the hightower report · 2020-07-24 · the hog market has seen an impressive rally off of the june...

Trading futures contracts and commodity options involves substantial risk of loss, and thus is not appropriate for all investors. Investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition.

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October 9, 2020

Next Week’s Economic FocusUncertainties continue to mount, with recent US data favoring the argument that the US recovery is losing momentum, US political tensions rising to a frenzy as the election approaches, an active fl ow of positive new about Covid vaccines and treatments, ongoing infection problems, the likely escalation of vitriol over the Supreme Court justice nominee, evidence of ongoing recovery in

Europe, and the return of China from an extended holiday. While China’s return has been lost in the shuffl e, recent fears that they are “bought up” on inventories of physical commodities is not an insignifi cant force, especially if the crush of uncertainties leans in favor of global slowing and defl ation. However, China’s corn imports continue to be very

strong, their economic data in general continues to point to growth, and Washington seems to be getting closer to a stimulus deal. The flow of news from the vaccine/treatment front is picking up speed, with several emergency use authorizations in place and late stage trial results trickling out via statements from drug company CEOs.

major economic eventsOctober 12 - Columbus Day Holiday

October 13 - Chinese Trade Balance - German ZEW Survey - Consumer Price Index

October 14 - Producer Price Index

October 15 - Chinese CPI/PPI - Jobless Claims - NY Fed Empire State Survey - Philly Fed Survey - Import & Export Prices

October 16 - Euro Zone CPI - Retail Sales - Industrial Production - Consumer Sentiment

this issueNear Term:Bearish: Live Cattle

Spreads:Bond Calendar Spread

Other:2020 Hurricane Season - One for Record Books

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THE HIGHTOWER REPORTFutures Analysis & Forecasting weekly market letter

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Time to Order!See last page for details.

Continued on Next Page...

our opinion… market by marketMarket *

Stocks Fresh stimulus hopes providing underlying support. L

Bonds More stimulus = more Treasuries to pay for it. S

Dollar Safe-haven outfl ows will keep $ on the defensive. S

Euro Should benefi t from "recovery currency" status. L

Gold Sluggish dollar offsets safe-haven outfl ows. L

Silver Should fi nd support from stronger risk sentiment. L

Copper Post-holiday rally in Chinese equities will support. L

Crude Rising Baker Hughes US rig count will pressure. S

Gasoline Unable to benefi t from post-summer driving uptick. S

Nat Gas Rebound in LNG exports once Delta passes. L

Soybeans Overbought, but drop in world stocks supports. L

Corn Report neutral, but fund buying off of weather. L

Wheat Record world wheat stocks; rain needed. S

Hogs Exports on the rise & Dec still at a discount. L

L Cattle 5-year high in weights & demand uncertain. S

Sugar Still no sign of top as Brazil weather too dry. L

Coffee Could see fl owering issues due to dryness. L

Cocoa Gave back half of July-Sept rally; probing for a low. L

Cotton Production fears may have peaked on Friday. S

* For traders/commercials who need to be in a market, L = Long, S=Short

These refl ect our opinions for the next 7 days. They may contradict longer term viewpoints

expressed elsewhere in this publication.

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2021

US Weekly Corn Export Sales to ChinaOutstanding Sales - Currrent & Next Marketing Year - Metric Tonnes

http://www.futures-research.com/order/order_tg.php?refcode=WK


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overvalued/undervaluedFundamental Technical COT

OVERVALUED

Wheat Stocks Copper

Cotton Soybeans Sugar

US Dollar Index Wheat Soybeans

UNDERVALUED

Cocoa Crude Oil Canadian Dollar

Coffee Cocoa Heating Oil

Hogs RBOB Gasoline Minn Wheat

options scanUndervaluedBuy Dec Swiss Franc 112.00 call @ 44

Buy Dec Wheat 5.75 put @ 9 1/2

Buy Dec Cocoa 2500 call @ 60

OvervaluedSell Dec Coffee 105.00 put @ 250*

Sell Dec ULSD $1.3000 call @ 300*

Sell Nov Soybean 11.00 call @ 13*

Trend ReversalsBuy March Nat Gas $6.00 call @ 0.135

Sell Dec Copper $2.8500 put @ 300*

Buy Feb Hogs 60.00 put @ 125* When selling options, only risk to double the premium received.

