Posson Report Morning Brief
Example Morning Brief* - November 12, 2013
Macro economy in terms of business cycle model-
Last week's report were positive input for the macro business cycle model. China news mostly positive so far this week. Europe stable to improving. No change to long term bullish economies outlook. US the leader. Reports due this week; store sales, Chicago FED activity, FED inflation, MBA, productivity/costs, jobless, international trade, industrial production, import/export, Empire State manufacturing.
News - Post holiday US trade. Asia was mostly soft for stock markets. Europe began soft. US stock and commodities markets were of quiet overnight trade. Lacking news.
Markets in terms of business cycle model:
L4 trends last ½ to 2 days. Intraweek trend. A very short term trend.
L3 trends last 2 days to 2 weeks. Intramonth trend. A short term trend.
L2 trends last 1 to 2 months. Minor intermediate intrayear trend.
L1 trends last 1 to 5 months. Major intermediate intrayear trend.
3yr cycle trends last 5 to 27 months. Minor long term trend. Intra decade trend. Can make or break your business and investment year. But can be sloppy at times. May relate to famous Kitchin cycle used in business and economic analysis.
9yr cycle trends last a few years to nearly a decade. Major long term cycle. Intra decade to decade. Economy follows this cycle with growth trends of 7 to 12 years and recession trends of 1 to 3 years. This cycle is found in weather/climate, production, consumption, prices. Similar to same cycle as the Juglar cycle used by business and economy analysts.
Super cycles- 27/36, 54/72, and 216 years. Create trends lasting a decade to a century.
Commodities – DJUBS index-Seeking L1 bottom that can lead to rally into first quarter next year, and with L2 trend as increment along the way with a rally into December. Also seeking long term 3yr and 9yr cycle bottoms for this index. The cycles bottomed for GSCI index earlier this year and relative energy influence. Undervaluation for commodities in general. Close over 123.87 potential bullish sign.
Stocks – L3 trend-Up from 11/5 or 11/8 lows which are now risk points. Up for this week and perhaps up into next week. Consider 15,800 to 16,000 DOW. 5D stochastic was near overbought. Friday's price action nearly erased Thursday's sharp down day, and the index posted a new record high close. 5D avg first support. L1 trend-Up until late December to early January. A script that offers a type of top around Thanksgiving and some correction styled trade for December is still valid. 15800 to 16400 now into early next year. Still long term bullish into next year. Over 16000 but shy of 1700 for 2014? Trade ideas- L3=Buy intraday dips and risk to Friday's low basis DOW/SP500. L1/L2= Additional purchase worth the risk in my opinion, but when buying on the way up, each increment of purchase may be related to a higher risk point, stop. Hold long term bullish positions. May make a L1 or L2 top signal before year end, but will remain long term bullish into next year.
Rates: 10yr Note –L3 trend -Up and may remain so until some time next week, but last week's abrupt return to up following reasonable evidence for a L3 top may have been flash in the pan trade. Rates can peak this week as well, and if this week, favor early. L1 trend -Up for L2 trend and still not sure if the larger L1 trend is up into next year, or down. A L2 top is due some time this month. A negative reversal week likely a sign.
Dollar Index – L3 trend-Up from 11/4 top/11/6 bottom. Next peak 11/14 the earliest and latest is some time next week. 5D stochastic returned to long and nearly overbought. 200D avg may be an objective near 81.817. L1 trend-- Up until weeks of 11/4 to 12/2. 5wk stochastic was overbought. L2 or L1 bottom due in December offers a set back but when will the L1 peak occur this month.
Metals – Gold L3 trend-Down. Price was lower for too long. Two L3 trends now combine. Next bottom is due later this week, and no later than next. This may be a sign the overall trend is down into L1 bottom due this month. L1 trend- L2 top was likely recently seen for metals in general, and the trend is down into a L1 bottom due this month. This opens the door for a rally by December, and for a positive reversal some time this month, even as soon as week of 11/11. Oversold/undervalued per total model research. But 5 wk stochastic was not oversold for some markets. Bearish until positive reversal of some sort. And still long term bullish looking into 2014. 3yr/9yr cycle bottoms likely placed for most metals earlier this year.
ENERGY – (Continuous chart rolls 30 days before expiration. Month to month contracts.)
