Yesterday’s large rally in the grain complex, might have set us up for a bit of a correction today. This phenomenon is known as turn around Tuesday. Basically, its a tendency for the markets to give back a portion of a Monday move. Doesn’t matter if Monday’s move was sharply higher or lower, very often Tuesday, the day after, witnesses a mini-correction.
So far today we only have a good retracemnt in the March wheat. This morning WH opened at 553, its high of the day. WH then proceeded to dive down to 541 its low of the day and has now rebounded slightly to 545, currently down 5 3/4 cent on the day. Both WH and SF, however are higher on the day.
So we are seeing continuation of the rally, or at least a continuation of the support here.
CH opened at 415, posted a low at 413 1/2 (which is looking like good chart support for now) and posted a high at 417 3/4. Perhaps we will challenge yesterday’s high at 418 1/2 sometime today.
January Beans (SF) opened at 1025, posted an early low at 1024 and then rallied to 1038. Continuation buying is supporting these thin holiday markets.On a related story, apparently a large trader or large fund exercised thousands of Ten dollar jan calls last Thursday, when they were still out of the money. This created a lot of unintentional shorts, who have since been buying back their futures to cover their risk.
Some in the trade are wondering if this isn’t pre-hedging, or pre-buying by the large index funds. This happened last quarter, when the funds announced they had a target window to re-balance, went ahead and re-balanced bit by bit, and when the target window came and went, the large expected buying had already been absorbed by the markets.
This may be their strategy for dealing with the extreme lack of liquidity for large orders to be filled, with the advent of screen trading, computer algorithms, and the game playing which goes on now with one computer program facing off against another computer program.
As late as 2006, I can recall a broker filling 2000 and 3000 lot orders in the pit, all within 1 to 2 cents. Direct face-to-face open outcry along with a real, viable spread market at the time allowed for large order execution within tight parameters.
If someone tried to do that today, you would have a limit move on the screen, as the computers raced a large order.
In any event, this is the market platform which has won the day, so as traders/hedgers/speculators, you must accept it and learn that what you see on the screen, very often, isn’t really there.
Given the realities of trying to move huge positions, I can understand why large index funds would result to ways to try to disguise their order entry and exit strategies.