TRADERS TOOLBOX

Continued from Previous Page

Next Week’s Economic Focus

While the subject of politics is extremely disheartening and embarrassing for Americans, it is inevitable that election will bring greater volatility. While many will debate the net impact the winner will have on commodity prices, market sentiment has long held that a Trump victory would be positive for stocks and a Biden victory negative. Given the potential for the equity markets to be close to all-time highs into the election, there might not be any small moves in stocks. While the trade will be watching for any commodity buying action by China, another element beginning to provide support is the potential for the dollar to fall back to its lows from 2018, which would make US commodities and stocks more attractively priced to the rest of the world.

It appears that the fi nancial markets are looking beyond the current negatives in a way that would suggest something economically favorable is ahead. Examples of this are rallies in the “recovery currencies” like the euro, Swiss and pound. Th e strength in equity prices has discounted surge in infections, and the market has persistently recovered despite disappointment on the stimulus eff ort. But the most surprising reaction has been the break in US Treasury prices that has held through slightly disappointing jobs data and unsettling warnings from the US Federal Reserve chairman regarding “doing too little to support the economy.” At this point it would appear that solving the virus crisis is more likely than solving the US leadership crisis!

- David Hightower

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CATTLE HEAVY, BEEF DEMAND QUESTIONABLEBeef prices are at their lowest levels since September 23, supply appears to be increasing, and the short-term demand outlook is questionable. Th e cattle futures are holding a premium to the cash market as traders expect to see seasonally strong demand just ahead. However, the virus could cause many of the seasonal demand factors to be diluted during the fourth quarter.

Res taurants and caterers typically order aggressively this time of the year to secure supplies for the busy holiday season. Retail demand for beef has been running strong, but due to Covid, corporate and family events at restaurants and hotels could be down considerably from recent years, which will keep buyers less active.

Th e average dressed steer weight for the week ending September 26 came in at 924 pounds, up from 919 the previous week and 898 a year ago. Th is was the highest average weight since November 2015. The added weight coupled with an expected increase in the slaughter (given the increase in amount of cattle placed onto feedlots in recent months) suggests beef production in the fourth quarter could be above last year.

Cash live cattle prices continue to improve, with Kansas trading at an average price of $107.71 this week versus $106.98 last week

Daily Boxed Beef CutoutUSD / CWT

Weekly Steers Dessed WeightsCurrrent vs. Last Year vs. Average - Pounds


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Continued from Previous Page

and Nebraska at $107.97 versus $106.96. But with seasonally weak demand indicators and the outlook for increasing supply over the near term, the market looks vulnerable to long liquidation selling if support levels are violated. Uptrend channel support in December live cattle comes in at 111.90 on Monday, 112.07 on Tuesday and 112.25 on Wednesday. A close below this trend line could turn the chart pattern bearish.

S u g g e s t e d T r a d i n g Strategy

BUY a December Cattle 108.00 put at 145 with an objective of 385. Risk 80 points from entry.

-Terry Roggensack

CATTLE HEAVY, BEEF DEMAND QUESTIONABLE

Weekly Cattle SlaughterCurrrent vs. Last Year vs. Average - Head

Top 10 Soybean Meal ExportersWhile Argentina's fi nancial diffi culties have led to shortages in supply, lower exports taxes should help out their nation's soy procesors.

Courtesy of the USDA, here are the world's 10 largest soybean meal exporters:

Argentina 29.00 million tonnes

Brazil 16.80 million tonnes

USA 12.25 million tonnes

Paraguay 2.45 million tonnes

India 2.07 million tonnes

Bolivia 1.70 million tonnes

China 1.00 million tonnes

Russia 400 thousand tonnes

Canada 350 thousand tonnes

Ukraine 325 thousand tonnes


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LONG TERM TRADE: BONDSTh e Treasury bond market appears to have made some signifi cant, counter-intuitive moves over the last two weeks. Other fi nancial markets like currencies and equities have shown signs of “looking through” the recent headwinds to the prospect of a “psychological passing of extreme health and economic fear.” We are not suggesting a vaccine will have a material impact in the coming months, but the comfort that would be provided by an imminent end to the pandemic should not be understated. It also appears that therapeutic advances are reducing the severity and duration of illness and are keeping most medical facilities from becoming dangerously overcrowded.

The Treasury bond market has broken down in the face of a leveling-out in the pace of improvement in the jobs market. Even the prospect for tax increases seems to have been discounted, despite a widening lead in the polls for Joe Biden. Perhaps the most astounding surprise is the trade’s discounting of some of the most unnerving commentary regarding the risks in the US economy from Federal Reserve chairman Powell.

