Category: The Road Ahead

This week, I will continue to learn about technical analysis and exercise it in my tradings.  At this point, I am so new to technical analysis. I will say that my “predictions” would be mixed with guessings as well.  Therefore, I will still go back to the fundamental side of the information to make my decisions.   On a day without too much new information from the market, let’s look at the technical here:

Corn: It appears to me there’s the descending triangle formed before the past week’s trade and the breakout below the support was the Friday before where the corn prices fell hard upon the release of USDA Crop report.  It’s that’s correct, the price should pick up a declining trend which hasn’t quite happened yet.  On the other hand, the open interest and volume appear to go downward which suggest if there’s trend, it’s becoming weak.  I guess I just need to be patient and see how things pan out next week before making any move in the corn market.

Soybeans: The soybeans prices clearly appear with a downward trend.  Based on the RSI indicated in the graph below, it’s oversold which could suggest a reversal on the way^[1].

Wheat: The wheat prices shown in the graph below is below the moving averages (black: wheat prices, blue: moving average of 5 day, red: moving average of 10 days,  green: moving average of 20 days).  This indicates a sell signal.

I am still stuck with 5 losing contracts (2 longs on soybeans, 3 longs on wheat).  If my “conclusions” above are correct, I should look for a time to offset my long contracts on soybeans and set a stop loss for my long contracts on wheat or wait for it to go back up?  Ok, I still need to think this through or if you have any suggestion?

Cheers.

Reference:

1. Investopedia. (n.d.). Technical Analysis: Indicators and Oscillators. Retrieved from  http://www.investopedia.com/university/technical/techanalysis10.asp#axzz2CWdwOW7t

This week’s focus will be on technical analysis. I am still learning about it and it’s interesting to see some patterns on the charts.  Like Andrew said in his workshop, the fundamental side of analysis usually confirms the patterns and trend identified with the technical analysis. For example, for the December wheat 2012 in the recent while, there’s inverse head and shoulder (if I am not mistaken) prior to last week’s 4 days rally.

Along with identifying the patterns and trend from the price movement, the trend in volumes is also an indication / confirmation of how strong a price trend is and how likely it will continue to be or come to a reversal.  For example, “ff volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end”^[1].

I will continue to gather information from daily news to form my fundamental analysis when I jump into this technical analysis fest.  At this point, I anticipate the followings:

• Soybeans: Prices would rise in a day or so as traders start to lock in their profits gained on last Friday’s plunge.
• Wheat: Prices would go down for a day or so and go up again ( a technical analysis based on the observation of the downward price and upward volume).

• Corn: Its prices haven’t changed much recently. More investigation is needed.

Cheers.

Reference:

1.   Janssen, Cory, Langager, Chad and Murphy, Casey. (n.d.). Technical Analysis: the importance of volume.  Investopia. Retrieved from  http://www.investopedia.com/university/technical/techanalysis5.asp#axzz2By6bPZeP

There are 2 major things that should most likely to make a notable impact on the futures market this week. First, Tuesday, Nov 6 is the US presidential election day. Second, USDA will be releasing their monthly crop estimation on Friday Nov 9.

Some commentary mentioned that if Romney won the election, he would end the ethanol mandate put in place by Obama which would affect the ethanol price, as a result,  hit the corn market as well^[1].  Under the ethanol mandate, about  15  percent  of  global  corn  production  is converted  into  ethanol  for  fuel  use^[2]. This has largely driven up the corn prices. Therefore, if the ethanol mandate would be lifted off by any chance (if Romney got elected), we should anticipate the corn prices to fall.

On the other hand, analysts suggested that the US 2012 soybean and corn harvests were larger than what the USDA projected in October^[3]. Therefore, if the report corrected the estimation with higher crop production, the futures prices of corn and soybeans should go down for the day trade on Friday.

As for the wheat market, I anticipate it to be bullish under the tight supply and increasing demand in the world market.

Cheers.

