Elgrey's  Instablog

What a month. Overconfidence and carelessness - these two words my portfolio is screaming… I like to tell myself that market gives us lessons no one else would give but they all come with a price. I am severely beaten this month and it is all my fault.

Wheat - shortly after the month began I realized that W is going nowhere - current crop bad news supported it but next crop good expectations made resistance levels at just below or about USD9.00 depending on which contract you were trading. I did not make a big buck and I moved to sidelines.

Corn - corn had 2 strong bullish events (Quarterly Stock and WASDE reports) and they eliminated many bears in town. I was holding my shorts until Ukraine announced wheat export ban. That day I capitulated.

Soybeans - I quit my shorts as I planned - as soon as I saw the end of US crop harvesting. Good move.

Soybean Oil - I followed the same logic as in S-case but I was also watching closely the COT report. I like to watch BO on COT report - they work smooth together. I quit shorting BO in the first half of the month.

Coffee - my worst nightmare in October. I ignored COT bearish signals because they were not too loud. I ignored fundamentals that coffee is being actively harvested and shipped to US during October. And I lost. This is not my Waterloo yet but it well may become.

Sugar - sugar investment was overextended. I should have quit it but I did not do it. But I am less worried as now is harvest times and price surely goes down. I hope it will go up soon enough.

Natural Gas - I changed my bullish stance into a bearish one in the end of the month but currently I quit all positions and wait for confirmations from weather men.

Heating Oil - peaked this month but bear rally faded soon, everyone is watching for weather news. I hold a short position and I think I will liquidate it soon.

Copper - I had a brief affair with copper during its fall and made some money on it. This was a purely technical trading.

Platinum - another example of successful technical trading supported by COT signals. One of my best takes this month. I suggest everyone to study Elliot waves theory.

Someone whose opinion I regard said "Every time I thought I understood future movement of prices I was wrong". This is about me in October.

OK, it is October 3rd and it is time to make a plan for October. I had a long weekend as we had two public holidays on top of usual break so I let my brain to have some rest. Now back to business.

In October I am interested in following commodities:

Wheat - I continue shorting wheat. COT is at the levels when commercials short wheat. They are smart people, insiders, so I will mimic their behavior. Besides, I am curious what India is going to do with excess wheat they have - a week ago or so there was a rumor that Indian government was going to sell their excess wheat. I do not want to give any numbers here because I do not trust Indian officials (whoever does is wrong, there is no unanimity on anything in their government - recall cotton export ban early this year) but the talk was about millions of tons. The fear of Russian ban should not be considered seriously at the moment - Russians have lost competitive price advantage so no matter what they do (or don't do) there is little demand for Russian wheat already. Of course should they implement anything this would lift up prices but not for long as they are not the market maker at the moment. But this would create another good short-selling opportunity.

Corn - I continue shorting corn. The price was boosted by bullish grain stocks report on 28th of September but this is not going to change anything in October. The point is that farmers sell corn straight from the field bypassing grain storages. Think of it as if you'd be a farmer - why would be selling in such a mad rush after such a severe drought? My guess is following - I would be selling fast only if I would know that prices are going to drop. And farmers tend to know because they are the insiders. Poor yields are of course another explanation to low stocks but hey didn't we get the yields from another USDA report? Is this a controversy between USDA reports or just a mad selling tempo? Brazil corn is shipped to US and sold at discount comparing to US corn. The pace of crop harvest is roughly 15% a week and we are below 50%. Bottomline - prices will be under pressure in October.

Soybeans - mostly the same story as corn. I will be shorting S in October. Reasons are the same.

Soybean Oil - COT is bearish, S is bearish - BO will be bearish too.

Cocoa - the prices for CC has fallen from 2700 to 2430 as of today. How much room left for further falling? I do not know but I am interested to see a bounce and further COT development to resume shorting. At the moment I am watching but I am looking for an opportunity to open shorts.

Coffee - I am holding a long position. Should there be a drop in prices - I will buy more. Otherwise I will be holding and waiting for further price appreciation.

Sugar - I am long sugar in October, COT is a screaming buy. Buy pullbacks, sell rallies - this is my plan.

