The entire market system is in a dull grind some products higher and some lower but overall the trade is like a torture chamber. Equities have been drifting higher which is consistent with a dull market. This dull drift can last for an extended period of time. We believe the next big move in equities is lower, but the current pattern can last for longer than we think.
When markets get into patterns like this, volume drying up, very little volatility it becomes a challenge for traders. Investors love it because there is no fear. However, we know that complacency kills and eventually causes destruction to markets. Investors have the belief that markets will never go down again, that is always the first warning sign.
Grains are breaking down which is consistent with the complacency of the shorts. It appears the funds think that the Grains will never go up again the opposite of equities. The lack of volume and volatility indicates the feelings of the short. Beans and Corn have broken down and have room to go lower, Wheat is in consolidation but also working their way into a negative pattern. We are short but after this sell off expect a rally.
Meats have stayed in the same pattern with Cattle bullish and Hogs bearish. The limit down moves on Wednesday in Cattle took them down to support, a level we were looking to buy. It was also a blow off pattern which is actually bullish as well. Hogs continue to swing wildly up and down but remain in a downtrend. The wild swings indicate Hogs could be making a bottom, we will stay short until we see the markets start to reverse
While the FED continues to try and manipulate the Dollar lower it appears, they are failing miserably. The Dollar has created a "W" pattern which can be bullish. Gold remains under pressure and looks to be headed to 1400, rallies should be sold until further notice. Crude is trying to breakout to the upside and has turned the algorithm long, although long term we expect Crude lower.
The Bottom Line: With all markets basically in the quiet period, no volume, no volatility, and congestion. Eventually the markets will breakout out of this pattern, volume and volatility will return but until then it’s best to observe. Grains grind with the meats other than the big move in Cattle on Wednesday. You should always be hedged and then it doesn't matter.
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CORN - The breakdown in Corn has slowed as we saw a week of consolidation. The trend is lower, and this pattern will more than likely resolve to the downside. There are two key levels to watch for support, 375 and 370. We are short with the algorithm
Hedge Recommendation: Hedged and Selling Weekly Call Spreads
Position: Short 50% - Will watch Congestion pattern play out
BEANS - Broke down on Monday and continue to work their way lower. Over the last couple of days Beans have started to consolidate but should continue lower. 900-910 support is in play and should be considered a must hold area, if not lower prices are coming, the algorithms are short.
Hedge Recommendation: Hedged and Selling weekly Iron Condors
Position: Short 50% - Waiting to see the price action at support levels
WHEAT - Has started to see a little more volatility and is on the cusp of breaking down or breaking out to the upside. The congestion pattern is about 15 days old and can still go either way. We have reversed and are short looking for a test of 5.00. The algorithms are short.
Hedge Recommendation: Hedged and Selling Weekly Iron Condors
Position: Short 50% - Will add at 5.10
DOLLAR - Is once again attempting to breakout to the upside. After the thrashing on the FED manipulation but have managed to bounce forming a "W" pattern which is very bullish. We are still short, but another up day should flip the algorithms. The Algorithms are short.
Hedge Recommendation: Hedge dollars against cost
Position: Short 100% - The bottoms may be in
CRUDE - Continues to rally higher and has broken out above another level. The rally could sustain itself as Crude looks to make a run at 60. Long term we are bearish, but our mechanical method is bullish, and we will continue to play the algorithms. They are long as are we.
Hedge Recommendation: No Hedge
Position: Long 100% - added 56 will sell half at 60
S+P - We wrote this last week, it still applies today
The new highs continue on light volume and no volatility. One thing we know for sure is dull market rise and can last for an extended period of time. There is no way to determine when it will end. We know not to sell a dull market although we believe the next big move will be lower. The only question is when and from what levels. We remain long with the algorithms.
Hedge Recommendation: Portfolios should be Hedged
Position: Long 50% - Holding
GOLD - The rally attempt failed, and Gold is breaking down again. 1440 support held this week but 1420 and 1400 are now in play. The breakdown should continue which will keep us short. The bounce Gold is seeing now should be sold at 1480. We are short with the algorithms.
Hedge Recommendation: None
Position: Short 100% - Will add at 1480
FEEDERS - We have been looking for lower prices and a pullback to support. However, we didn't expect the entire sell off in one day. The limit down move on Wednesday brought Feeders to support and creating a blow off to the downside. We would expect a rally from around this area although we could see consolidation first. Algorithm long as are we.
Hedge Recommendation: Hedged
Position: Long 100% - Will add at 142
FATS - Like Feeders we were expecting a pullback to 116-118, Wednesday with the big down move brought Fats to the first support. The pattern looks solid and the rally should continue. Wednesday's sell off on heavy volume and should resume the rally. Algorithm long as are we.
Hedge Recommendation: Hedged
Position: Long 100% - Will add at 116
HOGS - Here is what we wrote last week, it still applies
The wide sweeping congestion continues, we are seeing big moves in either direction every day. The action itself suggests a big move is coming, although we are short, we expect the next big move to be higher. Expect this wide sweeping congestion to continue. Algorithms are short
Hedge Recommendation: Hedged
Position: Short 100% - Observing new congestion pattern.