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CORN – Sep '09 Electronic
Open – $3.21, High – $3.36 1/4, Low – $3.20 3/4, Close – $3.32 1/4 Up $.11 1/2
Thoughts – Long Term (into September '09) – Sideways/Higher
Monday I said: "Corn was the trade favorite today along with wheat as soybeans looked like the red-headed stepson (no disrespect to red-headed stepsons out there!) of the bunch by trading lower on the day. The corn market gave back some of the gains from Thursday at the end of last week but the weekly chart with potential bottoming pattern. The last two weeks of trade in the Sept '09 corn have provided warning signs that a potential reversal could happen; we still haven't seen that reversal as we need to close this week above $3.28 1/4.
The weekly crop ratings are out tonight and should provide the market with some further direction tonight and into tomorrow. $3.23 1/4 is a 50% retracement level back to the $3.42 1/4 high we had two weeks ago and could provide some further resistance as it did today. As I mentioned last week the USDA is going to "update" the acres in seven U.S. states due to "variable weather conditions" and all of this will take place in the Aug 12th report. If the USDA would lower acres (which is the logical guess) then I would also expect an increase in yield to somewhat offset any changes. Weather is still key to any kind of major rally in this market unless the USDA decides to stun us once again as they have begun to bring the integrity of their reporting into question, at least in my mind.”
Sep '09 corn: Broke out of our short-term downtrend based off the $3.42 1/4 high we had on July 15th. Volume wasn't exceptional today but non-the-less the market still moved higher. It seemed all of the stars were lined today as the Dow Jones was trading nearly 200 points higher, crude oil was up over $3.00 and the dollar was lower plus we had a good export report this morning. Funds purchased around 6,000 contracts today which added fuel to the already burning fire and allowed the corn market to firm towards the close of the trade session.
The breakout of the mostly sideways trade range we've had since July 17th now gives us a sense of support around $3.28 which was the top end of the range. We had a relatively strong close today which suggests a neutral to lower opening tonight but would also be a good opening for follow through to the upside tomorrow. We still own price coverage in the Dec '09 contract at $3.50 via call options and have upside to $3.90 for the time being.
Bottom line: I am looking for the market to experience an early high tomorrow.
Sept '09 Corn – Support/Resistance for 07-31-09
(R3) Resistance 3: $3.42 1/2
(R2) Resistance 2: $3.36 1/4
(R1) Resistance 1: $3.33 1/4
Today’s close: $3.32 1/4
(S1) Support 1: $3.30 1/4
(S2) Support 2: $3.26
(S3) Support 3: $3.20 3/4
MEAL – Sep '09 Electronic
Open – $306.40, High – $325.70, Low – $306.40, Close – $325.30 Up $18.80
Thoughts – Long Term (into September '09) – Sideways/Higher
Monday I said: "As you may have noticed I have started talking about the Sep '09 meal contract instead of the Aug '09 which will run into first notice day on Friday the 31st. The Sep '09 contract needs to hold support at $294.90 if it has any chance of re-testing the $304.70 high posted last Thursday. The daily chart shows us in an upward movement into next week before it settles down again and maybe drifts lower.
We still have protection in place in Sep '09 meal via call options. We will maintain a long option position for the time being, we were able to buy back our short $360 call for $1.50 today to give us unlimited upside potential in this position. We are still short $290 puts and long $320 calls for the time being. We will look to exit the $290 puts on the next bounce if there is an opportunity. Longer-term weekly charts are still holding support at $291.70 and if this continues to be the case we should rebound and test the $328.70 area at some point in the future.”
Sep '09 meal: Meal had a tremendous day technically and closed right at old resistance of $325.30 with the next objective of $328.00 which would be 50% of the way back to the $371.00 high we had in early June. In the last couple of days we were able to exit our short $360.00 Sep '09 call options for $1.50 to lock in the equity we gained through selling them against our long $320 Sep '09 calls. This gives us unlimited upside in this position and we will now look to exit our short $290 Sep '09 put to elimitate our downside risk as well.
The meal chart looks very good at this point because in the last couple of weeks we've held the $291.70 support level which would suggest a test of $328 which could likely come either tonight or tomorrow. The 8-14 day weather forecast has some heat moving into most of the major growing areas but there isn't a lack of rain in this forecast so the trade will monitor this closely. If the market remains in a friendly mode after today it could become a story that gets talked about to fuel direction.
