Gary Hofer: Market Bullets

"Know

Thy Trend" is an ancient and still valid advice. If a trader of wheat identifies a trend using con­sistent criteria, he will be able to make decisions in harmony with the market instead of against the cur­rent. This does not guarantee profits, but it does help re­duce the risk of major losses. Over time, most experienced marketers will tell you that if you can stay in a market and avoid the catastrophic error, "The Big Stupid Trade", you are more likely to survive long enough to get lucky. For my money, knowing the trend of a market is the first and most vital step toward good results.

Trend changes are not always easy to see until they are past, but recognizing a trend is something we can all do. There are computer programs intended to aid this effort, but the individual trader looking at a screen- shot of a price chart can tell 99% of the time if there is a trend. The rules can be as simple as: (1) Always iden­tify the current trend. (2) If there is a trend, take no position against it. (3) If you cannot identify a trend, take no position. (4) If in doubt see rule 1).

For most traders and wheat owners, practical trad­ing is focused on moves of 3-4 months duration that in today's crazy markets may range as much as two-three dollars per bushel up and down. It can be difficult and expensive to attempt posi­tions based on longer and wider parameters, although every trend time-frame is only a part of a larger picture.

The wheat price trend for Chicago wheat has changed. Until a week ago it had been an obvious uptrend, smooth and strong, starting back in the first week of February. Before that it was a fairly easily identified downward slope starting back in Oc­tober 2013. The changes in direction are about two-three months apart and have cov­ered about $1.50 per bushel each way, not unusual be­havior for wheat, with its seasonal northern/southern hemispheric swings. The recent high was reached between March 19th and 24th, when the nearest Chi­cago futures contract traded between $7.13 and $7.23 for a few days. On Tuesday, the May contract closed at $6.85, 38 cents below the high and below the two- month-old upward trend line, a new negative trend. The new line is of course a small bit of a larger picture, as the monthly price chart, revealing price swings last­ing sometimes years be­tween changes, is showing a new upward bias from lows established in January.

So what is the trend? We have a short-term downward shift heading into spring and a new crop. The fears of Ukrainian market disrup­tions have dropped and no major regional crop disasters are looming. The new move is in the context of a larger upward shift on long-term charts that may take all sum­mer to emerge. In this larger context, even "small" vola­tility can be $1.00 to $2.00 per bushel, so a little retrace­ment downward now is not a surprise. A jump back above the recent high point in the low $7.20's would negate the downward idea and resume the former upward line.

Now starts the "silly sea­son" in which weather re­ports will be the dominant daily market drivers.

Information and opinions contained herein come from sources believed to be reli­able, but are not guaranteed as to accuracy or complete­ness. The risk of loss in trad­ing futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds com­mitted should be risk capital.