, etc.) might have to sell off their corn, wheat or soybeans contracts to pay their margins if they eat large losses in those other markets the day before; regardless of whether their corn, wheat or soybean contracts are profitable. So this is how fundamentals might predict prices will go up, but thousands of long contracts are offered leading to a sharp price decline in a day.
Non-farm payrolls: http://t.co/fXcUr9xR Andrew explained in tutorial this way that news about non-farm payrolls have a strong effect on commodity prices. Basically the report reflects the unemployment rate which is a measure of how the American economy is doing. If more people are employed they will have more disposable income which means they should consume more. Demand curve shifts to the right in many cases which will increase prices.
Nick,
I like your blog-its well organized and clear. Up until last week I had been relying a lot on fundamentals, but I think as you pointed out in your comment to Hossein, that this game is teaching us there are a lot of factors that affect the market.
I also admire that you are incorporating lessons from other classes (like 502) into your strategy. We take 4 separate classes, but they clearly do not exist in isolation, which you make clear in your strategy and blog.
have a good weekend,
E
1.Well. It’s true. The overnight market is important to our predictions. I learnt this from one of ur girlfriends, Caroline.
2. As we use more and more analysis, we will find that we are more and more powerless to predict the market. It seems the best trader will use their experience and intuitive rather than their analysis. After all, the real traders have to make their decision without too much thinking.
I also agree it’s hard to predict the market, and I think your new strategy in bidding fewer contracts (as opposed to 5) makes sense and is more logical to comprehend with the market’s fluctation