Shootin' The Bull
"Shootin' The Bull" is a daily futures and commodity market commentary, written by Chris Swift, commodities broker and founder of Swift Trading Company in Nashville, Tennessee.
With over 30 years of experience in the commodity futures industry, Chris's technical and fundamental analysis is provided for his clients and readers in an attempt to make a more informed trading decision.
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“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
Traders were not treated very well today in all commodities. As markets were moving in what may be considered normal fashion earlier this morning, when the head of the Fed spoke, all commodities plummeted. That is except the market he wanted to pummel. that being the interest rate markets. Further comments on tapering the bond buying sooner sent shock waves through the markets. Cattle were subjected to the selling onslaught as well. By the close though, traders had pushed prices off the lows with most feeder cattle contracts plus on the day. I anticipate cattle to continue to firm going forward. Antic's pulled like today will generally have some impact on cattle. However, I don't anticipate the factors derived today to have an impact on cattle much beyond what was has already transpired.
On the mid day cattle comment, I made a recommendation to buy January feeder cattle with a stop to exit only at $164.50. This is a sales solicitation. Within just a few short minutes, this position was stopped out. Shortly after, with prices having fallen now to under $164.00, I made another recommendation to buy January feeder cattle with a sell stop to exit only at $162.00. This is a sales solicitation. At present, this position is still valid. I believe that the index pushing to new highs is an appropriate signal suggesting cattle feeders need inventory, or there is less available. I think a combination of both. Cattle feeders will need inventory starting in January to have a finished product for packers to meet late spring and early summer grilling demand. There does not appear to be a bunch of feeder steers being backgrounded that would all the sudden show up. Therefore, I anticipate cattle feeders to continually have to bid higher to attract inventory to their lots. And don't forget about vertical integration. For those involved with, there is anticipated to be no relief from higher input costs. The past few days of lower corn trading is urged to be used to help solidify prices going forward.
Hogs were mixed. The index is lower.
Grain traders could not overcome the onslaught of selling once Powell opened his mouth to say the Fed has removed the word "transitory" from their verbiage and they will discuss acting quicker on further tapering of bonds and MBS's. I recommend you use this time frame to put into play the game plan you laid out two weeks ago. I recommend buying the July of '22 and July of '23 corn calls. Strikes should be at levels that compliment your operations risk tolerance. That being, if corn above a certain price is detriment to your operation, then buy call options at that level to help mitigate the risk of further price advances. I fully understand how far out these purchases are, as well as the working capital it will take to manage risk in this volatile and inflationary time frame. With the admittance of inflation by all parties, and proof in the pudding, about all that can be anticipated is how much will inflation grow and for how long. If there is any validity to the Elliott Wave Theory, and excepting my interpretation of, then commodity inflation has only seen the first wave. At present, I believe the major wave 2 of inflation is nearing an end.
I have great empathy for energy traders the past couple of days. Massive manipulation of markets has thrown energy into a tail spin. In my opinion alone, with all the money sloshing around, still billions flowing in from the Fed, I have to believe that energy prices look as if they have gone on sale. I think this is capitalism in reverse. Instead of allowing prices to move higher, discouraging demand, or increasing the encouragement of production, increasing supplies, manipulation of pouring out reserves to the highest bidder does not appear the way to negate inflationary aspects. However, that is exactly what the administration is doing. Therefore, I recommend you go to your fuel provider and get this springs fuel needs booked on this 20% decline in heating oil the past 6 weeks. Options on futures are seemingly very expensive to use to cover fuel costs. Potentially, your fuel provider will be able to work with you. If not, then call me and we will see what we can do.
Bonds and all but the two year notes were higher today. This is pushing rates lower not higher. The US dollar index has become quite important to my analysis. Having rallied from June, after the Fed made their first move by increasing the overnight repo rates, it appears the rally is fading. The index dropped from its high of $.9694 to today's low of $.9554. I believe this decline can be subdivided into 5 lesser waves. Upon Powell's comments today, the index rallied sharply to the high of the day and what may be the top of a wave 2 correction. For the time being, until one level or the other is taken out, the dollar index will be watched extremely close for signs of a reversal or resumption of the up trend. A trade to a new high will lead me to be less friendly towards commodities, while a turn back lower, and under $.9554 will lead me to anticipate a resumption of the upward trends in commodities. There is a great deal of volatility and money sloshing around. It's going to be displaced for a while and when it finds a home, I would anticipate a trend of significance in which ever direction that may be. I will be using the direction of the dollar index to help identify that direction.