References:

1. Cummans, Jared. (2012, Oct 13). 4 Investing Opportunites From the Inside Commodities Conference. Retrieved from http://commodityhq.com/2012/4-investing-opportunites-from-the-inside-commodities-conference/

2. Carter, Coin. (2012). The Effect of  the U.S. Ethanol Mandat on Corn Prices. Retrieved from  google doc (for short).

3. Reuters Africa. (2012, Nov 2). GRAINS-Corn, soy fall on private US crop estimates, firm dollar.  Retrieved from http://af.reuters.com/article/commoditiesNews/idAFL3E8M261J20121102

We were talking about sustainability in FRE 515 this week. During the class, maybe one of our classmates raised concerns and questions about managing the study load and pressure during the crunch time with exams and ongoing course work.  Professor Ron mentioned about prioritizing which is a key in time management.  Priorities change as things come up and down. For example, these few weeks,  exam and presentation matters have come to the top of priorities, so the majority of my time, thoughts and emotions have been on them as well.   Another comment made by classmate Gabi during the class discussion has also stuck in my head, which is lack of sleep for consecutive days or a longer time period is not sustainable for a person.  Arise from the above comments, I want to be honest about the following:

1. I haven’t been able to keep an eye on the commodity market these days; I haven’t been up to date with the relevant daily news which creates difficulty for myself to make decisions in trading.
2. I realized that I was unfocused and careless after I found out a few mistakes I made in the trading this week;  One of them was a major mistake and it created a very panicky day for me.

I will keep an eye on the daily News to correct or help further predictions over the week.

References:

1. Shenk, Mark and Zhou, Moming. (2012, Oct 26). Crude Pares Second Weekly Loss as Hurricane Approaches. Retrieved from http://www.bloomberg.com/news/2012-10-26/oil-fluctuates-as-u-s-economy-grows-more-than-forecast.html

2. Teso,Yumi. (2012, Oct 26). Asian Currencies Strengthen in Week on Signs of China Recovery.Retrieved from http://www.bloomberg.com/news/2012-10-26/asian-currencies-strengthen-in-week-on-signs-of-china-recovery.html

3.   Shiells, Terryn . Service Canada. (2012, Oct 26).Ontario soybean/corn crops yielding better than expected. Retrieved from http://www.grainews.ca/news/ontario-soybean-corn-crops-yielding-better-than-expected/1001799451/

4. woundergroud.com. (2012, Oct 28). Hurricane Sandy. Retrieved from  http://www.wunderground.com/tropical/tracking/at201218_5day.html?MR=1

The combination of factors suggest me I should take a “retreat” attitude this week; However, there’s quite a bit of information suggests that there will be further price drop in corn, soybeans and wheat futures. First of all, US dollar is strengthening ^[1]; US economy is  improving and expecting a good recovery. Secondly, the oil price has dropped due to a forecast of reduced global demand by International Energy Agency^[2]Thirdly, according to the news gathered below, yet, not exhaustively, it does seem that the futures prices tend to drop this week.

Corn:

• Argentina’s revamped corn export policy^[3] (-)

Soybeans:

• More export sales (+)
• Higher production/ good supplies from South America (e.g. Brazil, Argentina )^[4] (-)
• Cut in palm oil export tax next year in Malaysia leading to the drop of palm oil price ^[5] (-)
•  Good opportunity of open market access and predictable trade access in the Asia-Pacific region with Canada entering Trans-Pacific Partnership ^[6] (-)

Wheat:

• Unexpected drop in exports ^[7] (-)
• Reduced projected production in Russia and Australia (+)
• Argentina’s revamped wheat export policy which leads to immediate increasing wheat planting ^[3] (-)

References:

1.RTTNEWS. (2012, Oct 15).  U.S. Dollar Strengthens Against Majors. Retreat from http://www.rttnews.com/1982877/u-s-dollar-strengthens-against-majors.aspx?type=cm&utm_source=google&utm_campaign=sitemap

2. Kwiatkowski, Alexander. (2012, Oct 14).  TOP Oil Market News: Crude Falls After Iran Offers Nuclear Talks. Retrieved from http://www.bloomberg.com/news/2012-10-15/top-oil-market-news-crude-falls-after-iran-offers-nuclear-talks.html

3.  Ahad , Abdul (2012, Oct 13). New Argentine corn, wheat rules help farmers sales.   Retrieved from http://www.brecorder.com/markets/commodities/america/85668-new-argentine-corn-wheat-rules-help-farmer-sales-.html

