I will be posting today, Tuesday and Wednesday of this week.
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CORN – Sep '09 Electronic
Open – $3.22, High – $3.25, Low – $3.18 1/4, Close – $3.23 1/4 Up $.01
Thoughts – Long Term (into September '09) – Bullish/Higher
Last post I said: "The market responded to the potential buy signal I spoke of yesterday, although I would have liked a stronger close than what we had today. I said the signal was at $3.55, so let's say that we are long futures at $3.55 for now and we will follow this trade as if we have it in place. This is the same signal that generated the buy in meal last week that we followed.
I didn't buy futures today to go long the market, but I did buy an August '09 $3.55 call and sold a Sept '09 call for $.07 1/2 to bridge the gap between where the market currently sits and my other call options, which are above the market. I also lifted some futures that I sold at $3.88 1/4 last Friday to neutralize my long options position in corn. We had over $.30 in this "delta hedge," so I lifted that position this morning to keep that equity and apply it against our long call positions that lost value when the market dropped yesterday. This was the sole purpose for the short futures.
I had a stop order below the market all day in case I was wrong to lift these short futures, but thus far it hasn't been hit. The crude oil market was down around $1.30 or so when the grain markets closed and has since rallied to be down only $.50, which should provide some support to this evening's trade in corn. At this point, the Sep '09 corn contract closed above $3.55, which was 50% of today's trade range, therefore giving me reason to believe we should make another run toward $3.61 tonight or tomorrow. If we manage to close above that level, we should see more buying enter the market.
Don't get me wrong, I don't think we are going to blow and go, I am just respecting the buy signal the charts have given us and will wait for it to tell me something different. The report yesterday was indeed bearish to corn, but now that one can argue it has been traded, we will go with the flow of the market and begin to look for something else to move the market, and that would be weather. I have seen more reports about a dry system moving through the corn belt in mid-July, although I haven't seen anything in the way of major heat. This will develop through the weekend, which should keep the downside of this market controlled going into the long holiday weekend.”
Sep '09 corn: There is no fundamental reason to buy corn at these levels but the market has dropped from $4.60 on it high to Friday's low of $3.16 which makes me wonder how much is left to the downside at this point. There isn't any special signals in the corn chart right now other than we have completed (assuming Friday's low holds) the 5th wave in the Elliot Wave technical indicator, the market is oversold (from June 15th) and I have a cycle low as of tomorrow in the September 2009 contract.
The weekly chart has also shown some signs of the sell off slowing down and possibly looking for a rebound to the upside. The market has dropped too much to ignore protection of these levels via a known risk strategy. Fundamentally we could move lower but we have learned over the last couple of years that the markets don't always trade fundamentally. Risk management would suggest a move to protect this lower priced corn as we have done through a Dec '09 three way option strategy which at this point gives us limited upside and downside. We own a $3.50 Dec '09 call, sold a Dec '09 $3.90 call and sold a Dec '09 $3.20 put.
Based on this position we are near the point of flat ownership of corn at $3.20 basis the Dec '09 contract but if this is the case we will look to sell futures against those short puts to neutralize our position until we feel more comfortable about the prospect of a sizable futures rally. At this point we will look to exit the short options in our position when given an opportunity to do so, we were unable to take off our short $3.90 call for a "reasonable" amount even with the recent decline in the market. Time is our benefactor at this point so we look to give time a chance to work for us and our position.
The Sept '09 corn market will need a close $3.42 1/4 before I get extremely excited about the prospect of a sizable futures rally. Weather has not major threats on the horizon and until it does (early freeze) the markets may trade sideways and range bound for now.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 07-21-09
(R3) Resistance 3: $3.29 1/4
(R2) Resistance 2: $3.25
(R1) Resistance 1: $3.24
Today’s close: $3.23 1/4
(S1) Support 1: $3.21
(S2) Support 2: $3.18 1/4
(S3) Support 3: $3.16
MEAL – Aug '09 Electronic
Open – $318.80, High – $327.20, Low – $317.10, Close – $324.40 Up $6.90
Thoughts – Long Term (into September '09) – Bullish/Higher
Last post I said: "It didn't take long for the first close above $380.20 to come. As I mentioned yesterday, I wanted to see the Aug '09 meal close above $380.20 for two consecutive days before I got excited about getting long the meal market from a futures perspective. I will need to see the market hold the $380.20 support level for now and look for a signal to buy the market. We currently have call options on, so we will not purchase futures at this time but will follow the charts to see what they tell us.
As I mentioned yesterday, the weekly chart is poised for follow-through to the upside and it is holding true to form after today's run-up. I don't see anything at this time that suggests I should be completely on the sidelines in meal. We will continue to hold known risk strategies on meal until we see reason to do otherwise. I am looking to take back some gains early, but I think the market will be strong going into the long weekend, with talk of a possible dry forecast for mid-July.”
