 End of the Commitment of Traders Report? | |
| A Valuable Tool If you have been a client to my newsletter, advisory and consulting services, or if you have ever attended one of my seminars, then you know that I place considerable value on the use of the Commitment of Traders Report (COT) that is issued weekly by the Commodity Futures Trading Commission (CFTC). While this report is widely misunderstood and possibly even misused by too many traders, I believe that it contains valuable information that can be used to achieve an intermediate to longer term perspective on market direction. DO NOT make the mistake of thinking that this report is a short-term tool. It’s not! But as an indication of what Commercial traders are doing in many of the markets, COT is, in my view, the single most valuable tool we have when, and if, used correctly. Mind you the COT is not the Holy Grail. It’s just another tool that traders can keep in their arsenal of trading information, albeit a powerful one indeed. CFTC Review On its website, the CFTC has invited comment on the COT report. Their wording suggests that they may want to make changes in the report, but there is good reason to believe that their intent is to terminate the COT if they are unable to work out some issues regarding how certain positions are reported. I URGE YOU TO GO TO THE CFTC WEBSITE and carefully read their comments. The web address is:http://www.cftc.gov Transparency and Disclosure As you all know, the trading game, like many other financial ventures, is biased in favor of the big money, the big traders, the money managers, the professionals, the commercials, the hedge funds, the mutual funds, the insiders and the politically connected. Whether legal or not, inside information is pervasive. No amount of government policing or prosecutions will stop this. It’s a fact of market life. The Securities and Exchange Commission, over the last few years, has taken a number of measures to slightly increase the odds for the public by making more information public. The SOES (Small Order Execution System), price decimalization and other measures have helped. But in the futures industry, it seems that very little has been done to help the nonprofessional futures trader. Money rules, and the game is tilted decidedly in favor of the professional trader. | The Futures Exchanges During my many years in the futures markets I have given educational seminars at the Chicago Mercantile Exchange, the Chicago Board of Trade, The Montreal Stock Exchange, and a few other professional organizations. These seminars were sponsored by the exchanges for their members and NOT for the public. The leading futures exchanges provide very little education to the public other than details on their products. In a game where the money that professionals make is dependent upon the money that small traders lose, there is a disincentive to educate traders. The reticence of exchanges to educate traders is like the goal of totalitarian governments, keeping their citizens ignorant of news and knowledge. Knowledge is power. Those who control knowledge and information control and direct the flow of money in their own direction. Hedge Fund Dominance The last few years have witnessed a mass entry of hedge funds into the commodity markets. Hedge funds control billions if not, in fact, trillions of dollars. They trade big positions, collect large fees, and some of them even make big money for their clients. With the large role that hedge funds play in the markets, their positions on the COT Report SHOULD be reported in a separate category than the small speculators, large speculators or commercials. Some traders feel that this announcement by the CFTC is the first step in eliminating the report entirely. Do Something and DO IT NOW! If you feel, as I do, that the COT is a valuable tool that should be available to us, then take some time and write a brief note to the CFTC in support of RETAINING the COT report and in favor of making the information contained therein more specific. To read up on their proposal you might want to go to the CFTC website mentioned earlier and click on the COT section. You can read the entire commentary as well as get information on how to register your opinion. Note that the period for sending commentary ends on 21 August 2006. I urge you to write them. Keep your comments short, sweet, and to the point otherwise your letter might not be read. And you MUST incude COT in the title of your e-mail or letter. Exercise your right to more disclosure and to keep this valuable tool available to us! |
COWS (Corn, Oats, Wheat, Soy Complex) | |
| The grain and soybean complex have behaved very much in line with my forecasts. The recent declines are corrections in bull markets, particularly in corn and wheat. If my expectations and forecasts continue to be correct, then what we have seen so far on the upside is merely the start of what may yet come. I believe that the big bull markets are still ahead of us. I will give you recommendations accordingly. Do not lose your patience with these markets. They are NOT like crude oil or the currencies. They take their time and move in less decided trends. Soybean Complex In my recently published long-term 5-3-7 Report I provided you with specific details regarding my bullish projections for soybean meal and soybeans. Beans rallied to resistance. The hotline will recommend longs in the bean complex if and when prices decline to short-term technical support and then give buy triggers. Should any of the soybean complex markets CLOSE ABOVE their May or June highs on a WEEKLY basis, then I will be even more confident in expecting a major bull market. I continue bullish on all three commodities in the soybean complex. Soybean oil is the strongest of the group. Commercials remain long soybeans and have been so for many weeks. | Corn: My indicators gave short-term buy signals. The hotline recommended a long position Dec. futures. This trade