Oil - L3 trend—Due to turn up. Violation of a daily high a bullish sign, and more so on a close. Should rally to 96+ MAR. Perhaps to 200d avg continuous chart basis MAR, 97.80. 5d stochastic was long and not yet overbought but well ahead of price action, which is a concern. Bullish minded but there is adequate supply. But China economy improves and so also for demand of oil. L1 trend—Perhaps too aggressive/creative but calling for a L1 bottom. A positive closing weekly likely a bullish sign the trend turned up. Undervaluation. Oversold 5wk stochastic. Trade ideas- L3= >95.34 MAR bullish. Right to seek a rally week of 11/11, but what of the amount of upside potential. Risk point would then be low of the week or previous week. Scalp. Unlikely to be a large strong rally. L1/L2= Seeking L1 bottom. Weekly close >95.80 MAR a bullish sign. May purchase on the way up and place a stop near current low of month, at first, and consider a rally for November. But also consider range trade to year end. 95-91 floor price versus 100-104 cap price. And consider long term bullish trend into next year to still offer chance for as high as 120.
Nat gas - L3 trend -Up. Low of week of 11/4 a risk point. Up for this week. 11/14-19 top time objective? 3.70s-80s? L1 trend-L1 may be up into next year. Consider L2 as increment as more important at this time. L2 trend bottomed 11/5. Up to 11/18-12/2 weeks of. 4.00+? Trade ideas-L3= With violation of 11/6 high, buy and risk to low of 11/6 or 11/5. Trail higher later. Consider gain 11/14-19. 370s+. L1/L2= Buy with violation of 11/6 high and risk to 3.47 MAR at first. Consider late November to early December gain. 4+?
LIVESTOCK/DAIRY: (Continuous chart roll is FEB, JUN, Oct -30 days before settlement for hogs/cattle. Milk rolls JAN, MAY, SEP -30 days before settlement. Compare the milk chart with a spot chart and cheese chart. At times, a different story. The continuous chart now reflects farther out hedge trade not cash market.)
Cattle - L3 trend-Up from high of 10/31 and low of 11/4.. 5D stochastic was long and approaching overbought. Found support near recent floor price of continuous chart basis FEB. Not expecting much of a rally. Next top is due 11/12-18. Recent daily highs resistance but possible objectives. L1 trend-Lacking confidence but L2 top week of 10/28. Trend could be down for November, but still allowed to be up for December. Overbought and short (bearish) 5wk stochastic. 132.5 to 130 FEB? Trade ideas—L3=No new ideas. L1/L2= Sell for L2 down trend and risk to a new high for the year. Consider exit later this month. Consider exit near 131.8 or 40d avg continuous chart basis FEB. Market acts as though demand is firm and supply not as present as normal, but I think price is high. But still higher price feasible now into next year. Seems as though a correction should occur first.
Hogs - L3 trend-Up from last high 10/30 and last low 11/7. Risk point is 90 FEB, and time wise 11/7 low. A top is due as soon as today and as late as mid next week. Mid to late this week favored. 5D stochastic was long and at overbought, and it is concern there was little rally for such a swing from oversold to overbought. A revisit of 94 seems a bit high but allowed. Seek a top starting 11/3. L1 trend- Down until weeks of December, but allow a retest or nearly so of high of October for one last swing to L1 top. In other words the recent decline may have been premature. 5Wk stochastic was still long and not yet overbought, but the model warns of overbought/overvaluation condition, and time for a set back. Below 90? Trade ideas-L3= no new ideas. L1=Bearish into L2 bottom due next month, however, the recent peak was early, and so we may see a spike up yet this month for more appropriate L1 top, then down to L2 bottom. So L3 trends a bit volatile. What of possible support near 5wk and 40d avg. 90.
Milk - L3 trend-Up basis JAN. Low occurred near 40d avg -11/7. 5d stochastic was mid range and long. Up until week of 11/18. Potential for 17.60 to 18.00. L1 trend- L2 trend is down. Suspect little downside potential price and time. L2 bottom due now, and due this month. Larger L1 trend should be up into January. This suggests chance for higher price into December. Staying with opinion for year holiday based demand. 17.60 to over 18.00 continuous chart currently basis JAN. 5wk stochastic was bearish however for this type of chart, but of narrow spread which could easily be reversed. Trade ideas-L3= Long and may be late to chase, and risk to 16.90 JAN. Consider a gain early next week. 17.60-80. L1/L2= Hold long for long term and L1/L2 trends. Additional L2 purchase now. Last week's drop of cheese a bit of a concern. 1.90s worked as price objective, but still expect additional rally. Butter should rally until early next month.