4.  McFerron, Whitney. (2012, Oct 12).  Soybeans Drop as Supply Concerns Ease After USDA Report. Retreived from http://www.bloomberg.com/news/2012-10-12/corn-trims-weekly-advance-on-speculation-rally-may-cut-demand.html

5. Ahad, Abdul. (2012, Oct 13).   Palm oil down in export cut news. Retrieved from http://www.brecorder.com/markets/commodities/europe/85652-palm-oil-down-on-export-cut-news-.html

6. The Crop Site. (2012, Oct 11). Trans-Pacific Partnership Entry Good News for Canola. Retrieved from http://www.thecropsite.com/news/12166/transpacific-partnership-entry-good-news-for-canola

7. McKiernan, Patrick. (2012, Oct 12).  Wheat Futures Fall as U.S. Exports Decline: Commodities at Close. Retrieved from http://www.bloomberg.com/news/2012-10-12/wheat-futures-fall-as-u-s-exports-decline-commodities-at-close.html

As mentioned in the previous post, I got my long contracts on wheat and soybeans last Monday at their high prices and their prices went through a big dive during the week leaving me an unrealized loss of about $4000.  I am keeping the contracts to wait for their prices to go up to a point where I believe I could minimize my loss as much as possible (reducing the loss and risks induced by new uncertainties, etc) .

I certainly don’t like my trading game to turn into a loss minimizing game.  This “damage control” has become my overhead and a good reminder of me to stay on top of my tradings.  I will make new purchases as I find my justifications along the way with the daily news.

So far, I have got news about soybeans^[1] which indicate there might be increases in the soybeans futures prices:

• export sales jumped to a three-month high last week
• oilseed demand is renewed by the price drop

References:

1. Plume, Karl. (2012, Oct 5). U.S. corn eases on harvest pressure, soybeans level . Retrieved from http://www.grainews.ca/news/u-s-corn-eases-on-harvest-pressure-soybeans-level/1001747419/

2. USDA. (2011, Dec. 19). Schedule of 2012 release dates of cotton reports issued by the U. S. Department of Agriculture. Retrieved from http://usda.mannlib.cornell.edu/usda/ams/CNAASRD.pdf

I knew that wheat and corn futures prices fell quite a bit last week before Friday.  I was planning to went in the wheat or corn futures market and take a long position at their low prices.  After I decided to do that and before I manage to do so, the corn and wheat futures prices already jumped a sky high on Friday morning.  I started to doubt whether I should still go in the market and what position I should take. I remember there were news about some kinda of report to be released on Friday, but I wasn’t sure what it was about.  Thanks to fellow student, classmate Ishrat’s tweet (@ishrat_gadhok)^[1],  I found out that USDA released the quarterly Grain Stocks report about the stocks of corn, wheat, soybeans having gone down^[2].  The futures prices of corn, wheat, soybeans all went up at the result of that, expecting shrinking supplies of all 3 crops.

I expect the soybeans futures prices to go higher so I have placed orders to offset my short contract and go long.  I also ordered to offset my long contract because its price now is still lower than my price in when I purchased my contract last week.  I placed a long contract again to get in at a lower price hoping to make a bigger profit when the price indeed goes up.  Soybeans can be substitute to corn. Since corn futures prices have already gone high up and soybeans haven’t yet, there should be more room for the soybeans futures prices to rise.

I expect the corn and wheat futures prices to continue to go up but I am not sure how long that will sustain.  I will go ahead with a long position in both of corn and wheat futures and  pay close attention to the news closely.

References:

1. @ishrat_gadhok. (2012, Sept. 28). Tweeter. Retrieved from https://twitter.com/ishrat_gadhok

2. USDA. (2012, Sept. 28). Grain Stocks. Retrieved from http://usda01.library.cornell.edu/usda/current/GraiStoc/GraiStoc-09-28-2012.txt

References:

1. Wikipedia. (2012, Sept.). Soybean. Retrieved from http://en.wikipedia.org/wiki/Soybean

2. CME Group. (2012, Sept.21). Soybeans. Retrieved from http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean.html