10 September 2018 MONDAY

Comments for Monday 10 SEP 2018:

Gold: I remain short DEC18 Gold 1400-strike CALL and short the DEC18 Gold 1050-strike PUT.  Gold is inversely sensitive to the $US dollar Index (95.339  $DXY.)  I, nor anyone else,  can say with certainly what “the FED” will do next.  At this moment, a widely held opinion is that interest rates will rise over the coming months.  I wrote an article a few months back on the inverse relationship of the Gold prices to the $US dollar Index (LINK.)  The physical demand for Gold has lately been a little weak -and if you believe FED interest rate hikes are in the wing, the price of gold could be in a bearish pose.  Let’s take a look at the DEC18 one-year history of gold futures.  On the chart below is DEC18 Gold Futures vs. $US Dollar Index.  Although purist will argue that gold and the dollar index do NOT correlate over the last 27 years –  clearly right now THEY DO.  There’s a near perfect inverse relationship going on.

As the FED’s raise interest rates, the $US dollar will get stronger (go UP basis the $DXY) and as you can see from the chart (above), the price of gold in this scenario would likely weaken a bit.  I can’t say ‘how much and when.’   What I can glean from this information is that gold might be more likely to go DOWN that UP over a period of months.  Of course if the stock market crashes, gold becomes the classical “safe haven” and those buyers could hold the price of gold UP.  It is easy to see the difficulties in trying to depict gold’s price direction and timing.   With the right strikes, I still expect to sell Gold CALLs and PUTs soon.

Grains: In my 06SEP2018 post here in TRADE COMMENTARY, I discussed that this week, on September 12 at 12PM (New York time) – the USDA/ WASDE report for September will be issued.  It is expect the glut of soybean supplies will not change and also there is some chance the Corn Ending Stocks for both this year and next (2017-18 and 2018-19) could be revised downward.  Since I am presently short the NOV18 1000-strike soybean CALLs, it will be nice if the expected happens with the beans.

Corn: It is Corn’s outlook that has the potential to be modified into a bullish signal in the coming WASDE report.  More corn is being used for ethanol productions, so that amount could be revised UP, and perhaps the most important number for corn will be the expected YIELD  (bushels/acre.)  At present the average estimated yield is near 177.6 bushels/acre.  Realistic ranges for possible change in the report are from 174 up to about 180 bu/acre.  Since the current estimates are 177.6, there is room for that number to go down a little, probably not all the way down to 174, but maybe something between 175 and 177.  If this yield number is reduced, and many believe it will be because the crop has matured faster this year than it normally does, this could be a bullish indicator.  As I mentioned, I am wanting to sell Corn CALLs, on the DEC18 contract – and I am waiting until this report is out before I make (or don’t make a move.)  Here a current (10SEP2018) chart of DEC18 futures:

For now, I’m thinking I might sell some DEC18 CALLs at a strike of at least 420 and I hope higher, but first I want to see the numbers and see how prices might respond.  Remember our main advantage is that we do  not HAVE TO PORTEND PRICE DIRECTION AND AMPLITUDE to make money, we merely have make a very educated guess ONLY WHERE PRICES ARE NOT LIKELY TO GO.   For the most part harvest is underway for northern hemisphere crops, some of that data could be reflected in the report.  It is easy to want to read more into one of these reports that is actually there, so for now I’m just waiting to read ‘the facts’ and see what happens.  Here how some of the dynamics could go:  Buyers of corn (for ethanol and as feed for cattle) will realize if this report indicates smaller stocks (shorter supplies) that they need to buy futures to secure fixed prices now (this is called hedging) rather than wait at a time when prices will almost certainly rise.  To be clear, this would be bullish. What would happen in this case is:  projected stocks go down, use goes up, yield is reduced, and prices go UP—- any or all of these could happen.  If you are not familiar with following FUNDAMENTALS of crop, this would be a great time for you to follow along and learn.  It may turn out we do all this “consideration” and the report is neutral – too.

Fundamental analysis is a method of evaluating a security (commodities in our case) in an attempt to assess its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors.  In grains this would include:  Yield, # of acres planted, condition of crops, pollination, weather/soil conditions, foreign production, imports/exports, next year’s estimated plantings, and more.

It is interesting to study the list of how the crop numbers are computers as they combine these many factors.  Here’s the current list for Corn:

Crude Oil:  I continue to shop today and this week to sell options on JAN19.

Natural Gas: NG DEC18 went down fast this week.  The 3.75 CALLs I sold for 0.011 close Friday at 0.005 and since the prospects of NG hitting that strike seem remote, I continue to let time-decay do its thing and hold the position.  I will consider closing this out, if I see an opportunity to roll this strike up and/or out for a higher premium that I consider safe enough.

I posted a new blog entry this weekend that describes PASSIVE INCOME LADDERS.  Here’s the link:


That is all for now.  Good trading.  It will be an interesting week.  Not sure if I will post commentary on WED or THU to discuss the USDA report.

-Don A. Singletary

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