November 12, 2015

I don’t mind being wrong…I don’t like it but it IS part of the futures game.  As I constantly point out per the giant wall reminder in front of me: YOU WILL BE WRONG. YOU WILL BE RIGHT.

What I do mind is being STUPID and I recently committed one of the cardinal sins as a trader in that I allowed a whole bunch of profits  to slip back through my fingers, AND turn into a loss, in the Cattle market. After busting my ass to stay short for well over a year in Feeders and Live Cattle, when a strong down move finally did develop I made the mistake of “holding out for more”,  and being so damn certain any rallies would be minor at best…THAT I GAVE BACK PRETTY MUCH EVERYTHING BOTH I AND MY CLIENTS HAD MADE DURING THE SELL OFF THAT FINALLY DID TAKE PLACE.

AND THIS WAS JUST ABOUT AS STUPID AS IT GETS.

I have obviously asked myself if I would have handled the trade any differently had I not been in South America but the answer keeps coming up the same. My game plan while away was to assume that if any market I had positions in began to move favorably , I would simply allow it to do so…that I was looking to participate in extended trends and I had ZERO expectations that any positive developments would entirely reverse themselves during the 15 trading days I intended to be away. In retrospect, however, NO QUESTION, this assumption was totally in error. THE CATTLE MARKET DID APPEAR TO BE IN THE BEGINNINGS OF A VIRTUAL COLLAPSE JUST AS I WAS LEAVING TOWN, WHICH I ASSUMED WOULD EASILY GO ON FOR ANOTHER MONTH OR TWO, THUS ACCRUING MORE AND MORE PROFITS…BUT THE COLLAPSE PRETTY MUCH ENDED CONCURRENT WITH MY DEPARTURE…AND PRICES THEN DID PRETTY MUCH IMMEDIATELY RECOVER EVERYTHING THEY HAD LOST IN THE WEEKS PRIOR TO MY DEPARTURE…TO THE TUNE OF PROBABLY SOMETHING LIKE $10,000 PER FUTURES CONTRACT IN THE OCTOBER  FEEDER CONTRACT IN WHICH IS WAS POSITIONED…WHICH I DIDN’T TAKE …WHICH JUST MAKES ME SICK TO MY STOMACH.

So, just to get it out there and present an example of what STUPID looks like, here is the play I totally blew it with…

And here is the look at the other half of my trade, Live Cattle…which also sickens me to even look at when I consider the size of the sell off and how I totally missed capitalizing on it…In fact, what makes me feel even more stupid is when I look at the chart I drew…and what I wrote on September 1^st, three weeks before I went to Chile…

FROM SEPT 1  NEWSLETTER…

And here is how it traded…

Pretty much right on target…

SICK…

And to make matters even worse, after having returned home in early October, with large profits having turned into almost nothing and the October puts expiring, I exited virtually all of my cattle positions…and being short on cash and morally demoralized, I did not buy puts again…And as can be seen on the chart following, have now watched the collapse resume with a vengeance during the past week’s trading.

All that being said, as I now look at the cattle market, and having missed an opportunity I considered to be one of the biggest “gimme’s” (a tough one but a gimme) I’d seen in a long time, the truth is, for me, for the time being, that trade is now over and done with. While I suspect Cattle will continue to slide much, much further than anyone expects…I AM human. I cannot traded “scared”, nor can I let my ego affect my objectivity…and with those two considerations being a definite possibility right now…in Cattle…the best thing I can do is put this trade…this totally missed opportunity…behind me (as best I can) and continue to position for the MAJOR moves I still see coming in the Euro, Corn, Wheat, Cotton and Soybeans.

I think there is MAJOR leverage in all five of these markets, and I therefore believe the opportunity exists to make MAJOR hits in every single one of them (or I wouldn’t be recommending them)…AND…if successful, do be assured that this time I WILL “take the money”. As always, I am obliged to say that if I am WRONG, you easily could lose everything you have on the table.

