The Dow Futures were down 200 points Wednesday night as everyone stateside was figuring out when the turkey dinner was planned to hit the table — hopefully between football games.  The heightened market uncertainty and excessive unrealized profits from long positions made for an easy housecleaning sell off in stocks around the world.

While the dollar amount of the exposure was minor in global terms, this dropoff reminds us of the fragile mental state of investors in 2009.  The concern about a larger potential regional issue and speculation about who’s tied to this Dubai debt caused banking and financial shares to decline sharply in panic selling that hasn’t been seen in months.  The downturn began in Asia then to Europe before the U.S. markets opened Friday morning.

From my perspective it was a healthy flush out after the largely unstoppable bull run for the last eight months.  Stocks had made new yearly highs November 13th but had made two failed attempts in the S&P futures to eclipse that 1112 mark.  More interesting was how close prices got to those highs on the Wednesday before the holiday before backing off.

Tip Top Drop?

Technically the charts were set up as a “Triple Top” and profit taking was already in the minds of technical traders before the news hit the wires.  It also turns out that that 1112 level is significant because it is the 50% retracement from 2007-2008 — which analysts are watching closely for future trend clues.  As it turns out, the market may have been looking for an excuse to drop and this fit the bill precisely with the lack of transparency.

One advantage my Resource Trader Alert readers get from using options is the limited risk and the staying power of long-term positions.  After gold had moved up 9 consecutive sessions making All Time Highs, common sense, if applicable to the markets, told everybody that a pullback was likely.  Options allow us to ride through any down periods with a larger goal in mind.

As it turns out the U. S. Dollar is still the world’s reserve currency in case anyone has forgotten.  The event last week sent Dollar shorts scrambling for safety and the ensuing buying frenzy was reminiscent of 12 months ago.  The financial collapse last year led to a climb in the Dollar as protection in times of uncertainty.

Friday Floor Fun

My guest media appearances are planned at least a week in advance so I knew I would be on TV the day after Thanksgiving, which is usually a snoozer shortened session.

With a houseful of stuffed guests my plan was to get out of the house and get a holiday from the holiday.  My only concern was being informed so I can respond to questions with somewhat intelligent answers.  This fear led to my Wednesday night uncovering of the pending problems for the morning.

My first stop was a morning grain update for Bloomberg about two hours before the open.  The “Looking For Support” market analysis focused more on the Crude, Stock and Dollar markets for clues than any crop fundamentals.  Corn and Soybeans held the Wednesday lows and rocketed higher to end the week strong.

Later that morning, the Fox Business Network had me stand next to the S&P pit for the open to give “a traders reaction” with most indexes opening down over 2% to start the day.  So much for a quiet break, the selling roar snapped everybody back to attention.  My analysis was, and still is, that the markets were overdue after the historic climb in almost every asset class.

As a trader I said that the damage may be largely done after the opening drop and as long as the markets stabilized and held the opening lows after the first 30 minutes then the worst may be over.  The S&P open at 1080 also happened to be a 20-day moving average but next technical support below that lies way down at the November lows of 1025.

Where to Look for Help…Tums?

While stocks were the big news of the day, larger percentage moves were all around in the trading pits for commodities.  Gold had dropped over $60 before recovery Friday while finishing still positive nearly $30 for the week.  Unless you bought Gold Wednesday November 23, 2009 you were still a net winner overall.  Silver and Oil were also some of the hardest hit mid-morning but much of it was forcing out of the weak hands.

I was fixed on the Dollar and Bonds to keep an eye out for new session highs signaling more fear and flight to quality as more facts came to light.  The crowded short Dollar trade looked like the uncomfortable guy on his 3rd plate of turkey with all the sides…After stuffing and cramming in all he could he realized his limitations and the need for time to make more room.

A key to follow for future clues is the resumption of Dollar weakness…  Plain and simple, that will tell us if the trends are still intact and the market indigestion and burp can be excused.

It ALL comes back to commodities,
Alan Knuckman

December 1, 2009

Tipping the Market’s Triple Top to Your Advantage was originally featured in the Penny Sleuth.

You see, the economic recovery in prices started in EVERYTHING last March — but to be clear, the overall market and the profitable commodities market are inextricably tied together.

The S&P 500, my proxy for the stock market in general, has been a leading indicator for commodities. With stocks up over 50% from the lows it provides insight into future moves in other markets.

The CRB Index, Commodity Research Bureau, recently broke above the 267 level making new yearly highs. It’s now on target for a new near-term goal, which represents a 50% rally in commodities since last years dip.

Higher Oil prices are also a good sign that the global economy is on the mend. In addition, it is supportive of stocks with Exxon and Chevron adding major points to the DOW sending it above 10,000.

