Market Overview

MrTopStep Best of 2012: Beans in the Teens


By Danny Riley

It's hot and sweaty in the Midwest and the bean, corn and wheat crops are feeling the heat. After a record 10 days of 100-degree temperatures, the CME's grain markets are on fire.  While many of the other markets are seeing summer slowdowns, that's not the case in the  grain quadrant. With more hot, dry weather forecast over the next 10 days, many think grains have the potential to move higher.  When you walk through the financial room of the CME, most of the futures pits only have a handful of locals standing in them, but when you walk past the meats and into the grain room, you know right away that things are hopping. Yesterday the front-month July soybeans settled up 45-1/4 cents at $16.65 per bushel after reaching $16.79-1/2, the highest-ever spot soybeans have been priced. Benchmark November ended up 42 cents at $15.47-3/4, after setting a contract high at $15.71-1/4. December corn settled up 37 cents, or 5.3 percent, at $7.30 a bushel after rising the 40-cent limit to $7.33 after 3 weeks of sustained hot, dry weather across most of the United States.  While we mainly follow the S&P, it's hard to overlook this type of movement. After the markets closed, the U.S. Department of Agriculture reported that 40% of the U.S. corn crop was rated in good to excellent condition, a drop of 8 percentage points from the previous week and the biggest weekly decline in nine years.  A few weeks ago I spoke of  a longtime local from the grain room. I have known him for over 25 years and he explained how hard it has been to make money trading grains. He explained that he had a long position and that he had sat for several weeks with the losing positions. He went on to say that the “seasonalities” in the grain markets were not working and that like the S&P, algorithmic trading was “killing” the locals. When Bob the local walked past my desk yesterday he told me he got out of his long positions Friday and did not catch yesterday's big up move, but he said he was happy with what he made. He went on to say that while things have changed, he still thinks being on the floor is the best place for making money in the futures markets. He said he understands that you have to take on more risk and that the pain of holding the positions can be rough but he also went on to say that he made more money in the last few weeks than he has all year.

Bob the local is like many pit traders in the CME Group, trying to gain an edge in an electronic market that gives nothing away for free. He said he understands that, but he also went on to say that trading grains is the only thing he knows. Way to go Bob!

Our view:
Both Friday and Monday, the S&P futures were down all day and rallied going into the final hour of trade. Despite Portugal considering easier terms for a bailout agreement, the index markets are moving higher this morning. Like the stock market or not, the S&P has been “back and filling” the last two days. This morning has a fairly light economic calendar, and the way it looks, the S&P is trying to go back up.

For today:

  • It's 5:30 a.m. and the ESU is is up 4.75 handles at 1354.00, crude is down 48 cents at 85.51 and the EC is trading 1.2327, up 6 ticks.
  • In Asia 7 out of 11 markets closed lower.
  • In Europe 10 out of 12 markets are trading higher (DAX + 1.43%, CAC +1.32%).
  • The main headline this morning: “S&P Futures Seen Higher as U.K. Manufacturing Climbs.”
  • Today's economic calendar: St. Louis Fed's James Bullard speaks in London,  NFIB Small Business Optimism Index, Redbook and a 3-year note auction.
  • VOLUME:  1.46mil ESU and 4.7kk SPU traded
  • SPREADS:  120 SPU/Z spreads traded
  • FAIR VALUE: S&P +7.50, Nasdaq  +13.00

Closing Print Video: http://www.mrtopstep.com/videos/?id=21189

Monday's wrap-up from the S&P pit:

Let's try and put the Eurozone debt crisis aside for a minute. The start of earnings season has arrived as the non-farm payrolls have continued to disappoint with consumer confidence following. The questions of growth and the global slowdown, recessionary forces, will be addressed in the coming weeks and the near-term direction of the equities shall follow. Over the next two weeks, 85% of the broader market will have shown their hand. Going into today's trade, there have been 42 corporate warnings, downward revisions to date – leading some traders to feel the market has already priced in much of the corporate negatives. As the quantitative easing beat rolls on, evidenced by cuts in the interest rates overseas as well as other monetary initiatives both abroad and domestically, the Eurozone continues to play out as Spain and Italy remain front and center. As long as the DJIA and the Dow Transports lag below their near-term highs, all the king's horses and all the king's men may be in need of further support. However, time for support in the U.S. is running thin, as the November elections draw near.

The S&P 500 futures trade started with concerns over the Spanish and Italian yields nearing unsustainable levels again. Concern that the governments would still have to assume ultimate liability for banks that are directly rescued with Eurozone bailout funds had Eurozone officials scrambling again. However, due to the dog days of summer, only 240k ESU and 850 SPU traded on Globex, trading range 1350.10 – 1343.20. Friday's range was 1352.20 – 1342.50, settling at 1351.80, down 9.6 handles. Today's RTH's opening range was 1348.00 to 1347.50, down 4 handles, with an initial move down to 1346.75 before trading a high of 1349.40, shy of both the Globex high and previous settle. After trading back through the opening range and the early low, the spoos traded down to 1342.00 and slowly bounced back to be denied at early low 1346.50 area and shy of the opening range. The equities had trouble holding a bid and made new lows of 1341.20 by 11:00CT in thin trade. Crude was catching a bid on a threatened strike, halting all offshore oil and gas production in Norway. Crude rallied to 86.48, up $2, going into its close before giving back over 60 cents. On the move, the spoos retested the opening range 1347.50 at 12:40 and once again were rejected. By 1:50 the spoos were trading 1342.50 before working higher over the next 45 minutes. The opening range was being retested as the the closing imbalance showed 16 of the DOW 30 to buy and the broader market showed just $130M to the buy side. The cash close traded 1347.50 before settling at 1349.29, down 2.6 handles.

MTS video: http://www.youtube.com/watch?v=OmrHZ_JVlPI&feature=youtu.be

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CONTRIBUTORS' CORNER

SPX CHARTS

Roger Volz, BGC Partners

SP 500 Futures Chart and Indicator…..negative consolidation continuation pattern below 1357.00 reaching the next line of intraday support measured off the July 2 low at 1350.00. Bleed below opens air pocket to 1340.00 area where next grouping resides and short term oversold readings are targeted. Daily bar is working off an outside down engulfing pattern from July 5. Resistance groupings 1353.50 / 1357.00 /  1365.75 / 1375.50 / 1389.00. Support groupings 1349.50 / opens air / 1340-1339.50 / 1335.75. ST OB next > 1387.50 following recent stair step series; ST OS < 1340.00 from 1335.5015 min basis sees next VST OB > 1370 v 1373.50  // VST OS < 1351.50 currently moving into extreme reading.

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DISCLAIMER: The information and data in the following report(s) were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. MrTopStep, its officers, directors and its contributors may in the normal course of business, have position(s), which may or may not agree with the opinions expressed in this report.

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