TO TAKE THESE POSITIONS, AS IT HAS BECOME WHAT IS ALMOST AN UNWRITTEN LAW  FOR ME NOW, I WILL CONTINUE TO USE THE “1 & 1” OPTION STRATEGY I ADOPTED 5-6 MONTHS AGO. While it is not the holy grail of trading, I have been convinced over and over this year that it perfectly suits my approach to the markets, in that it works extremely well on the defensive side when I am wrong, while also keeping the door open for big potential profits when I am right (IF I TAKE THE MONEY)…I’ll save any further discussion of the pro’s and con’s of the strategy for another newsletter, but suffice it to say, I wouldn’t be using the “1 & 1” if I didn’t believe it dramatically increases my  odds for success. Believe me, this job sucks SO, SO bigtime when you are losing…when you look like an idiot…and my recent massively stupid experience along those lines is something I absolutely want to avoid, to put it mildly. I HATE what happened here. UGH!

I MADE THE POINT IN AN EARLIER NEWSLETTER THAT 2015 HAS ESSENTIALLY BEEN A YEARLONG SIDEWAYS AFFAIR IN THE OVERWHELMING MAJORITY OF MARKETS…AND SIDEWAYS IS MY GREATEST ENEMY AS AN OPTIONS BUYER…BUT I DO LOOK FOR 2016 TO BE ENTIRELY DIFFERENT. For a number of reasons, one being that sideways is not a “norm” in the futures markets, I think there ARE some very big, full-blown-trending-moves coming in a number of commodity markets…and my intention is to be on them. Immediately, there are  five I absolutely want to own right now…and from a purely mathematical and strategic standpoint, I strongly recommend having positions in all five…My opinion is that all five could imminently be leaving these VERY long sideways ranges and fairly quickly thereafter be turning dynamically bullish…but I have no idea in what order they may do so (if I am right). Big moves always seem to come when the masses (myself included) are least expecting them and I cannot count the times I’ve had positions in 3 or 4 markets and been absolutely surprised by the “fireworks” beginning in the one I  perhaps considered the least likely to do so. And I therefore expect it to be no different with these five…which is precisely why my answer to the common question, “Which one do you like the most?”, is generally something like, “I don’t know. I like them all. I think they are all big potential trades or I wouldn’t be wasting time and energy on them, and I DON’T want to be sitting here watching that ‘least expected’ of the group turning in to the one I should have liked the most.”

So if you think any of these ideas make enough sense to put your money on the table, I urge you to consider taking them all. It IS the smartest way to go…

I am still Bullish the Eurocurrency

I cannot count the number of economic or market related “logical truisms” I have encountered in the past 35 years, but I would guess that 1 in a 100 is ever at all accurate, or even relevant to where prices for any market (paper, commodity or whatever) are actually going…and I would also add that I believe this to be especially true when it comes to the currencies. To substantiate this belief, as I have noted  many times, even former Fed Chairman Alan Greenspan on several occasions made the point that “Everybody is always wrong about the currencies” (paraphrased), even going so far as to say that the success rate among professionals for predicting any currency’s future value was “no better than that of a coin toss.” And that was coming from a guy at the absolute top of the economic information chain, with more data, experts, forecasting models, computers, etc. than anyone else in the world…

And keeping this in mind, in today’s markets, there is one set of “logic” that seemingly EVERY one of those “professionals” agrees on, and it goes something like the following…which I’m sure you’ve heard for yourself just as many times (1000’s) as I have:

“The Fed is going to raise rates because the economy is now strong enough to handle it. Aside from a strong US economy being bullish for the Dollar (supposedly), the fact that our rates are going up will attract funds away from other currencies, and this too is bullish for the Dollar. The ‘Strong Dollar’ (the only way they ever refer to it) is only going to get stronger.”

And I couldn’t disagree more…For one thing, we’ve had a roaring economy on and off for decades and the Dollar has often been on a downswing exactly when our economy and markets were going full blast…And secondly, I have heard that whole interest rates determining currency values “logic” FOREVER, and seen it just as forever be nothing but worthless hot air being spewed by well dressed, articulate, high priced analysts and economists,  who are, as noted by Mr. Greenspan, no better in their forecasts than that coin toss…To be specific, while interest rates are one factor that can affect currency values, this idea that it is almost the sole determinant is just a load of bunk. As I said, that “logic” has been out there as long as I’ve been in this business, and I have seen it proven wrong, literally, too many times to count.

