JVonD shows you how to avoid a bad scenario with commodity circuit breakers and how to look for a blow off.
It’s really strange how somethings work. Ya never know which platform will have the most accurate information especially when it comes to futures. When trading the Live Stock futures it’s super important to expect weird anomalies.
So what to do when setting up your continuous daily/weekly charts? I donno!
The market manipulation is crazy and it usually has nothing at all to do with fundamentals. A lot of weird seasonality things happen, and they all correspond with rolling from contract to contract.
What we are witnessing in #LeanHog futures right now reminds me of #LiveCattle in 2016 when they big money funders drove down the price for what seemed to be no particular reason. People just kept getting stuck trying to buy the bottoms and just kept getting ran over for months and months until finally ppl were just finished puking out of the market and gave up, but then came the big move. I talk about it on the show – #TradeBuddiesLive
Let’s look at some charts!
The important one is at the end but lets start with Live Cattle and what happened in 2015-2016.
We can see that there was a fundamental that drove price up in 2014 then the big funds took profits until they actually started holding a neutral position, or when looking at the legacy COT report we see a short position what I like to call a “Fund Flip” since the fund flip we saw a little rally and traders trying to “catch the falling knife” but continually got ran over for the entire year of 2016 because of the fund’s resilient posture. We did get back to a fair value price but there was a massive backwardation in the future spreads which is kind of an inside trick that the funds use to jack everyone I think. They will hold the short or neutral posture and continue to drive down price even though the fundamentals were telling a different story. Fundamentals don’t matter. Technical’s do. Now if there were a big fundamental to drive up price then it would be a different story but in this case it was a normal market condition. So learning first hand how commodities tend to work, you have to wait for the commodity to prove itself and even then sometimes it can’t get the price to rise, so in most cases the funds will just keep shorting the market till it’s lowest price, even well below fair value.
Here we can see all the contract changes. Drive price down till it hits the DEC at the lowest point. Everyone thought price would hold the 120, then the 110, then the 100, then finally after everyone got completely sick of trading it and getting crushed, the mid 90’s, and then BOOM!
Now let’s take a look at Lean Hogs.
Front month getting crushed when no ones looking at the back month’s. I’ve heard very experienced traders talking about buying the V contract at 57 to trade back up to the upper 60’s but I think they forgot about something… Now the V trading 48! which was my target all along because I was thinking it would push the DEC down to the bottom which is 43.
Now for a technical anomaly. Some platforms make different rollover dates, which is when the active contract changes.
Here we are looking at a weird anomaly with TD Ameritrade’s Think Or Swim platform which is probably the most popular out of most. The price filled a crazy big gap between it’s J contract and the Q before finding a bounce. Something kept driving down that price to fill that. Other platforms rolled their active months sooner. So how did TOS see that? I don’t know but let’s look at another weird anomaly.
Here we look back in time at the Q contract. Notice anything weird?
You should cause there was about twice as many days in the Q contract in 2018 than in 2017 via the TOS platform. Don’t ask me why, maybe you know?
With other platforms you see different ways to setup your continuous charts, so what to choose?
With Sierra Chart you have a bunch of different options. I’ve been using the “Date Rule Rollover, Back Adjusted” and it seems to work good with the moving averages. The other’s will jack them up.
So WTFrig! CQG makes the V go active on the 7/27 and TOS is on 8/10. Can’t we all get along..? This is crazy. But anyways, if you use good spread charts like the ones I offer free on my site then you should be doing ok for the most part, as far as negotiating most of the madness.
Bottom line is that the price movement in a normal market condition can be manipulated so much that you can’t leave any stone unturned. Always watch the spreads and COT on all commodities and always, always, expect the unexpected.
Have you noticed me talking about this on Trade Buddies Live for the last month..?
OMG! The most insane action I’ll probably ever see! After 4 or so Limit Up’s hit we now see 2 Limit Downs following the Thursday open which was an instant gap to limit up, CRAZY!! I watched the price action on my ladder all morning on Thursday and man was it interesting to watch the big dogs slowly chop away at the limit orders that were stacked on the top. After a few thousand contracts were filled there was finally a relief and then the stops just flowed and you could watch them taking their profits as the top blew off, thus being a “blow off” top. A lot of times the following day will be a doji and them a quick double top before a larger move down but the selling just kept up with all longs liquidating. It’s impressive to watch.
On the chart we can see the gap fill following the contract roll which was a $14 difference then the bog pop. Gap up a to limit up is ridiculous and I don’t think I’ll ever see anything like it again.
And now we see the lock limit down and none of the longs can get out and are trapped.
We could see another big day on Monday cause there could be another considerable gap but a lot of times you’ll see the limit orders are set to “day” meaning they will cancel at the end of the session so right at the close you will sometimes see thousands of contracts “pull” (removed). Going from Wed to Thursday I don’t believe think they pulled a lot of them or they were set to “Good Till Cancel”.
Well it sure is crazy!! What an experience.