Apr 23, 2017 - Weekly Commodity (Commodities under pressure)

The commodities had a rough week as Bloomberg Commodity Index fell 2.5% percent in only one week. The already nervous markets were we had a serial of negative news in several commodity sectors caused that Money Managers cut some of their elevated exposures ahead of French Presidential Election on Sunday. Some of the bad news were the 1.5mil barrel rise in US Gasoline inventories, rise of US oil rig count, the bigger than expected wheat planting in Canada, huge stocks of wheat in the black sea region and the improving weather conditions in South America.

CRUDE

As geopolitical worries are fading oil prices fell more than 6% last week on concerns that US crude production rise will offset the impact of OPEC’s output cut. We have seen the biggest weekly drop in a month with oil loosing 2% just on the last trading day of the week. Key data that forced out investors of their bullish bets ahead French Elections were:

• EIA Weekly Petroleum report first didn’t move the market much due to the headline decline in US crude inventories by 1.0mil barrels. However soon after the sell-off started as the total gasoline stock increased by 1.5 mil barrels. Refineries increased operations as they are running at 92.9% of their capacity vs 91% a week which should be supportive to the prices.
• Baker Hughes US Oil Rig Count released on Friday showed an increase again the 14^th consecutive week which means the US production will most probably grow further. The US crude oil output was rising the last 9 months and its now at the highest level since August 2015. This in big part offsetting the OPEC output cut

What could support oil is an extended production cut from the OPEC and Non-OPEC countries on their meeting on 25th May. However there are already speculations that due to the positive effect of OPEC output cut on the US shale producers there will be no extension. Also the expected seasonal decline in crude inventories in April-May should bring support for Crude. Another support may come from Iran after the country cleared his tanker storages and its exports are expected to significantly decline in May.

GRAINS

The grain sector is really out of investors favour. After a promising week the sector got further hits this week. Main drivers of the sell-off were:

• Canada reported bigger than expected wheat and canola planting which could have direct impact on US market.
• The improved weather forecast will help South American grain producers. Despite the earlier fears of destroyed production in Argentina and some areas of Brazil, it seems that the damages were less significant. In Brazil after soybean harvest is almost finished and corn harvest behind the door, there are growing concerns of insufficient storage places which is a repeating problem of the countries farmers. What is fuelling these worries is that corn and soybean prices in Brazil are below production cost and farmers are not willing to sell their production at current prices.
• The similar situation could develop on Eurasian wheat markets. According to the local USDA office in Russia and Ukraine, the production will not drop enough to offset huge stockpiles built up during last season in the region. When the new harvest will need storage place, farmers will likely throw the old stocks on the market which will bring further pressure to wheat prices.

While there was seen some profit taking at the end of the week, the outlook seems to be still strongly bearish. The near record net shorts of hedge funds are still keeping alive the story of possible short squeeze if any meaningful change in weather will appear.

SUGAR

According to USDA local office in India despite the rebound in production by 18% this year, India will keep importing sugar the next season too. The increase in planting will be most probably offset by the rising demand which will keep the country being next importer of sugar the next season too. Brazil is also still in focus due to the ongoing cane crush in the country where a record sugar production is expected despite a decline in sugar cane production.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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Jan 9, 2017 - Trade Idea: Index rebalancing may cause bounce in Corn and Wheat prices

We are ahead of Commodity Index rebalancing next week. During this process Commodity Index funds adjust their portfolios to those indices they follow which often results in buying the worse performing commodities and selling the high performers. Corn and Wheat as they were among the worst performers last year could probably benefit short term from this reweighting exercise despite the gloomy outlook for the coming year. So let’s look at the technical picture.

Corn

After the correction in the uptrend Corn created a higher low last month with an inverse head and shoulder pattern. Breaking above the last high would also mean completing the bullish flag pattern. So how to trade this? I usually trade 2 units of everything, the reason is simple. I like to take partial profits and move my stop loss to my entry minimising risk of loss.

ENTRY

Stop Limit Buy March contract above last high: stop at 363 and stop limit at 363.25

PROTECTIVE STOP

Both units at 352

TIME STOP

1st unit: end of week

2nd unit: 3 weeks

PROFIT TARGETS

1st PT at 383 and moving the second stop to entry

2nd PT at 398  

Wheat

After a really bad year it seems that the prices of wheat bottomed out. But high ending stocks and high yields are indicating that will have the wait for the return of bulls and rather a sideway trend is expected for this year. However short term bounce is still possible and as the double bottom on the chart below shows we have a pretty good chance to catch a part of it.

ENTRY

The entry would be rather conservative and I will wait with the buy until the price retest the neckline of the pattern with 2 units Limit to Buy at 420.75

PROTECTIVE STOP

Initial stop loss will be at 414

TIME STOP

1st unit 1 week

2nd unit 3 weeks

PROFIT TARGET

1st unit 445 (October high and Double bottom distance from neck line) moving stop to entry

2nd unit 455 (Summer consolidation)

Summary:

In both cases the main short term drivers are the Index rebalancing and Technical patterns, both pointing to the same direction. After the first week we close 1 unit from each moving our stop to entry. 

I didn't mention in the article the WASDE report scheduled to be released by USDA on Thursday, 12th January. While this could be a market mover, the expected buying by the index funds will not be affected much by the report as the rebalancing was decided already. Still, keep an eye on it and if you are close to target before the release, you may consider closing position to avoid any bad surprise.

Keep in mind that however nice a set up looks like, you should always watch your risk. You should never forget to check your money management rules before placing a trade and adjust position size to your maximum acceptable risk. If futures are too big, try to trade CFDs with smaler notional to trade fraction of the futures. Your loss could be higher if the market gaps below your stop, so be careful if you decide to trade these ideas.

Good luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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