As I have noted before, being Long the Euro is basically the same thing as being Short the US Dollar…and with 99% of the “analysis” I’ve seen arguing for a stronger Dollar and a weaker Euro, I am more than comfortable taking the other side…and NOT just to be contrary. In recent years, according to the mass media, Europe and/or the Euro were supposed to have been heading towards oblivion for any number of reasons, but this entire continent just seems to be (and is) something like the Energizer bunny. Europe ain’t dying. Neither is the Euro. In fact, and it may or may not be a factor in pushing the Euro higher, but I WOULD SAY THAT “BUYING EUROPE” (real companies, real assets, etc) NOW SHOULD PROBABLY BE CONSIDERED AS AN OPPORTUNITY TO BE BUYING THE BEST ASSET VALUES ON THE PLANET TODAY. For real. Germany, France, Italy, Spain, Scandinavia, Austria , etc? Do you REALLY think they are just chump change countries? Do you really think, they, who have survived two massively destructive world wars on their own soil, are just going to meander into non-existence or non-contention on the world scene? Not that it’s relevant, but I spent about 4 years in Europe, and maybe this has nothing to do with what the Euro will do from here, but I can tell you that this 2000 year old (or more) civilization is NOT going down the tubes…or anything close to it. Their economies, just like everybody else’s are benefitting from cheap energy, cheap money AND they have ALREADY been through every grinder you can imagine. I think they are on the UP, and it will stay that way…and so will the Euro.

I STILL LOVE BEING LONG THE EURO AND WILL CONTINUE TO DO SO…AS ALWAYS, USING THE 1 & 1. I think this market has been sideways to the max…and now it’s time to move.

Here’s a long term look at the Dollar that everybody is so SURE is strong…and will get stronger.

I’d say they need to be reminded it goes up AND down. Such is its history anyway.

And I loved this headline from last week…It’s just one source but it is, I believe, entirely representative of the thinking that is out there EVERYWHERE.

Here is how I would position in the Euro at current levels…

I have been in this trade since early last year…SINCE FEBRUARY THE MARKET HAS BEEN SIDEWAYS …Several times it looked like it was ready to go…but didn’t. I DO think 2016 will be quite different and I DO think that a 10, 15 or even 20 point upswing is what we will see. The currencies DO move and that 35 point down move on the left side of the chart above IS indicative of exactly that. I’m not dreaming, or wishful thinking…Go back and take a look at the long term chart…125 is NOT that far away…

 Still a buyer in Soybeans,Wheat, Corn & Cotton

DO “1 & 1’s” WITH ALL OF THEM

Three to four years ago, all of these markets had gone ballistic to prices never seen before…and everybody in the analytic community thought they would stay strong forever…right along with $150 oil. NOW, all of those markets (and many other commodities) have dropped by at least 50% in price and NOW those same analysts are SEEMINGLY THE MOST BEARISH I HAVE SEEN THEM IN A DECADE, and just as they were backwards 3 years ago, I think they have got it totally backwards once again…to the extent that “be short commodities” is just as much of a unanimous opinion among analysts as is the case with the Dollar.

In fact, on my very first day back from vacation, I caught the statement that, “All the Big Banks are now bearish commodities” due to “oversupply” of just about everything. The Big Banks? Commodity experts? Quite specifically, back in December, 2012, with Gold at about $1700 an ounce, I put out a very bearish Gold newsletter in which I posted headlines noting the EXTREMELY bullish 2013 forecasts from 13 MAJOR banks and brokerage houses around the world…I mean, they were ALL one way the market and raving about how “Everybody needed to own some Gold”. And 4 months later? Gold had dropped $500 an ounce, and has continued to slide ever since…I certainly don’t bring that up to say, “Look how smart I am”. Believe me. While I have a ton of measured confidence in my opinions right now, following this Cattle debacle, I DON’T feel smart…The point is, though, for the umpteen millionth time, I will tell you that all those guys at the big banks and houses are not commodity geniuses just because Such & Such Brokerage has slapped an “analyst” title on them. And I have seen it proven over and over and over just how wrong those guys can be during my career (11 of them with one of those brokerages). For sure, I can sometimes looks just as bad as I believe they PERPETUALLY are, but sometimes I get it right…I swear, in general they are all just walking booby traps and whenever something big happens, it seems like they are always beyond surprised and are totally on the WRONG end of it.

