We get grain numbers out today. We’ve had a grinding 2 dollar rally in old crop beans, 1 dollar rally in old crop corn and wheat.. Open interest has dropped on this rally, meaning its been shorts covering and exiting the open interest. A market rallying on declining open interest is not a sign of an underlying market trend that has legs. Instead, it is more of a relief rally as traders with loser’s on reluctantly exit.
We recently read of a large HFT fund liquidate after an 11 million dollar debit.
Considering that they probably began the year with 15 to 20 million under management, I imagine that they were either short beans, gold, or live hogs and just got run over.
Last week a friend on the floor called to give me a heads up that a 6000 lot order got filled. The market spiked up and then rolled over for about 15 cents.
That looked a lot like a GMO order… GET ME OUT.
I won’t pull any punches. I was repeatedly short beans over the past 8 weeks. Repeatedly stopped out. Re-load and stopped out.
Longs in Gold and old crop corn calls were the only bright spots. But by and large, the short bean position has been in one word, a loser.
The record rally in livestock has also been grinding away. If the herd’s are smaller, that should decrease feed usage. Supply and demand should reflect that. However, waiting for what “should” happen doesn’t make anyone money.
On a positive note, I have repeatedly cut position sizes on the short positions in the beans.
Tomorrow it doesn’t really matter what the USDA sayss The big enchilada comes at the end of the month. If the acres are planted, beans have to have a dollar plus risk to the downside.
Tomorrow is a coin flip. As a counter indicator, people who were ripping my face off to get short corn and wheat a dollar ago, are now looking to buy calls. For a good short term play spend 5 to 8 cents ( 250 to 40 bucks a contract) on April and May puts.
All in all its been a cold first two months here in Chicago. When you are out of syn ch keep bets small and don’t trade just to trade. A lot of professional traders I talk to were pretty chewed up by this rally in old crop beans. Its been at least 15 yrs since we had beans rally like that in January, with zero fundamental force behind it.
Typically, we have had 60 to 80 cent rallies followed by at least 30 to 40 cent sell offs , even as the trend remained in tact. Its historically unusual to have a strong, unrelenting rally over 1.20 during the first 2 months of the year. So, history is not always an indicator of what is at hand. It’s been an loser for anyone who fought this rally in the grains.
For the Stock indexes: I don’t see any reason not to be long. Everyone is looking for “the next big correction”. If you are selling new highs, make sure you have tight buy stops. I continue to like using put options with 3 and 6 month windows as a protective sell stop on profitable long positions.
I was looking at long term rate charts this weekend. In 1999 you could have locked in 8 percent on us bonds. laddered over 10, 20 and 30 yr maturities. Now you’re at 2 1/2 for 10yr and 3 1/2 for 30 yrs.
Until we get rates closer to 6 percent, money flow will continue to go towards the only game in town.
Buy and hold (truly buy and hold) longer term gets you 6 to 8 percent from owning the S&P 500.
The problem is , if you need money and you dip into a 5 yr disaster like 2006 through 2012, you might have gotten out when you needed to stay in.
If its money your going to need to spend over the next 5 yrs, you cant be in the market. You just can’t.
If you have a long-term outlook, 1) buy no load funds 2) re balance and 3) don’t listen to the fear mongers any more than you listen to the people telling you its all gravy. 6 percent overtime. That means you double every 12yrs. Sadly, you have to be willing to sit through markets like 1999, 2001, 2009. If you can’t sit, then you shouldn’t be invested in the market.
The best way to stay long the market and protect against horrendous sell offs? Spend what you would spend on mangers and sales fees on cheap out of the money puts beneath the market. most of the time its an expense, like your life insurance or car insurance. When the market takes a dump, however, its invaluable tool to help you hold on to your longs without getting emotional at the wrong times.
When, however, we have 20 or 30 percent crack backs,,, your put options will triple and you’ll be more emotionally equipped to not feel the need to panic and exit your index funds.
More over time, but that, in a nutshell, is my opinion on being a net long speculator in the stock market, which is what EVERYONE who has an IRA or stock portfolio in reality is doing> Stay long. Don’t fall all over yourself trying to time the markets or trying to catch the next big pop. Its do able, but only if its all you are doing for a living.
If , however, you are in another business, but use stocks for a retirement plan, buy and hold no load index funds and use options on a quarterly basis to insure against the big sell-offs.
Owning the broader market gives you 6 percent over time. But you have to be able to stay disciplined and not puke at the bottoms, and get long at the tops. Utilizing put options for your portfolio insurance can help you achieve that goal.
CER