should have been closed out at a small profit and then entered again and closed out at a profit. My indications and projections remain bullish. The current decline has taken prices to intermediate-term support which should hold. Wheat: Commercials have accumulated large long positions in wheat which I told you would have bullish consequences. Another buy recommendation should have been closed out at a profit. The intermediate-term trend in wheat remains bullish. The hotline recommended a long position on the recent decline to support. The May high in Dec wheat futures is a very important resistance level which, if penetrated on a weekly closing basis, should portend a much larger rally. Oats: I have been bullish and I remain bullish on oats. Volume remains too thin for recommendations. The oats market is still a reasonable risk vehicle for new traders. Furthermore, the technical behavior is reliable. If I recommend a position via the hotline, then they will be at limit orders only. DO NOT USE market orders due to the very low trading volume in this market and, as a result, price fills could be exceptionally bad given the thin trading volume. |
  | |
Middle East War Commentary | |
Impact on Financial Markets In the past, some of you have gotten angry with me when I ventured to express my views on certain international and/or domestic political issues. Indeed, you don’t pay me for my views on such matters. Accordingly, I will keep these views to a minimum in the commentary that follows. My goal in what you are about to read is to give you my larger picture view on how the current Middle East war might impact the financial markets. My intent is to prepare you not to scare or anger you. Long Overdue The escalation of violence should come as no surprise. It was bound to happen sooner or later - better sooner than later. As long as the situation is unresolved, either peacefully or through violence, it will continue to plague innocent people all over the world as well as the markets. I have told you that what’s going on is NOT about religion. It’s about money, petroleum, political control, greed and power. In this respect, what’s happening is no different than anything that has ever happened since the start of recorded history. Virtually all humans want to live at peace enjoying all that life has to offer. But those who seek power and money are always there, attempting to use the masses to further their own ends. The growing instability in the | Middle East, fueled by a few megalomaniac leaders who hide behind religion as their smokescreen, was bound to come to a head sooner or later. Hence, the current fighting should come as no surprise and more serious escalations should not come as a surprise either. In the process we can expect the following market reactions: Energies: Don’t be surprised if the big players in energy use the current situations as their opportunities to reap huge profits on the energy panic that currently continues. TOPS are made on news like this - and professional traders know that! Precious Metals: The same comments hold true for precious metals. The fact that metals and energies reacted LOWER as the fighting raged on and expanded is a CLEAR warning to you that "what is obvious is obviously WRONG." Stocks: This is the kind of news that makes lows. As you know, my forecast has been for generally lower stocks until October of this year when the current 4 year cycle bottoms. This forecast is progressing quite well. And with these declines, particularly in quality stocks, the buying opportunities are slowly but surely developing. Volatility: It will understandably increase as the markets continue to feed on news report after news report. (Cont’d below) |
 | |
| Meat and Livestock Hogs: As noted in the last few weeks, the ideal seasonal tendency is bullish. The hotline recommended a long position that should be followed up accordingly. Cattle: I expected the decline to support to be followed by a major rally. The short-term trend remains bullish. The hotline will again recommend a long position in cattle when prices decline to short-term support. I believe that the largest rallies are yet to come in these markets and that the upside moves could be substantial, making what has already been seen appear to be small. I expect new all time highs in cattle and hogs. | Interest Rates: Odds are that over the long-term interest rates will continue higher based on the long-term cycles and growing inflationary pressures. The RATE of rise will be influenced by the tempo of violence in the Middle East and the role of US involvement. US Dollar: I see a continued RISE in the US dollar against many currencies as part of the rising inflationary trend and the rising trend in US interest rates. My Advice: If you’re a short-term trader then you can expect the increased volatility to give you many trading opportunities but, BEAR IN MIND, that these will be strictly short-term. You will need to give the markets plenty of room. SMALL STOP LOSSES WILL NOT WORK! |
 | |
 | |
 | |
Metals | |
The corrective declines in all metals were considered normal and reasonable. My Internet based Precious Metals Trader report recommended buying on the last large decline and EXIT was recommended on the open Monday 17 July. By the time late August has arrived there should be additional buying opportunities, especially in gold which has shown a very strong tendency to rally from late August to late September. In spite of the supposedly bullish news backdrop, precious metals could decline based on this seasonal, but they should end the year on a very strong note. Copper: My advice has been consistently and persistently bullish on copper. I DO NOT and have not recommended longterm short sales as yet because I still do not see technical signs of a major top as of this writing in spite of large recent declines. I believe that copper prices could test or exceed all time highs before topping. When the long-term top comes in copper