To reiterate (and please excuse this “Everybody else is stupid” harangue), it has become quite popular of late (AFTER the fact) to suppose that commodity prices, NOW down 50%, are generally seen as being markets to NOW be Short…And that anyone who would suggest being a buyer of these markets is simply as fundamentally and economically ignorant as is humanly possible. BUT THAT IS WHERE I AM. I THINK SOYBEANS, WHEAT, CORN AND COTTON WILL ALL SEE BIG UPSIDE MOVES BETWEEN NOW AND NO LATER THAN SOMETIME NEXT SUMMER.

Some of my maybe warped reasoning beyond this thing about everybody being Short?

As noted above, THE number one most widely held opinion in the markets is THE DOLLAR WILL STRENGTHEN (to be overly clear, which I think is backwards). And as this relates to commodities, the bottom line assumption is a stronger dollar will undoubtedly be a bearish factor for prices…wih the simplistic “logic” (truism) being a stronger dollar means our products, such as Corn, Wheat, Cotton and Soybeans will all be more expensive for the rest of the world…and export demand will therefore be negatively impacted…and prices will therefore be under insurmountable pressure. AGAIN, I SEE THIS AS HOGWASH…For one thing, as stated above, I think they are backwards on what is coming on the Dollar, and secondly, what the Dollar does is only one small factor in determining the direction of any commodity…and, at times, in spite of what analysts may say, is not even a factor AT ALL.

 Regardless of what you hear about “slowing China” or “slow world growth”,

THE DEMAND FOR COMMODITIES IS NOT DIMINISHING

I FIRMLY believe the planet is in the midst of a boom. As I wrote on September 1st, China isn’t dying, neither is Europe, neither are we. Low interest rates (even if they do go up, the rise will be VERY modest…symbolic almost), cheap energy, worldwide exploding capitalism (and consumption), a 30 year old Technology Revolution that I actually think is NOW, AGAIN, in a monster take off mode, AND an ongoing willingness to stimulate financially from just about every Federal Bank on the planet…ALL add up to a continuing expansion of global demand for just about everything…Guys, I would say IGNORE all the economic opinion that keeps bleating, “Growth isn’t good enough”, and assume that this giant ant farm, Planet Earth, is doing what it always does...GROWING, GROWING, GROWING…For sure, there are occasional, normal bumps in the road, but the general path IS always higher…and right now, heading into 2016, I say the odds are on for a big, big year….And that AIN’T bearish for commodities…even to the extent that my long held bearish bias towards the metals is even changing, and while I’m not at all ready to go yet, I do think it is time to be looking at Gold, Silver, Platinum and Copper on the long side.

All the bearishness is primarily based on what are perceived as abundant supplies, but I absolutely subscribe to an old commodity adage, “Any known fundamental is a worthless fundamental”, the idea being anything that is already known is already priced into the market…And this, I believe is definitely the case with Corn, Cotton, Soybeans and Wheat…Really, this “known” is why everybody is so bearish…BUT, what isn’t known is DEMAND…and per what I wrote in the preceding paragraph, I think the odds of demand being much GREATER than expected in the coming year are far better than it being lesser.

On another front, the WEATHER. It IS changing and it is becoming erratic. Whether you  believe in Global Warming or not, 2015 is the hottest year we have on record. The Pacific has heated up this year, ASTOUNDINGLY, according to some newscasts I have seen, which, whatever the specific impact, DOES affect the weather here…and for that matter, everywhere else…And while I never, ever would make a trade just based on, “the weather might be bad”, I do know that “uncommon” weather, whatever the type (too dry, too wet), definitely can have bullish effects on any of these four row crops. And I can’t help but think that whether it’s here, or in South America, Asia, or Europe…anywhere these crops are grown, “uncommon” weather” easily could enter the equation…at least somewhere.