Natural Gas - I am less bullish than I was last month. I can't say I am going to buy it immediately after a pullback. October is often a time to open shorts but weather may bring own surprises. Watching and waiting.

Question marks:

FC, LH, LB, RR, CT - COT of these should become more bullish to convince me.

O, OJ, LC - these need to decide which way they are heading.

HO, RBOB - COT should become more bearish and I will eagerly sell them.

Again no interest in metals and oil. I am not saying I am right - I missed a nice rally in PMs but I have no regrets. On one hand we have QE that is supposed to lift prices but COT now tells me things are turning bearish. Basically there are two opposing trends and I prefer to wait. PMs are seen as inflation hedges by many retail investors as well as serious institutions so they may irrationally affect the prices even if COT tells me the opposite. Otherwise how could we have 10+ years bull run in gold? COT was not bullish all the time during these 10 years… "It is better to be out wishing you were in, than in wishing you were out." © Albert W. Thomas

Oil... If silver is devil's metal than oil is devil's fuel. I feel myself like a gangster who does not know how to shoot - I trade commodities but I don't trade oil. But I can't convince myself in taking any side of the trade. Maybe after the elections I will take a short side. Maybe, yes, maybe no, maybe rain, maybe snow… Maybe trading oil is not trading commodity anymore? Blasphemy, indeed. "All great truths begin as blasphemies." © George Bernard Shaw.

What a month we had! I wish every month give me the same drive! It was the least expected thing from September considering how much pain it usually brings to investors. Alright, time to draw the line:

Wheat - I said I was bearish and it worked well until Russian deputy of economy minister started to talk about export ban. This is not his job, this should be ag minister or prime-minister but this event made me worried and I closed position. I re-opened it on the last day of the month after incredibly bullish grain stock report was released. I re-opened my shorts. I will explain my actions below.

Corn - the crop is being harvested, the stocks are being replenished, and the price is being pushed down. And the drought is finally over! Last but not least - Brazil corn is currently shipped and sold to the US at USD1-1.50 discount. Needless to say all of these drive the price down. I increased my shorts on the last day of September.

Soybeans - soybeans echoed the same story as corn. Finally my plan to short soybeans brought good results.

Soybean Meal - COT shown bullish signs and I ignored shorting SM. Instead I started to short soybeans oil and I am very happy for that choice. The decision was based on COT.

Now, to USDA Grain Stocks report. It came live on last business day of September, it was expected to be bearish but it turned out to be ultra bullish for corn, slightly bullish for wheat and bearish for soybeans. Prices of all three soared, corn prices reached CBOT day limits. OK, these are well-known facts. Now lets analyze them:

1) W/C/S prices increased by 48%, 28%, 36% comparing with the prices of last day of September 2011 when grain report for Q32011 was released;

2) W/C/S stocks reduced by 2%, 12%, and 21% comparing with the same day.

One would expect that in a perfect economy (theoretical case) 1% increase in stock would lead to 1% reduction in price and another way around. However we do not live in a perfect world and markets are somewhat irrational. At the same time such irrational behavior cannot last long - crops are still being harvested, cheap Brazil corn did not disappear and this will cool down bulls very fast, and arbitrage speculators won't miss this event of disbalance. Market was irrational on 28th of September 2012 otherwise S would drop not rise after bearish report. I bet that we will return to the level of prices of second half of September in a few days. And that is why I increased my shorts.

Cocoa - I was shorting it after it went up all the way to 2700 and then I sold it at around 2530. I was early but I was worried about coming auction reform in Ivory Coast and uncertain about the weather. I considered it crop-friendly but some people said it was not friendly enough. So I decided to drop the burden of hesitation and quit the trade.

Coffee - it certainly went up and I made some profit selling part of my stock and I am waiting for pullback to repeat the move.

Natural Gas - it was way too bullish so I sold part of my investment. Maybe I was wrong to sell but I made it for profit.

Sugar - on the last week of September all COT indicator were in the position to tell me "100% buy". So I did - March contract at USD20.03. Hope to increase position once it finds new higher support levels.

Rest of the commodity sector did not convince me to play with and I ignored them.