What a difference a week makes, Equities have rallied every day and are in the process of making new highs. Grains appear to have finally found a bottom. The week was filled with news events whether it was rumors on China trade or Super Mario of the ECB firing his last shot of quantitative easing.
Equities were firing on all cylinders this week on these low volume dull market rallies. The global economy is melting down forcing money into the U S equity markets. New highs are coming but the big risk remains to the downside. There is too much complacency, investors know the markets will never go down again. That is always a sign of trouble although we are not predicting anything.
Super Mario came out with guns blazing on Thursday with more QE as he turns the reigns over to another joke Christine Lagarde. They are following the Japan model of less than zero interest rates which in turn is forcing president Trump to pressure the FED to lower. Based on the bond market there will be a lot of disappointed people, I don't believe there will be a 50 BPS cut. I could be wrong, but the bond markets seldom are.
Grains did nothing all week while traders placed their bets on yet another ridiculous government organization the USDA gave their findings today. In advance of the report the bearish sentiment was huge and as I said on Agritalk yesterday, it’s not that I'm overly bullish but I couldn't see any more bad news. Sure enough, a bearish report and grains were much higher.
Meats, after a rough start came charging back and closed solidly higher for the week. Fats and Feeders had some interesting developments through some shady dealings with the packers. However, it looks like the BS is over and we are now on track to see a run to the upside. Hogs had a wild week, but rally went nowhere but look like they are finding a bottom.
Gold had a rough week and a wild Thursday. After the ECB announcement came out Gold rallied almost 28.00 before coming all the way back. 1500 continues to be the key level to watch. The Dollar is going to PAR it’s that simple, no matter how ward they try and push lower it finds a way to rally. It’s like trying to keep a beach ball under water. Crude is still in wide sweeping congestion and will breakout one way or the other.
The Bottom Line: There were no real surprises this week as markets did almost exactly as we wrote in last week’s report. There is no real volume which could lead to more dull market rallies in equities. We are looking for the AG space to breakout to the upside soon and Crude to crumble (although we are long)
CORN - Finally found a bid, held support, and has rallied this week. Corn is in the middle of congestion and at a resistance level within. The USDA report was bearish on the surface but not nearly bearish enough for where Corn is priced. Although we are still short, it would be no surprise if the bottoms were in. We are expecting a big rally before the year is out.
Hedge Recommendation: Hedged and Selling Weekly Put Spreads
Position: Short 50% - Looks to be changing soon
BEANS - Had a very solid week with a .28 move on Thursday. Beans broke out of the first resistance and are now pushing up against the ultimate resistance. They look solid and although we are short it would be no surprise if that changes overnight. We are looking for a big rally in Beans before the November Beans come off the board.
Hedge Recommendation: Hedged and Selling weekly Call spreads
Position: Short 50% - May change tomorrow
WHEAT - Couldn't find buyers and suddenly here we are at the top end of the range at resistance. Like Corn the USDA report had no effect on Wheat. The report was bearish but that had been priced in plus more. We are short but like Corn and Beans it could change overnight which would be no surprise.
Hedge Recommendation: Hedged and Selling Weekly Call Spreads
Position: Short 50% - Looking for the Algo to change
DOLLAR - The harder the FED pushes the more resilient the Dollar becomes. The Dollar tried to take out the top but failed but the pattern is solid. We are expecting the Dollar to reach PAR and beyond as the global economy melts down.
Hedge Recommendation: Hedge dollars against cost
Position: Long 100% - Will sell half at PAR
CRUDE - Continues to churn in the wide sweeping congestion pattern. We are long although I hate it but always follow the mechanical method of the algorithm. Crude is mid-range within the pattern and can still go either way from here. We are expecting the high 40's before the year is over.
Hedge Recommendation: No Hedge
Position: Long 50% - Following the algorithm
S+P - Last we wrote that a breakout was coming, and we expected it to be to the upside. Like magic the S+P exploded higher and is testing new all-time highs. Based on the speed in which it has gone up we would expect a pullback to a support level. But there is nothing stopping this rally with the chase for yield. The real risk is to the downside however we will remain long with the algorithm.
Hedge Recommendation: Portfolios should be Hedged
Position: Long 100% - Will sell half at new highs.
GOLD - The selling from last week followed through to this week and held our 1500 level where we added. The signal came close to changing but it held tough and rewarded us. Thursday saw a huge rally that failed and looks like the 1500 level is going to be a battle ground. The Algorithm is long, and we will stay there until it changes
Hedge Recommendation: None
Position: Long 150% - Will sell half at 1520
FEEDERS - After struggling late last week Feeders hit the ultimate support and rallied nicely back to the top end of the range. We remain long with the algorithm and expect Feeders to breakout soon. It would be no surprise to see a pullback which would be a buying opportunity.
Hedge Recommendation: Hedged
Position: Long 300% - Will sell half at 140
FATS - The FAT world was coming to an end until the magical "V" shaped recovery which started Tuesday. Fats are back in the consolidation pattern and should test the top end of this range at 102. The Algorithm should turn to long tonight, but we will confirm tomorrow. We held the longs because we were not going to panic at the ridiculous pricing that looked like forced liquidation.
Hedge Recommendation: Hedged
Position: Long 400% - We will sell half at 102
HOGS - are churning in a wild range and have had some amazing moves only to go nowhere. Hogs look to making a bottom although we are still short, we will watch the algorithm for a change. Hogs appear to be trading the news back and forth.
Hedge Recommendation: Hedged
Position: Short 50% - May be bottoming