Trading Futures Spreads

September 20, 2013 Newsletter

A basic and important strategy for commodities traders using spread trading!

September 20, 2013 - Issue #703

In This Issue

1. Trading Futures Spreads  
2. Hot Market Review - Raw Commodity Bulls Make Some Headway
3. Economic Calendar

1. Trading Futures Spreads 

"A basic and important strategy for commodities traders using spread trading."

By: Mark O'Brien, Cannon Trading Commodities Broker

Over my 20+ year career as a commodities broker, I have studied and traded a wide range of approaches to trading the futures markets.  From candlestick formations to the commodity channel index, from condors to turtle trading, there’s an enormous catalog of tools and methods available for traders to consider.

One method I have noticed is surprisingly underrepresented among retail traders is futures spread trading, where a single position in the market consists of the simultaneous purchase of one futures contract and sale of a related futures contract as a unit.  I call it surprising because some of the most invested players in futures trading – and arguably the most sophisticated – include large speculators and commercial firms who regularly employ spreads.  This includes traders in the markets who often actually buy and sell the physical commodities we trade.  Farmers, ranchers and other food growers along with food producers, petroleum companies who either drill for oil or natural gas or refine these products – or both, financial institutions with enormous holdings in treasuries, equities or currencies, mining interests and their buyers – all these areas of production and distribution employ spreads from time to time as an important aspect of their businesses.  Indeed, spread trading is a fundamental and essential part of the commodities futures markets.

At the same time, despite the remarkable increase in interest and in the growth in the volume of the futures markets over the years, spread trading is typically dismissed by most other traders in search of a trading strategy.  With so much attention focused on other approaches related to straightforward directional trading (and within that category, day-trading) it’s not difficult to see how spread trading can be overlooked.

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2. Hot Market Review - Raw Commodity Bulls Make Some Headway, More Work to Do

From our friend Jim Wyckoff

Jim has an excellent daily newsletter where he reviews different markets, alerts you for potential trades and much more. Included is his great bi-weekly newsletter with charts and a little longer term outlook. We recommend checking out his website, educational CDROM, and services at click on image below to enlarge

Raw Commodity Bulls Make Some Headway, More Work to DoSee on the daily bar chart for the Goldman Sachs Commodity Index (GSCI) that prices are in a choppy uptrend, but have also backed well down from the summertime high. The bulls are working on a choppy price uptrend on the daily chart, but will have to push the index above the late-August high to gain good upside near-term technical momentum. Market logic would suggest that the recent "non-tapering" by the U.S. Federal Reserve should lift the GSCI in the coming weeks. However, that remains to be seen, as logic and markets don't always mesh well.

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3. Economic Calendar

Source: Moore Research Center, Inc.

Date Reports Expiration & Notice Dates
2:00 PM CDT - Cold Storage   
8:00 AM CDT - Case-Shiller 20-City Index(Jul) 
8:00 AM CDT - FHFA Housing Price Index(Jul) 
9:00 AM CDT - Consumer Confidence(Sep)  
FN: Oct Cotton(NYM) 
Oct Crude Lt(NYM) 
6:00 AM CDT - MBA Mortgage Purchase Index 
7:30 AM CDT - Durable Goods-Ex Transportation(Aug) 
7:30 AM CDT - Durable Orders(Aug) 
9:00 AM CDT - New Home Sales(Aug) 
9:30 AM CDT - API & DOE Energy Stats 
3:00 PM CDT - Dairy Products Sales
LT: Oct Copper Options(CMX) 
Oct Silver Options(CMX) 
Oct Gold Options(CMX) 
Oct Heating Oil Options(NYM) 
Oct RBOB Gasoline Options(NYM) 
Oct Natural Gas Options(NYM) 
7:30 AM CDT - USDA Weekly Export Sales 
7:30 AM CDT - Initial Claims-Weekly 
7:30 AM CDT - GDP-Third Estimate(Q2) 
7:30 AM CDT - GDP Deflator-Third Estimate(Q2) 
9:00 AM CDT - Pending Home Sales(Aug) 
9:30 AM CDT - EIA Gas Storage 
3:30 PM CDT - Money Supply
LT: Sep Copper(CMX) 
Sep Silver(CMX) 
Sep Gold(CMX) 
Sep Feeder Cattle(CME) 
Sep Palladium(NYM) 
Sep Platinum(NYM) 
Oct Natural Gas(NYM) 
Sep Feeder Cattle Options(CME) 
7:30 AM CDT - PCE Prices-Core(Aug) 
7:30 AM CDT - Personal Income & Spending(Aug) 
8:55 AM CDT - Michigan Sentiment-Final(Sep) 
2:00 PM CDT - Quarterly Hogs & Pigs
FN: Oct Natural Gas(NYM) 
8:45 AM CDT - Chicago PMI(Sep) 
11:00 AM CDT - Grain Stocks 
11:00 AM CDT - Small Grains Summary 

FN: Oct Copper(CMX) 
Oct Silver(CMX) 
Oct Gold(CMX) 
Oct Platinum(NYM) 
Oct Palladium(NYM) 
Oct Soybean,Soyoil(NYM) 
LT: Sep 2,3,5 Year Notes(CBT) 
Sep Fed Funds(CME) 
Oct Heating Oil(NYM) 
Oct RBOB Gasoline(NYM) 
Oct Sugar-11(NYM) 
Sep Fed Funds Options(CME) 
Oct Lumber Options(CME) 

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

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