Five Trading sessions ago on 9/27, CZ posted an overnight high at 528 3/4. That was also a new 2 year high. The rally started from our June contract low at 343 1/4. From trough to tip, that’s 185.50. In 5 trading sessions we gave back 63 cents or 34 percent. Welcome to the wonderful world of futures trading. The funds are still long about 300K contracts. Where are they going to go with those? This could push us all the way back to 458, 436 and then , 414. How long will we continue the puke fest of longs who stayed to long, or worse, bought the high because “the market has to go to 6.00?
We may well be there in March of 2011, but currently the market is doing what it does best. Punishing popular opinion. When I heard the rumors the 1) credit suisse bought 1.3 Billion in Agricultural Commodities, and then the CALPERS was looking to invest 3 Billion…. That was the red flag of red flags. I have been writing this blog for over a year now. I always want to fade whatever the trade du jour is. Always.
Two days ago, I rolled the last of my clients’ call spreads up from 450 to 480, collected another 21 cents. If we had popped above 500 we would have collected another 15 cents. As it was, on a 15 cent investment, we pulled out 4 times our money.
And these are Dec options, we might bounce back there sometimes in the next 56 days.
Far be it from me to tell this market where its going…
Overall, I still want to look to get long beans, especially after another 50 cent break. The Chinese still need our food, and they have been buying all year. Right now for them, its a Blue light special sale. I can’t believe they are not going to come in in the next 2 weeks, to do some loading up on our soybeans.
They liked them at 900, they liked them at 1150.. Ten dollars is their average, so I think they back up the semi’s and open their checkbooks and eventually buy more. I want to be long when that happens.
One caveat. If we get into a spitting contest over the currency, then all bets are off. How do you offend your biggest client,customer, debt financier, etc, and not run the risk of some unintended consequences? What flies politically at home here in the US will undoubtedly have un intended consequences and un for seen consequences in the East. That’s all I have to say about that.
Crude oil has worked out well. I am getting nervous, because, the rumor mill has the spec funds liquidating ag positions and moving to 1) Long oil and adding to their metal long positions.
If the corn continues to break here, that has to be friendly for Feeder Cattle. They got oversold recently, and look like they still have another 3 or 4 cents to go on a corrective rally.
As for the stock indexes, I continue to want to be on the long side. Unemployment is coming out next Friday. That should give all of the cable news stations something exciting to talk about. I think its a non starter. Unemployment at 9.8 or 9.9 or 10.1, is bad. Its especially bad if you are on the unemployed list.
I continue to think that we will climb a wall of worry, and then have sudden corrections which will scare the be Jesus out of the small investor. It took the government 5 months to blame the flash crash on one large computerized trader.
If that’s the case, I hope the problem has been addressed. I say addressed because I am not sure there is any remedy for lack of liquidity meeting a huge demand for liquidity.
Longer term, I am convinced we will have more such incidents. Its a fact of the brave new world of computerized trading. I believe we will just have to live with the double edged sword that computerized trading gives us. Fast Fills, but with a risk of a melt down at any time if the wheels fall off the liquidity bus.
Have a great weekend. Sunday night should be interesting. I am looking for another day of fund liquidation. However, like a falling knife, when it sticks, the rally should be just as interesting as the fall.
Good Trading