Aug '09 meal: Has dropped considerably with corn over the last three weeks but looks like the Aug '09 contract is trying to find a bottom in this area. As I mentioned in my last post we had a known risk strategy in place and thankfully so because the market dropped much below where our call option strike price. We have since moved our position out to the Sept '09 contract by owning a $320 call, selling a $290 put and a $360 call. Like corn we are nearing the short put strike price and if the market looks like it will continue to find weakness we will sell futures against our short put to neutralize the position.
The Aug '09 meal contract is at the 50% retracement level back to the contract low of $242.10 from December 2008. The market closed slightly below the $319.80 support level last week but is currently trading above this level. In my opinion the Aug '09 contract will have to close above $319.80 this week in order for it to make any type of rally attempt. Like corn the meal market is due for a rebound off of the collapse we've had this month but the question is can the market sustain any type of major rally and at this point my thought is no. Weather our outside forces will have to change to allow the market to sustain a major rally.
Bottom line: I’m looking for the market to experience an early high and a late low tomorrow.
Aug '09 Meal – Support/Resistance for 07-21-09
(R3) Resistance 3: $334.20
(R2) Resistance 2: $329.50
(R1) Resistance 1: $327.30
Today’s close: $324.40
(S1) Support 1: $322.40
(S2) Support 2: $319.80
(S3) Support 3: $317.50
HOGS – Aug '09 GLOBEX
Open – $64.775, High – $65.00, Low – $64.275, Close – $64.65 Down $.025
Thoughts – Long Term (into August) – Friendly
Last post I said: "I have to say I am impressed with the firmness of the hog market. I said yesterday that the open interest was on a decline and volume was moving higher, which means someone is exiting the market, although I don't know who. Index funds were thought to be buying today, which helped fuel the rally into the close of the day session, which is impressive considering the cutout was down $1.72 yesterday.
We did get word per Reuters today that Russia has removed some of its ban of U.S. pork products, but this news was published prior to the market open this morning, so I can't say the rally was a direct response to the Russian news. The Russians said they will now REMOVE the ban from the following states: Connecticut, Massachusetts and Michigan. They will also take SOME pork products from Florida, Illinois, New Jersey, New York, Pennsylvania, Texas and Utah, but they WILL NOT import live hogs or uncooked pork products from these particular states.
I said yesterday we needed to close above $60.65 today in order to test the high of $62.15 from two weeks ago, and we got it. I believe this is the market's next target area to test before it finds strong resistance. The Russian news should help to some degree, but we still need China to come back to the table and for Russia to take all U.S. pork products again.
I have to mention what has been on my mind for the last couple of days. The index funds are long approximately 55,000 contracts of hogs (historical maximum was around 125,000 long positions at one time) and were net buyers of 2,400 contracts last week per the CFTC, and the commodity (regular) funds are short around 26,000 contracts, which is a record short for the commodity funds. I find it interesting that the index funds are building a long position; however, they are long-term position traders and the commodity funds are record short and were net sellers of around 1,000 contracts last week.
This is my food for thought question: If there is a fundamental reason for the market to rally (Russia and China lift import ban plus the dollar is much weaker than before the ban was placed), who are the commodity funds going to buy futures from? Who is going to be the willing seller so the funds can exit their short positions? It is almost like the index funds are going to end up cornering the market and make life difficult for the funds for a few days. I don't mean that it is planned, but it could end up that way. The bottom line is we could have a rip-your-face-off rally when the market has reason to do so.
I am more impressed with the market today than I was two days ago, but I am still skeptical. We need some good weekly closes before I get excited. Demand is still the key to turning this market around and Russia gave us a little hope today, but we have a long way to go. Assuming cutout is not down over a dollar tonight, I would expect the market to retreat early and look for support around $60.35 and then try to firm from there."
Aug '09 hogs: August hogs have rallied nicely since my last post as well as the cutout values. Cash has been stubborn and remains so with packers cutting kills and refusing to bid higher money to move hogs. The August '09 contract is now trading $6.04 premium to the CME cash index so this means something has to give, cash or futures. At this point one would almost certainly think the futures are going to give because of the packer's behavior but they can change their mind on a moment's notice.
The Aug '09 contract has rallied to just above the 50% retracement mark of $64.40 and the next major resistance level is going to be the 62% retracement level of $66.10. I have a cycle high projected for this Thursday and it has the Aug '09 projecting lower into the first week of August. The cycle high is coming in conjunction with the market losing momentum to the upside as well as being over-bought which leads me to believe the August '09 contract is living on borrowed time unless cash finally makes a push higher.
Bottom line: I’m looking for the market to make an early high tomorrow and weaken as the day progresses.
Aug '09 Hogs – Support/Resistance for 07-21-09
(R3) Resistance 3: $66.10
(R2) Resistance 2: $65.55
(R1) Resistance 1: $65.00
Today’s close: $64.65
(S1) Support 1: $64.525
(S2) Support 2: $64.40
(S3) Support 3: $64.05
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