Cotton - L3 trend-Up until some time week of 11/18. 79? Lacking confidence. L1 trend-Going for first chance call of L1 bottom. Risk of early call all of this month. Undervaluation. 5Wk stochastic was oversold and rolling long. Trade over 78.94 a bullish sign on a weekly close. Trade ideas- L1/L2= Lacking confidence but one could purchase and risk to 75 basis DEC. Consider a rally into December. 84?
Sugar - L3 trend-Down until near end of this week to start of next. May break down to 17.5 or so basis MAR. L1 trend- L1 top placed week of 10/14. Down until weeks of 11/18-12/2 for L1 bottom. Down to 18.00 to 17.00. Long term bullish into next year. 5Wk stochastic was short and oversold. Trade ideas-L3= Short and risking over 18.30. Follow 5d avg lower? L1/L2= Short. Stop can be lowered to 18.7 MAR. Consider gain near 17.5.
Orange juice - L3 trend-Up as expected. 11/5 bottom. 5D stochastic was overbought. 100D avg continuous chart basis MAR near 132.25 major resistance/objective? Time for L3 top this week. Next resistance is 200d avg near 135.46. Negative reversal day likely a sign L3 trend is down into a bottom due next week. L1 trend-L1 up trend to last until near end of month to mid next. 140S? 5Wk stochastic was long and acting bullish but approaching overbought. Risk point is 120. Trade ideas- L3=Take a gain. Not interested in a short sale against larger up trend. L1/L2=Already long. Too late to chase. Consider chance for 130s to 140s into next month. Risk to 120.
Lumber - L2 bottom in place and trend is up until late November to early December for L1 top. Long term 3yr cycle trend is up well into next year. Chance for 400 to new record high feasible. Supports macro bullish economy forecast along side good support for copper. While macro alongside micro of positive real estate and chance for China import, offers loop driver support for higher lumber price.
Coffee - L3 trend-Up from last week's low. Due to peak some time next week. 5D stochastic was long. 110 basis DEC objective. Risk point is low of the month, but may become near 5d avg. L1 trend-- Once again calling for L1 bottom along side long term and major long term 3yr/9yr cycle bottoms. Extremely undervalued. 5 wk stochastic was rolling long for a buy near time of calling for a bottom. L2 up trend should occur for remainder of this month. Larger L1 trend should be up into first quarter next year. Risk point is 100. Trade ideas- L3= Buy and risk to 101.85 DEC. Consider scalping a gain near 111, and time wise -next week. L1/L2=Consider purchase and risk to a new low for the year at first. Consider gain in few weeks if trading for L2. 11 to 117? Consider a gain early next year for L1. Long term purchase can be made but concerned of how tight the trend channel and rollover expense. Still high supply but price low enough for a turn nevertheless.
Cocoa - L3 trend-Down until next week is best forecast but lacking confidence. Risk points would be violation of 5d and 40d avg. L1 trend-Down. Rally over 2725 would be a bullish sign. L1 bottom due weeks of 10/28-11/18. Downside potential to as low as 2553-2489. Trade ideas-L3= If short then trail stop. Follow 5d avg. Lacking confidence of timing. L1/L2= Back to bearish for L1 trend. Stop at 2700 and will trail into next week when likely to take a chance to call a bottom.
GRAIN CROPS: – (Continuous chart roll is DEC, MAR, JUL -30 days before settlement.)
Corn - L3 trend-- Continuation of Friday's rally. Rising open interest and volume alongside rising price equals strong demand for futures in that there was obviously also large amount of selling. Demand side more aggressive. L3 trend is up and due to peak any day now to start of next week. 40D avg near 440 continuation chart basis DEC is nearby first major resistance as 5d stochastic approached overbought. If violation of average then chance for 446. With L3 bottom due next week expect a set back, but I favor range trade and even chance for a bullish bias. L1 trend-Up into first quarter 2014. L2 trend is up into December, and late that month is favored. Over 450 to near 500 to year end. 5Wk stochastic was back to long. With one false signal, odds favor this buy signal will stick. A worth indicator. Do not ignore when model is in agreement. Undervaluation. Long term trend should be into next year, perhaps well into next year. 600 still feasible even if still larger trends bearish. Trade ideas - L3=none. Waking up. Bullish bias. L1/L2= Buy. Risk to 400. If already long, hold and manage risk the best you can. Long term= Keep accumulating corn. If tired of bullish stance, then consider being bullish with trade >440, >447.75 and >462. China corn builds a bullish base? Euro corn firm.