So I am bullish and I do think it makes sense to be in all four of these markets…I am resolutely using the 1 & 1, such that if any of these markets, or even all of them, do get knocked lower, we do stand an excellent chance of recouping 100% and reinstating the positions at lower/better prices…The point is, from current levels, I think it makes sense (using the 1 & 1) to get long…and stay long…no matter what…That, for example,  if I like Soybeans at $8.50, I will still like them at $8.00, or $7.50 or whatever price they become…I obviously do not expect those sort of lows or I wouldn’t be buying now  as all four of these crops are already priced AT OR UNDER THE COST OF PRODUCTION…and while I know that DOESN’T MEAN THEY HAVE TO GO UP RIGHT NOW, SOONER OR LATER I THINK IT ABSOLUTELY DOES…

And finally, to emphasize a point I made earlier in this letter, I BELIEVE THE WORLD MARKETS HAVE BECOME A GIANT, EXTREMELY LIQUID AND QUITE VOLATILE CASINO. THERE  ARE QUADRILLIONS OF DOLLARS SLOSHING FROM COUNTRY TO COUNTRY, CONTINENT TO CONTINENT…AND MARKET TO MARKET…AND ALL OF IT HAPPENING JUST WITH THE CLICK OF A BUTTON…AND I THINK THAT DOES ARGUE FOR BIG MOVES…IN ANY OF THESE MARKETS, WHEN/IF THEY DO GET GOING.

SO I SAY GET IN NOW. USE THE 1 & 1…AND SEE WHAT HAPPENS…A 2016 SIDEWAYS MARKET JUST DOESN’T MAKE SENSE TO ME.

Here are the charts, current option recommendations and potential outcomes...

All option prices in this newsletter include all fees and commissions.

Soybeans long term…The last thing I would expect here is to flatline sideways…and if they do fall lower, using the 1 & 1 should allow us to comfortably own the market at whatever price they do extend down to…

Here’s the 1 & 1…

These are not pie-in-the-sky numbers…All of those $1-$2 swings you see as Soybeans have drifted lower for the past year are a QUIET Soybean market…And where it may be difficult to look at all that downsloping action and envision a move such as I have drawn, I assure you, it can easily happen…Conversely, if there is more left on the downside…to where you can recoup 100% does not look far away at all.

Wheat

 Corn

 Cotton

Same as the other row crops, take a look at the longer term chart and decide for yourself if 77 cents looks like a big leap from here.

So my overall perspective is that the odds of these four row crops just meandering nowhere are EXTREMELY low…and I FIRMLY BELIEVE THEY WILL ALL HAVE STRONG RALLIES FROM SOMEWHERE…THAT THEY COULD START FROM HERE, OR LOWER…AND USING THE STRATEGIES OUTLINED ABOVE, I INTEND TO BE THERE WHEN (AND YES, IF) THOSE RALLIES DO HAPPEN…AND IF/WHEN THEY DO TO MAKE SURE I TAKE THE MONEY.

To be honest, this cattle thing ruined my year. I look for 2016 to be a hell of a lot better.

And as I finish this thing, my own impression is that these are ALL very strong options positions with GREAT numbers, from both a defensive and offensive standpoint…My other impression (I read my own stuff) is that my point about taking all four of the row crops is dead on correct. In the end, it IS all about how the option numbers will/can work…and I really, really can’t imagine a scenario in which Soybeans, Wheat, Corn and Cotton all just lie here and do nothing…Futures ARE inherently volatile and forever sideways is not the nature of any market we trade.

Give me a call if you agree…or just to say Hello. As always, I enjoy hearing from all of you…

Thanks,

Bill

866-578-1001

770-425-7241

The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Eurocurrency, Soybeans, Wheat, Corn, Cotton