Friday, January 11, 2008

The Two C's.... Cattle and Cotton

The chart of Cattle Futures shows clearly the path prices take when the smart money gets extremely bullish, as they are now.

The question we need to ask is what is the trigger that puts us into the long position.
The answer is right on the chart, with the slow stochastics.
Notice that in both instances of the smart money not only getting at or near 80%, but getting above 90% there is a clear trigger.
The slow stochastics must get solidly oversold, as in below the 10 level and then turn back up.
From this turning up we get our actual go ahead to enter into long positions once the slow stochastics cross above 11.
That is all there is to it. I realize that this will not get you in right at the low, but it will get you over 80% of the move and that isn't bad at all.
So from where all of these indicators are now, it appears that cattle need to become oversold once more on the weekly charts and then we can begin to look for the trigger. So right now cattle remains on the high probability watch list.
The chart below shows how heavily the smart money has sold this rally in cotton.
It is not only the size of their short position, but how quickly these positions were put into place.
You, also can see who the smart money was selling to as the commodity funds reached a new high in their net long positions. The commodity funds are trend followers and are typically wrong at major market turns.

Cotton gave back its entire decline from yesterday and then some, but we remain committed to the short side and we also remain protected with our stop loss order in place.


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