Soymeal - L3 trend-Up but due to peak this week and bottom next. I say next L3 down trend will not make much of a difference. Price may peak as soon as today, but I favor a couple of more days of rally. 5D stochastic was overbought however. And price was within window of reversal for a top no later than tomorrow and price no higher than 429 DEC. But the time zone allows for still higher price to end of week. L1 trend- L2 bottom last week. Trend is up from that bottom and up from low of August to L1 top due near Thanksgiving. Would like to flip to bean and corn script allowing a rally to near year end. Need to do some research. 5 wk stochastic should reverse form near rollover to short. This would be a bullish sign. Trade ideas- Long all trends. Train is leaving the station. Risk to 380 DEC a revision. A violation of weekly high of 10/7 was a bullish sign. But some one tripped the bull a bit. But bull now likely back in force.
Soybeans - L3 trend-Due to peak this week and bottom next. Within window of reversal for a peak now and no later than 11/14 with price no higher than 1293 MAR. But the time zone allows to end of week and as high as 1320. I think next L3 down trend will not make much of a difference. So feeling quite bullish but 5d stochastic was overbought and price was near merging 40d and 100d avg which makes for a more important economic level. Unlikely to trade back to 1204 MAR, and likely to some day trade to 200d avg near 1350, but again, a L3 top is due. I would like to see a violation of the 400/100d avg then a set back for L3 bottom. 5D avg first support. L1 trend-L1 top week of 10/21 as near non event. Unusual. Weak pattern. But likely weak into a late L2 bottom made this week. This creates a set up for L2 up trend into year end which fits better with year ending in 3 bull statistic/pattern. But will price rally over 1409.5? Larger L1 trend can also be renewed from the coming L2 bottom, which can lead to higher price early 2014. Undervaluation. 5wk stochastic returned to bullish. A worthy buy signal in my opinion. Still long term bullish into next year. Trade ideas- Long for all trends. Purchased during all of this month to current -best opinion. Risk to 1230, a revision. Consider a weekly close >1271.5 MAR an important bullish sign. Consider 1380 gap to be filled some day. Consider L2 as a 3 or 4 month cycle bottom to bottom. November is month 4.
Wheat - L3 trend-A top yesterday. A bottom today. Sequential flip when a bottom and top were due this week, and now the opposite. If correct then higher through next week. Trade >670.5 MAR Chicago a bullish sign. L1 trend- Up to year end for L1. L2 likely topped earlier than expected. As of week of 10/21. But was allowed to peak then relative the time zone for the cycle, the earliest allowed. Best model script said otherwise, and my guess as well. However, wheat may now place L2 bottom but must allow next two weeks as well. If so, then higher price by December for L1 top. Still chance for 720 to 740 then. But 5wk stochastic was short and left overbought and no where near oversold. I do not believe oversold is required. And if L2 bottom now then undervaluation despite technical indicators. Still long term bullish into next year. Undervaluation long term despite supply. Over 800 next year? Trade ideas- L3= Long. Additional purchase now and on the way up to >670.5 MAR Chicago. Risk to 660. Consider gain late next week and following week. No upside objectives at this time. 680S/40d avg MAR? L1/L2=Buy now. But consider risk of early call next couple of weeks. Risk to 640 MAR Chicago. Consider a gain in December. Back to 700 likely. 720 to 740 still an objective. But when. Euro wheat acts strong. Russia price strong with concern over weather.
Soyoil - L1 trend- Crude palm oil futures rallied sharply in recent weeks. Something changed per global food processing, for demand versus supply. A sign of macro economy improvement. A wake up call! Soyoil- Time to wake up. Up until weeks of 11/18-12/2. Up to 42.5+. 5wk stochastic was long. A worthy bullish sign. Undervaluation. But if this rally is from recent L2 bottom then a set back by December and for L1 and long term bottom. Then bullish for 2014. But if recent bottom was L1, then also long term, and a bull market is underway. Will take to year end to know for sure. The nature of things. Trade ideas – Buy for long term usage and speculation if >41.80 weekly close. Then risk to low of the year.
Rice - L1 trend - L2 down trend came to an end week of 10/7. Might have also been a L1 bottom. More bullish. Higher by November for L1 top. Long term range trade persists. Nearly at low of range. Trade ideas- Buy for usage and speculation into next year.
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