Be advised that all my comments are my OPINION and that OPINION is based on my long term in-house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday.BTW, trading commodities is risky and not meant for those that faint at the sight of blood.
THE THREE C’s CORN, COPPER, AND CATTLE
In addressing three commodities I want to make this quick and easy reading, so let us get started.
After the quarterly report and projected planted acres Corn gave us a handsome rally to the point that the trend reversed from bearish to bullish on the weekly close of July 3rd. After the USDA report from July 10 it was clear that unless there was a significant growing issue even with reduced acres we will add to the carry over again this growing season. The market then proceeded to drop over twenty-seven cents and here we are today.
So what does the Model tell us now? It tells us that December Corn remains in an uptrend…..barely. It tells us that in order to remain in an uptrend December Corn must close at $3.36 or higher on Friday otherwise back to the down trend. As I write this December Corn is trading at $3.38 ½. Both the Positive and Negative Indicators are within the first standard deviation of the long term average.
The following two weeks are equally important and worth noting. Should December Corn fail to go bearish on Friday, July 17 the reversal value for the 24th is at or below $3.32, and failing that the reversal value for the 31st becomes $3.32 ¾.
What to do? In my opinion it is obvious that the chances of a trend reversal are pretty good….except. It is my experience and ergo my opinion that more times than not once a commodity gets close to reversing and fails the underlying trend becomes more dynamic. So pick your poison, if you believe Corn is undervalued this might be a good time to go or stay long. You are armed with the information as to when the market turns bearish and can manage risk accordingly.
Copper is pretty easy. We know that the Copper is in an uptrend. We know that in order for Copper to reverse to a down trend it will need a close this Friday at or below $2.4155, and it is presently trading at $2.9275. I think we can all agree that a trend reversal is not very likely…..but.
We also know that the Positive Indicator is above the third standard deviation of the long term average and has entered Negative Equivalency. This occurs when a market in a strong uptrend has reached a point of near short term exhaustion. It warns those looking to get long that maybe one should be cautious, and for the trader it suggests it might be time for a counter trend short sided trade. Since the market, in this case Copper, can continue to go higher before correcting timing and cash are important factors to consider.
For the record I sold September Copper at $2.30. Got in a little early, c’est la vie that’s life.
Cattle went bullish on May 22nd and have done not jack squat since then. Last week August Cattle rallied above the critical $100.22 level just to slam lower into the close. In my opinion that was a not a good thing at all.
So what do we know? We know that by strict definition August Cattle remain in an uptrend. We know that a close this Friday at or below $100.20 turns August Cattle bearish. As of this writing August Cattle are trading at $99.45, below the $100.20 level but within striking distance and over three trading days left. Both the Positive and Negative Indicators are within the first standard deviation of the long term average.
The following two weeks are equally important and worth noting. Should August Cattle fail to go bearish on Friday, July 17 the reversal value for the 24th is at or below $97.82, and failing that the reversal value for the 31st becomes $97.32.
So what to do? The scenario for Cattle is much like Corn so I allow me to repeat. In my opinion it is obvious that the chances of a trend reversal are pretty good….except. It is my experience and ergo my opinion that more times than not once a commodity gets close to reversing and fails the underlying trend becomes more dynamic. What is of increased interest to me is that August Cattle are in Red Alert status, which means whichever way it goes the chances for something dynamic is increased. So pick your poison, if you believe Cattle are undervalued this might be a good time to go or stay long. You are armed with the information as to when the market turns bearish and can manage risk accordingly.
For the record I have not done a thing and may not do anything but I am giving serious consideration to buying August Cattle at $98.00. Again I am ONLY THINKING about that at the present time.
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Lee Gaus is a founding partner of EFG Group founded in 1992 which specializes in servicing Introducing Brokers. Prior to founding EFG Group Lee Gaus, Tom Fritz and Steve Erdman all began their Commodity Futures careers with ADM. Collectively Lee, Tom and Steve have over one hundred years of experience in the industry.
International Futures Group (IFG) founded in 1994 is a sister company to EFG Group specializes in serving institutions, professional traders and individual investors.
We believe our experience and the development of the Model provide our clients, Introducing Brokers and individual clients a unique perspective. If commodity trading is what you do drop me a line at Lee@efggrp.com or give me a call at 312-384-1166, or 1-877-304-1369. We will be glad you called and are confident so will you.