Add it all up and it’s easy to see that the CRB, and other commodities in particular, are on target for now.

The Best Opportunity for Commodities Profits…

My recent commodities travels took me to the west coast to revisit acquaintances made during the July National Chicken Marketing convention.

My big takeaway from the exhaustive chicken information was that corn was deemed undervalued by most of the presenters and professionals in attendance. And I trust these guys, after all, it’s their business to know the cost inputs from the egg to the bird on your plate.

The corn crop at that time looked set to make it through the summer months in great condition with no fears in sight to disrupt high yields.

Though my view on trading weighs heavily on technical analysis I learned long ago not to ignore important fundamental information. The upside was greater for corn to rise than drift below $3.00 on perfect growth.

How to Turn Price Charts into Quick Gains…

Corn prices were low (just over $3 a bushel), and that’s exactly when I told readers of Resource Trader Alert to get into a corn play. Over at RTA we use options to directly play commodities themselves – options help limit our risks while giving us a nice risk reward payout.

(I normally don’t give out the specifics of my trades — but I’ll make a special exception for today’s article.)

For our corn option play the maximum risk was a little over $1100 dollars with six full months of fundamental factors to boost prices to $4.00 a bushel. Chicken convention consensus was that our goal should be reached by year’s end – but in fact it was much sooner. The recent high on our RTA option play was around $2,400 – which represents more than doubled our initial investment.

That’s just how quickly the commodity options can move.

The price of corn rallied 25% but our corn options ended up doubling in that same time. By using options we were able to maximize our profit potential and completely limit our risk.

The Charts Know More Than the Farmers…

The reality of fundamental trading on weather, planting intentions, yields, exports or crop disease is that the information does not flow freely to everyone at the same time. The farmers, seed salesmen and grain elevator operators use their legal inside information in the market before others. The price charts are one way of seeing what people know — without having to “really” know.

At the July chicken conference the major fundamental support of grain prices was slated to be ethanol demand. But the present grain rally connection to ethanol is difficult to prove at best. In fact, the correlation with crude oil gains has just now only started to kick in as prices rise above $80 a barrel.

With that in mind it’s fairly safe to say that the combination of weather premium and dollar weakness started this grain move instead of the much-anticipated demand from ethanol and biofuel production.

The chicken men were right on price but maybe wrong on the reason. This is a perfect illustration of focusing on “what” the market is going to do, not “why.”

And although huge chicken-related profits aren’t quite hatched they are definitely on the right path to growing healthy, big and strong.

It all comes back to commodities,
Alan Knuckman

November 13, 2009

The Single Best Move for Quick Commodity Profits was originally featured in the Penny Sleuth.

But like most investments, successful commodities trading requires knowledge of what’s going on in the market right now.

Buying oil or corn contracts without a deep understanding of where these resources stand is a sure way to lose. That’s why today I’m going to fill you in on where some of the most popular commodities sit, and how they relate to the stock market…

That last sentence may surprise you. Even though the stock market is a few levels removed from commodities trading here in Chicago, I’ve said it before and I’ll say it again: “It ALL comes back to commodities…”

Up, up and away Superman…Dow hits 10,000 again.

Stocks have made new yearly highs and the prognostication of the S&P 500 climbing back to the breakdown point of 2008 on the downside at 1200 seems very attainable. The technically driven stock market ignores the news and sees earnings only through rose-colored glasses.

For the week ending October 16 stocks kept the rally moving with new highs in all the major indices. The broad based S&P 500 was up 16 points, +1.5%, to lead the way followed by the Dow up 131 points, +1.3%. Technology struggled to keep pace with the NASDAQ only up 18 points, +0.8%, to finish the week.

The economic recovery in prices started in everything last March – to be clear the overall market and the commodities market are inextricably tied together.

The S&P 500, the stock market in general, has been a leading indicator for commodities. With stocks up over 50% from the lows it provides insight into future moves in other markets. The CRB Index, maintained by the Commodity Research Bureau, broke above the 267 level making new yearly highs last week. It’s now on target for the 335 objective, which represents a 50% rally in commodities.

Higher Oil prices (wow what a turnaround in the last two weeks from $65 to $80) are a good sign that the global economy is on the mend. In addition, it is supportive of stocks with Exxon and Chevron adding major points to the DOW sending it above 10,000.

Lower Gas Bills – 20% Off Sale

One market that my Resource Trader Alert subscribers have been keeping an eye on is natural gas.

This from Reuters:

“U.S. consumers are expected to pay lower natural gas bills this winter compared with last year due to above-normal gas supplies and cheaper energy prices, the American Gas Association said on Monday.

