DOATFT: Oil & palladium make new highs but most other commodities tumble

In this month’s Diary of a Trend Following Trader (DOATFT) I close out my soybean trade at a small profit, go long oil and palladium (which have broken out to new highs), and go short wheat, corn, gold, silver, platinum, heating oil and natural gas.

Soybean trade

Soybeans have been in a downtrend since making a high of 1,789.00 on 4 September 2012. However the Turtle’s System 2 trading rules did not issue a sell signal until the commodity made a new 55-day low of 1,524.96 on 3 October.

As the chart below shows, soybeans made a new 20-day high on 17 December 2012 and therefore I was forced to cover my short position at 1,503.51 making a 1.4% profit.

A 6 month daily chart of soybeans (Click on the chart for a larger version)

A 6 month daily chart of soybeans (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

As a trend following trader it is vital that you follow the rules of your chosen system to the letter. However as readers of this regular column will know, I am also monitoring the performance of a second moving average crossover system which relies on buy and sell signals that are issued by the 20-day and 45-day moving averages.

As the orange notation on the chart above shows, the moving average crossover system issued a sell signal a little earlier than the Turtle Trading system (2 October), and it is yet to issue a buy signal. If I were following this alternative system I would still be short soybeans and therefore taking advantage of the continuing downtrend.

Wheat trade

On 16 November 2012 wheat made a new 55-day low instructing me to go short. The soft commodity then rallied, however it did not make a new 20-day high, I am therefore still short.

A 6 month daily chart of wheat (Click on the chart for a larger version)

A 6 month daily chart of wheat (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Corn trade

Corn had a major run up on the back of the US drought, culminating in a new all-time high of $849 on 10 August 2012. Since then however, corn has been drifting lower, and on 19 December 2012 it fell sharply making a new 55-day low. As a result I am now short corn.

A 6 month daily chart of corn (Click on the chart for a larger version)

A 6 month daily chart of corn (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Oil trade

On 2 January 2013 WTI (West Texas Intermediate Crude oil) broke out to a new 55-day high. I am therefore long WTI.

A 6 month daily chart of West Texas Intermediate Crude (Click on the chart for a larger version)

A 6 month daily chart of West Texas Intermediate Crude (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Other commodities I follow

Palladium: Palladium made a new 55-day high on 6 December 2012. I am therefore long the commodity.

Gold: Gold made a new 55-day low on 18 December 2012. I am therefore short the commodity.

Silver: Silver made a new 55-day low on 20 December 2012. I am therefore short the commodity.

Platinum: Platinum made a new 55-day low on 28 December 2012. I am therefore short the commodity.

It is interesting to see palladium moving against the bearish trend of the other three precious metals. This is because palladium is much more of an industrial metal, the biggest use of which is for catalytic converters. The metal’s rise can likely be attributed to the recent bullish news of recovery in China.

Heating Oil: Heating Oil made a new 55-day low on 7 December 2012. I am therefore short the commodity.

Natural Gas: Natural Gas made a new 55-day low on 2 January 2013. I am therefore short the commodity.

The bottom line

Shorting gold and silver at a time when central banks are pulling out all the stops to generate inflation and keep the global credit bubble alive goes against my better judgement. However being a successful trend following trader is not about judgement or trying to second-guess the market, it is about responding to price signals and following them wherever they lead.

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