Some Treasury traders have suggested that equity price action is one of the better predictors of future conditions and that perhaps the

bullish resiliency of the stock market is pushing some bond traders out of long-held positions. We also suspect that the potential for a historical event or junction in the coming 30 days has prompted some bond longs to bank profi ts on the belief that risk holding those positions would be considerable if uncertainty were tempered.

Given the “counterintuitive action” in Treasury bonds and the proximity to a fi ve-month consolidation low, we focus our attention on a short-term bullish option trade in hopes of fi nancing a longer-term bearish play.

Long Term Strategy

BUY 2 December Bond 177-00 calls at 1-02 and BUY 4 January 168-00 puts at 0-50. Th e initial premium outlay is high, but the premiums partially hedge each other until the December expires several weeks aft er the election. Use an objective on the long calls of 2-09. We will establish an objective in future letters, and the total risk is limited to premium paid.

-David Hightower


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2020 Hurricane Season - One for Record Book


As we were fi nishing the week, Hurricane Delta was tracking towards the Gulf Coast and was projected to make landfall over southwest Louisiana. If that location sounds familiar, it is the roughly same area where Hurricane Laura made landfall six weeks ago. Three of the eight US oil refi neries that have a capacity of at least 400,000 barrels per day are located in either Port Arthur, Texas or Lake Charles, Louisiana. Cheniere Energy’s major LNG export facility is located on the Sabine Pass in Cameron, Louisiana.

As of Friday, 92% crude oil production facilities and 62% of natural gas facilities in the Gulf of Mexico were shut down in front of the storm’s arrival. Th is was expected to cut offshore crude oil production by more than 1.65 million barrels per day. It will be the largest shutdown of offshore crude production since Hurricane Katrina in 2005. Off shore natural gas production will be cut by 1.65 bcf per day, which is roughly twice the US dry gas production of 86 bcf per day.

The North Atlantic hurricane season, lasts from the beginning of June through the end of November and reaches its peak from late August through early September. With almost two months left, the 2020 season

Largest North Atlantic Named Storms Annual Total During Hurricane Season


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2020 Hurricane Season - One for Record BookContinued from Previous Page

has already seen 25 named storms, the second highest on record. Th e highest was in 2005 with 27 named storms and 1 that reached tropical storm status during the National Hurricane Center’s post-season reanalysis.

Th ere were 10 storms in the month of September alone, a record for any single month. As in 2005, NOAA ran out of names on their pre-designated list. Aft er that they switched to the Greek alphabet,

which is why the current storm is named “Delta.” In 2005 there were eight tropical storms aft er mid-October, including Hurricane Wilma, a category-5 hurricane, and Hurricane Beta, a cat-3. Th is suggests that Gulf Coast refi neries and production facilities are not out of the woods yet and that they could be threatened with additional disruptions over the coming weeks.

- Stephen Maass


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Longer-Term Investment Tradesupdates to prior longer-term trade strategiesOriginal Trade Date Trade ActionBonds 8/7/20 Long a December Bond 172.00 put at 0-60. Use an initial objective of 4-10, and a risk level will be

announced in a future publication.

Gold 8/21/20 Long a November Gold $1,960 call at $48.90. Previously short an October Gold $1,960 call at $35.40 which hit objective at $15.90 for a profi t of $19.50 on the option.

Look to hold the November $1,960 call into the week before the election.

Silver 8/28/20 Long a December Silver $34.00/$45.00 bull call spread at $0.671.

Use an objective of $2.40 on the spread. Risk to be determined in future updates.

Natural Gas 9/25/20 Long 3 January Natural Gas $4.30 calls for 0.2101 each. Previously Sold a January Natural Gas futures at $3.399 that Hit Objective at $3.24 for a profi t of $0.159.

Risk the combination to a net adversity of $1,600. Future guidance will be forthcoming.

RBOB 9/25/20 BOUGHT a December RBOB $1.24 call and SOLD a December RBOB $1.35 call for a net premium paid of 186 on the spread.

Use an objective of $1.35 basis the December futures. On a decline back below $1.09, look to bank profi ts on the short call at 95 and hold the long call into early November. If there is no opportunity to bank profi ts on the short call, risk the entire spread to 80.

Hogs 9/25/20 BOUGHT a February Hog 67.00 put at 350. Use an objective of 652, and risk a total of 110 points from entry.