and the other metals, the severity of the ensuing decline in prices will surely make market history. Gold: My advice has been clear and unhedged. I told you as follows: "Based on my analyses, I do not believe that a longterm cyclical top in gold has yet been made. A correction down was expected. I told you to wait for an intermediate-term BUY recommendation in the event of such a large decline to support." The hotline recommended a high risk long position as the market fell to support. And the long was closed out at a profit when resistance was hit. A major buying opportunity could come by late August with a HUGE seasonal rally to follow into late September. This will, I feel, be the time for the next large move in gold - a move that could very well give us a test of the recent highs or, in fact, new highs for the move. Get ready! | CAUTIONARY WARNINGS: UNLESS YOU CAN AFFORD TO RISK AT LEAST $50 ON A POSITION IN GOLD DO NOT TRADE THE FUTURES. TRADE STOCKS INSTEAD if the risk in futures is too high for you! Silver: Long-term investors were advised to hold positions in silver and silver mining stocks with trailing stops to lock in profits. My long range target of $10 or higher was achieved. I told you to "be prepared for even larger intraday price swings." We have only seen the tip of the iceberg in volatility. NEW TRADERS or those with small accounts: STAY AWAY or trade stocks, or ETF’s instead of futures. Await buying opportunity at long-term support that could be tested by mid to late August. See gold commentary at left. See also comments below. Platinum/Palladium: My forecast has not changed. The corrections down were expected and correctly predicted. Platinum and palladium are still in major bull trends. The corrections were overdue given the dominance of large traders and hedge funds in metals. I do not see any triggers that point to a long-term top as of this writing. Don’t trade these markets unless you know the risks and can handle them financially and emotionally! NOTE: Traders who are not sufficiently capitalized to trade these highly volatile futures markets are advised to trade stocks as an alternative. There are many stocks, some good, some bad, however, all likely to rise in a bull market. The same technical tools I use for futures can be applied to stocks. STAY AWAY FROM THE HIGHLY SPECULATIVE "PENNY" MINING STOCKS. Generally, these are a losing proposition. |
 | |
Currencies | |
Aussie $: The market bottomed and rallied strongly in sympathy with the metals only to turn lower again in the last few days. The odds are that a short-term top has been made. Eurocurrency and Swiss Franc: Both markets rallied to projected long-term resistance areas and topped as expected. A bearish short-term pattern has now developed. The trend is bearish as the dollar has rallied to resistance. A very broad test of resistance is developing consistent with my bullish forecast on the dollar. Japanese Yen: The Yen is positioned for an approximate 7- year cyclical low which may have been made. I expected a MAJOR rally in the Yen vs. US dollar over the next few years. | This move appears to have started. Note the developing support base. BrPound: The market has made an 8.1-year cycle top almost exactly as predicted. Long-term trend is down. A short-term low was made as predicted. I expected a short-term top and it has been made. Seasonals are ideally bullish. US Dollar: I am long-term bullish on the US dollar. A shortterm low has been made. A buy recommendation was given via the hotline and closed out at about break even. Canadian $: I believe that the Canadian dollar can test the 93 level or higher. I advised you to expect a short-term top. That top has been made and the seasonal is now bearish. |
Tropicals | |
Cocoa: The long-term trend remains bullish. The short-term trend has turned bullish as well. As you can see from the chart below, prices COLLAPSED in the most severe reaction down that I have seen in many years in this market. BUT this does not change my view regarding the long-term trend. Traders who followed the rules of my trailing stop procedure should have been stopped out at profits BEFORE the collapse. When I told you to be prepared for major volatility in ALL MARKETS, this is what I meant. Get used to it - it’s not going to end any time soon. Sugar: My next target is in the 23-25 area. I advised you to be careful of a downside correction. That correction developed and may have made its low in the last week. The hotline recommended a long position which, in spite of early weakness, has come back up very strongly. Large price swings and the expectation of large moves require the use of large stops. DO NOT trade this market unless you can risk $2500 minimum. I continue to expect big things from this market on the upside over the next few months in spite of the current short-term downtrend. The hotline will give updates on the current long recommendation. The sugar market remains in a long-term up trend that is only now giving signs of support being tested. | Orange Juice: I DO NOT see any significant technical indications of a top as yet. This is a primary bull market that could easily go to record highs by the end of this year. Of course, this depends a great deal on weather. My long-term bullish forecast remains in effect. Readers of this newsletter know that I turned bullish on OJ long before the start of this bull market. The market has declined from long-term resistance. Note that I rarely recommend longs in OJ via the hotline given the thin trading volume and I rarely consider fundamentals in my work. There is a good chance that OJ could climb to all time highs before this year is over. We are now entering prime time for weather markets based on hurricanes and tropical storms. Coffee: My long-term cycles tell me that coffee is overdue for a significant rally that could take prices much higher in 2006 or beyond. The market still has large upside potential in 2006 with the move now just recently getting started and now testing lows after initial buy signals. Although I expect big rallies in coffee I caution you that the price swings will be large. Coffee is a high risk, high volatility market - NOT FOR BEGINNERS or those with a small amount of risk capital. The large price swings and the bad price fills can destroy you in this market. |