Some type of upside protection is almost a must considering the current situation with the hog industry while also trying to leave downside open because meal is still high priced from a historic perspective. If you have questions about how to do this email me at [email protected] with your question and I will do my best to respond as soon as I can.
Bottom line: I’m looking for the market to experience an early high and a late low tomorrow.
Sep '09 Meal – Support/Resistance for 07-31-09
(R3) Resistance 3: $338.10
(R2) Resistance 2: $334.20
(R1) Resistance 1: $328.00
Today’s close: $325.30
(S1) Support 1: $320.10
(S2) Support 2: $318.80
(S3) Support 3: $313.90
HOGS – Aug '09 GLOBEX
Open – $56.15, High – $56.475, Low – $54.375, Close – $54.625 Down $2.125
Thoughts – Long Term (into December) – Negative
Monday I said: "Aug '09 hogs rallied during the latter portion of the trade session today but never really posted any major volume in doing so. My first thought is someone knows something somewhere along. By having this rally late in the day the charts look somewhat encouraging for tomorrow from a daily perspective. I would expect some buying above today's high of $59.625 with buy stops around $59.90 or so. My cycle indicator still points lower next week and I will stay on course with that but it doesn't mean we can't have a bounce somewhere along the line.
We still need the cutout AND the cash to move higher before futures can make a significant move higher. The packers do have some margin at their disposal but they have been reluctant to use much of it thus far. I will maintain a negative attitude for the time being until we can get the cash side of the business rolling and when there has been enough liquidation in the industry to sustain price rallies."
Aug '09 hogs: Aug '09 hogs didn't take any breaks from the downside today as it fell another $2.125 today with not much hope for any upside at this point considering the cash was lower again this afternoon as well as the cutout being down $.45. The market has moved slightly higher since the cutout number was released this afternoon on the notion that it wasn't as bad as it could have been. The cash market needs to turn and turn fast for the August contract to have any hope of upside and thus far it doesn't look good.
We are short in the Aug '09 contract and are looking for an opportunity to roll these positions out to the October '09 contract when the time is right. The reason we are staying short in the near-term contracts are because of the weakness in the cash market. If the market moves low enough and feed grains continue to climb we could eventually see the sow liquidation that the industry so desperately needs and that would further pressure the nearby contracts and give support to the deferred contracts.
If you look at where the hog contracts settled on July 17th vs. where they settled today you will notice the front months have declined much further than the deferred. From July 17th to the market close this afternoon the Aug contract has dropped (cwt) $10.05, Oct $7.95, Dec $5.975, Feb $5.845, Apr $5.375, Jun $3.97 and July $3.95. You can see where the hedge opportunity has been in the last couple of weeks.
Going back to 1989 I looked at the seasonal price tendencies for the first half of August using the Aug and Oct contract and here are my findings:
|Ave Up:||$ 2.5750|
|Ave Down:||$ (2.3921)|
|Max up||$ 7.2750|
|Max down||$ (3.8700)|
|Aug 1-15||Aug 15-Sep 1||Aug 1-Sep 1|
|Ave Up:||$ 1.2505||$ 1.8456||$ 2.5319|
|Ave Down:||$ (2.6470)||$ (2.7533)||$ (4.3746)|
|Max up||$ 2.5000||$ 3.4000||$ 5.2750|
|Max down||$ (6.0000)||$ (7.9250)||$ (8.9000)|
The results say be careful if you stay short the August contract beyond August 1st but I just don't know that history applies as much this year. The risk to the downside clearly shows that the October contract is the best contract to be in for the first half of August in the event the market moves lower.
Bottom line: I’m looking for the market to make an early low tomorrow and firm as the day progresses.
Aug '09 Hogs – Support/Resistance for 07-31-09
(R3) Resistance 3: $56.475
(R2) Resistance 2: $55.675
(R1) Resistance 1: $55.425
Today’s close: $54.625
(S1) Support 1: $54.375
(S2) Support 2: New lows
(S3) Support 3: New lows
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Hurley & Associates believes positions are unique to each person’s risk bearing ability; marketing strategy; and crop conditions, therefore we give no blanket recommendations. The risk of loss in trading commodities can be substantial, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. NFA Rules require us to advise you that past performance is not indicative of future results, and there is no guarantee that your trading experience will be similar to the past performance.