E-Mini S&P 10/2/20 BOUGHT a December E-Mini S&P 3,500 call and SOLD a December E-Mini S&P 3,700 call for a net cost of 57.25 on the spread.

If the market breaks to 3,000, look to bank profi ts on the short call around 7.00. This would reduce the net risk on the premium paid for the long call. Look to remain long the 3,700 call until futures trade to 3,600. Risk the trade to a net dollar loss of $2,500.

Bonds 10/9/20 BUY 2 December Bond 177.00 calls at 1-02 and BUY 4 January 168.00 puts at 0-50.

The initial premium outlay is high, but the premiums partially hedge each other until the December expires several weeks after the election. Use an objective on the long calls of 2-09. We will establish an objective in future letters, and the total risk is limited to premium paid.

Trade recommendations are only suggestions. This is not to be construed as a trading system or tracking account. No representation is being made that any account will or is likely to achieve profi ts or losses to those shown. By reading or following this report, you acknowledge and accept that all trading decisions are your own sole responsibility, and The High-tower Report or anybody associated with The Hightower Report cannot be held responsible for any losses that are incurred as a result. Trade fi lls are hypothetical. Traders may not be able to enter or exit the trades exactly at the prices indicated due to liquidity or market slippage.


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commitments of tradersData As of October 6, 2020

Non-Commercial & Non-Reportable Combined Futures & Options

Market Net Position

Net Change

4-Wk NetChange

52-Wk Ranking

Grains

CBOT Grains 475,502 114,404 171,326 52

Corn 188,282 58,421 97,668 52

KC Wheat 30,784 14,856 16,978 52

Minn Wheat -1,998 1,328 281 45

Rice 4,360 422 491 50

Soybeans 258,931 34,543 53,096 52

Soyoil 114,810 -16,281 -17,618 39

Soymeal 131,255 14,450 42,671 52

Wheat 28,289 21,440 20,562 49

Livestock

Cattle 60,355 -4,735 -2,567 31

Feeder Cattle -2,006 -1,646 -1,277 23

Hogs 44,139 -3,091 -3,640 48

Metals

Copper 55,125 -1,380 -7,405 47

Gold 292,275 3,542 -27,752 7

Platinum 13,892 -992 -12,791 1

Silver 60,070 2,692 -1,816 28

Softs

Cocoa 42,016 -11,544 -14,762 29

Coffee 45,421 -7,422 -19,585 41

Cotton 74,001 4,178 4,694 51

Lumber 775 17 -99 22

Milk 6,618 -466 1,080 40

OJ -1,215 -42 -2,012 24

Sugar 317,205 22,560 81,456 52

Currencies

Canadian -11,380 -3,753 -25,523 23

Dollar -1,784 3,439 6,793 17

Euro 228,127 -7,973 -8,753 43

Energies

Crude Oil 523,887 7,978 21,121 24

Gas (RBOB) 61,664 2,414 604 14

Heating Oil 15,938 6,629 9,139 39

Natural Gas 93,216 21,600 16,781 52

Financials

Bonds -236,934 -62,726 -99,633 1

E-Mini S&P 78,973 15,383 163,602 46

Dow Jones $5 2,057 9,088 12,747 28

T-Notes 126,843 -84,323 40,929 45

Extreme Ranking 1 = Shortest Short

5% of Extreme 52 = Longest Long

THE HIGHTOWER REPORTweekly market letterSubscriptions: $25 per Month

Th is report includes information from sources believed to be reliable, but no independent verifi cation has been made, and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Th is report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. Th e risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition. Any reproduction or retransmission of this report without the expressed written consent of Th e Hightower Report is strictly prohibited. Th e data contained herein is subject to revision; independent verifi cation is recommended. Any third party opinions regarding this report are not necessarily those of the authors. Due to the volatile nature of futures and options markets, the information contained herein may be outdated upon its release.

Order before October 19, 2020 & pay only $15 per copy.Th at's a 25% savings!

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Commodity Trading Guide 2021Calendar | Encyclopedia | Almanac

• Futures and Options Expiration Dates• Ten Years of Suppy and Demand Tables• Government & Industry Report Dates• All-Time Contract High and Low Prices• Global Crop Calendars• Over 350 Charts & Graphs• Contract Specifi cations


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the hightower report · 2020-07-24 · the hog market has seen an impressive rally off of the june...

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