"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, July 8, 2014

Soybean Chart Analysis

Ever since that last USDA report, wherein the agency surprised the market with a big jump in planted acreage, the beans have been on the defensive. That report, plus the continuation of very good growing conditions changed the dynamic completely in the beans. Prior to the report, the focus of many traders was the continued tightness in old crop carryover. Simply put, the market was of a mind to ration demand so as not to run out of available bean supply prior to this year's harvest.

It was that old crop carryover tightness that had been the driving factor particularly in the July and to some extent, the August bean contracts. New crop November had been yanked, tugged, pulled and generally distorted by the buying in those former mentioned contracts.

Now that the Quarterly report is out of the way, traders are looking forward to a massive harvest based on USDA weekly conditions ratings, as well as field reports. The result has been a complete and rapid sentiment shift that has caught many of the hedge funds leaning on the long side of this market. They are getting out of Dodge very rapidly based on what we are seeing in the weekly Commitment of Traders reports. However, as of last Tuesday, they were still net long. I am sure that has changed by now as the market has lost some 82 points since then.

I expect to see this week's COT reports showing them to having moved over to the short side of the market. 

The market is now anticipating this coming Friday's Supply and Demand report. Based on what we get out of that, we could see even more weakness if end users feel that they can buy, "Hand to Mouth" to meet their needs as they wait for harvest to begin. While the beans are certainly not out of the woods, as they are essentially more dependent on August weather compared to corn, it is not inconceivable that we could see them near the $12.00 level without some sort of bullish surprise in this report ( or a shift to a hot, dry weather pattern across the corn belt).

Indicators on the weekly chart are pointing lower. A breach of the $12.00 support zone would suggest an initial move to $11.50 and then to $11.00- $10.80 should that fail.

On the upside, this week's gap lower is initial resistance starting near $12.86 and extends to $13.00.

A quick note on gold - it is firm due to geopolitical events - first it was Ukraine, then it was Iraq, and now it is Israel and Hamas. One wonders, with the various commodity indices all retreating lower once again, how long the geopolitical concerns can keep it supported. Gold needs support from rising commodity prices.

Russell 2000 continues to Flash Negative Divergences

Not that it has made the least bit of difference to the continuing price rise over the last year, but each new weekly high in this very risk sensitive index, has come with a lower reading in the RSI. Note that I have smoothed the indicator a bit to weed out a bit of the "roughness". That being said, the RSI reading has not once in the last year, surpassed its high reading made in March 2013 and again in August 2013. Upside momentum is waning but it does not yet seem to matter. The index has relentlessly powered higher.

I do not believe one can call a definitive top in this market until, at the very least, the support level near 1080 might give way on a weekly closing basis. One should however note these negative or bearish divergences and at least exercise some caution.

Traders who are long with large open profits might want to get a bit of downside protection in the form of puts or covered calls on a portion of their positions just in case this index were to finally confirm any of these divergences.

The problem for the bears has been the ultra low interest rate environment. It has essentially made stocks the only game in town as far as obtaining a decent rate of return on invested money. Until that changes, bulls will more than likely continue with their heretofore successful practice of buying dips. Eventually the music will stop but timing that over the last year has been a fool's errand. All a trader/investor can do is to go with the money flow until something changes technically to indicate that the party is over. For now, in spite of the divergence warnings, the good times continue to roll for the bulls.