“Plentiful domestic natural gas supplies and lower wellhead prices will drive bills down this winter and provide relief for natural gas customers struggling in a trouble economy,” the AGA said in its annual winter outlook.

“Natural gas inventories have already hit an all-time high and are expected to remain at record levels by Nov. 1, which is the start of the U.S. heating season. Utilities built up those stocks throughout the year with gas that was much cheaper than in 2008.”

I get emails here at RTA asking why I’m in bullish positions in almost everything we trade. Well the easy answer is in the risk to reward. At historic low levels the upside is much greater than the limited downward potential. One market for me that is possibly setting up for a bearish play is Natural Gas. It used to be very tied to Crude but that relationship has changed dramatically in the last few years.

Gains in the Grains

The Grains, namely Corn and Beans have reverted back to fundamental news to move prices. New relative highs last week were a result of weather fears delaying harvest and hurting yields. When the near term forecast showed less extreme temperature drops a profit-taking sell off hit the trend Thursday.

After further analysis the 60 cent ($3000 per contract) run for Corn and over a one dollar move ($5000 per contract) in Soybeans can be traced to a technical breakout rally October 5th. That day also marks the month low for the S&P, a break in the Dollar Index below 77 and Crude finding support levels. So in reality this Grain rally is as much about global economic recovery and the weakening Dollar adding inflationary fears as the temperature outside tumbles.

As the stock market continues to climb – justified or not – commodities trades are going to keep seeing those bullish sentiments trickle over to commodities floors. Right now is as good a time as any to take the market to task for some serious short-term gains. And I’ll continue to be here to help you do just that.

It ALL comes back to commodities,
Alan Knuckman

October 22, 2009

Your Exclusive Glimpse at the Commodities Market was originally featured in the Penny Sleuth.

And they’re doing it by sending our poultry-refuse to the People’s Republic. That’s a fact that could lead a select few investors to [even more] serious back-door gains, but more on that in a minute…

Chicken paws are big business now, but it is too close to dinner for that story. Exports to China through Hong Kong have developed a market for a product that had little use except for animal feed or fertilizer. This is the beginning of a phenomenon like here in America for chicken wings, which came from unused parts. That’s a story that you’re not hearing in the mainstream financial news.

Not only is this the second wave, or updated version, of Chinese demand, but we’re now looking at a feed-conversion ratio that separates chicken farmers from unprofitability. The benchmark of two pounds of feed for every one pound of bird is mandatory in order to even think about staying in the black.

Chickens consume a diet of two-thirds corn and one-third soy meal as they approach harvest. In the long run, hedging allows producers to fix their costs of doing business.

But in the short-run, farmers can get into trouble by hedging.

Sometimes, farmers focus on the short-term movements and need to be reminded of the market function of gains or losses in the commodities markets to offset gains or losses in the cash markets. They can tend to speculate and not truly hedge to protect their bottom lines.

Some of you may be wondering if there is a tradable Chicken contract… That is, if there’s a way to directly invest in China’s poultry boom.

Well, a “broiler chicken contract” never caught on as a trading vehicle, because of a number of factors. One is the lower volatility of whole chicken prices and another is the vertical integration of that business that doesn’t need price certainty as much as beef and pork. These guys own the chicken from egg to plate – constant trading just isn’t necessary.

But don’t think I haven’t found a way to profit nonetheless…

Your Back-Door Route to Chicken-Fueled Profits

Along with worldwide chicken fundamentals, another big theme that I let my Resource Trader Alert readers in on is the expanding role of ethanol. From 1991-2006, chicken costs were down, resulting in lower and lower real prices for consumers. Ethanol production has changed the commodity dynamics and is why the numerous analysts I have spoken to are convinced $4.00 a bushel corn is right around the corner.

My readers are already positioned to profit from that – and I’m expecting a turnaround soon.

Right now, over 35 ethanol plants sit idle, with potential to produce 2.2 billion gallons. This new variable has quadrupled the volatility in feed costs. Volatility means price changes, and it is our job to sort out the directions of these big movements.

Look for new relative highs in the stock markets this week and for follow-through buying to continue these bullish trends. The risks versus rewards are in our favor for all of our positions with the weak dollar and constructive demand factors.

The markets are moving fast, and the slow movers are missing out on some of the biggest trades – like the play I sent my Resource Trader Alert readers on Monday.

And the sugar trade my readers closed out yesterday for 107% gains…

To learn more, visit the Resource Trader Alert website…
It ALL comes back to commodities,

Don’t Be a Chicken… Invest in Poultry! was originally featured in the Penny Sleuth.