 | |
Fibers | |
Cotton: The intermediate-term trend remains bullish as prices have dropped to test very important technical support. A buy recommendation was given via the hotline after my shortterm trading indicators turned bullish. Cotton could become one of the stronger markets over the next few years. The position recommended via hotline shows an open loss. There are now signs of bullish life. YOU CANNOT TRADE THIS MARKET WITHOUT A LARGE STOP GIVEN THE VOLATILITY. My bullish forecast has not changed - cotton needs more time to begin its rally. | Lumber: A major cycle low COULD BE developing. The bearish sentiment and declines are typical of what transpires at cyclical lows. My long-term cycles tell me that lows COULD BE FORMING NOW! Trading volume remains exceptionally low; much too low for hotline recommendations at this time. Although the market is not recommended as a good trading vehicle due to its low volume, the fact remains that seasonals are extremely reliable in this market. As of this writing there are no indications of a bottom. |
T Bonds / TNotes | Stocks |
| TBonds / TNotes I have been telling you that interest rates were likely to stabilize or decline BEFORE they surged to high levels. So far this has not happened, but I think it will. The current bottoming process of futures suggests that this could be the start of a further rally in a bear market. Seasonals in futures are ideally bullish at this time of the year, which continues to point to a possible short-term rally before a continued decline. The hotline has recommended a short-term long position in TNotes which should have been rolled into the Sep contract as recommended and then closed out at resistance after which another long was advised on the short-term decline to daily technical support. I consider the current decline to be a short-term test of support. An intermediate-term cyclical low is due at any time now and that daily sentiment was very low prior to the recent low. This has, in the past, been a precursor to bottoms. | Stocks Prior to the continued decline in stocks I WARNED you, without a doubt, that the stock markets all over the world were in trouble and that bearish divergence would eventually take its toll. Some of the Middle East markets have crashed even before the current conflict, and they remain in severe bear trends. My trend projections and timing indicators strongly suggest that stocks could trend lower until late October to be followed by a strong year end rally and possible 4-year cyclical low. I expected rallies to resistance and failures when resistance levels have been hit. The hotline recommended a very short- term trade in Dow Jones futures on the long side but the intermediate-term is bearish. Call the hotline for updates. A major low in stocks is expected later this year, most likely in line with the seasonal lows that tend to come in late October. |
  | |
Petroleum Complex | |
Natural Gas: The approximate 3-4 year cycle in natural gas futures is due to bottom this year. This low COULD be developing now, however, THERE ARE NO BUY SIGNALS AS YET ! Here are some factors to consider: 1. In order for a major bull market to develop I need to see the weekly indicators turn bullish. This has not happened as of the present writing. 2. In order for a more sustained rally to occur I need to see a buy trigger on my Daily Sentiment Index. This has also not happened as yet. And, finally, 3. The daily chart indicators need to give me buy signals. In order for this to develop new lows for the move were needed. This HAS happened and the market is now in even better position to bottom. Nevertheless, there are no confirmations of a low as of this writing. As an alternative to natural gas futures, which are very risky and volatile, you might consider long positions at the right time in some of the many natural gas stocks. Crude; Heating Oil; Unleaded Gas: The bullish fundamentals continue to convince traders and analysts that the long side is the best side and that $100 crude is inevitable and, perhaps, even unavoidable. I advised you to BE PREPARED for a decline. I told you that "it’s possible that we will see $50 before we see $100." This is still my forecast. | If You’re Like Most Traders... * You listen to the business news on CNBC or Bloomberg every morning prior to market openings and you may even listen throughout the day to see if you can pick up any worthwhile ideas. * You ask your broker what he or she thinks about the markets or, worse, you ask for "good trades." * You visit amateur Internet Yahoo chat rooms frequently to see what others are saying about the markets. You read their comments and forecasts. Perhaps you believe what they say. * You subscribe to several newsletters and hotlines. You compare their recommendations and expectations and evaluate them within the framework of your own opinions and your trade accordingly. * You follow 10 or more indicators, moving from chart to chart and indicator to indicator to see if they agree. You evaluate the entire picture and make a decision on what to trade and/ or how to handle your current positions. * You look at different time frames. You compare the daily chart with the weekly and perhaps even the monthly, the hourly and possibly even the 10 minute charts. * If you do all of the above, or even some of them, you’re probably losing money and don’t know why. Secret: STOP IT! |
 | |
 | |
Jake Bernstein’s Weekly Commodity Trading Letter 7/27/6
Started by
TTHQ Staff
, Jul 27 2006 09:29 AM
No replies to this topic
#1
TTHQ Staff
-
- Admin
- 8,597 posts
www.TTHQ.com
Posted 27 July 2006 - 09:29 AM
