The new high pressure dome sits over NM and W. TX. This looks to migrate NE over the next two weeks bringing above average temps back to the Midwest after the very very minor frost threat this weekend as far south as central IL. This is not a major ridge nor do long term models show any impact. A relatively benign weather forecast heading into the heart of planting. Look for record numbers on Monday’s crop progress report.

Open interest: Beans -238 a negative move, though slight, on an upside move is bearish. This shows there are willing sellers as it rallies. Corn +5576 with gains in CK evident. This is a total gain of 36K in three sessions…plenty of weak length hanging overhead. Wheat +8026 with big gains seen in May on the drop. I think this is fresh shorts. Meal +1041 and Bean Oil -3382 on the rally is bearish. This is short term money exiting.

Euro wheat was 1.00 Euro higher buoyed by a weak Euro helping export potential. Black Sea price spike and inflated US markets bodes well for France and Germany.

W. Australia is looking at a record 15 MMT production total. This is in spite of a wet finish and delayed harvest. 80% of this crop is earmarked for export.

Export sales came in as follows: Beans 436.7 TMT sold and 1.0002 MMT shipped. China took a massive 717.9 TMT this week. Their purchases were noticeably lower showing business may be moving to Brazil. Corn 1.0059 MMT sold and 686 TMT shipped. Mexico and Japan were the featured buyers. China snuck in and took 56 TMT of corn. Wheat 420.4 TMT sold and 479 TMT shipped. We sold a majority white wheat (239 TMT) with only 70 feed wheat sold. Meal 80 TMT sold and 50.5 TMT shipped. Oil 21.1 TMT sold and 22.7 TMT shipped.

I think as traders are giving algorithmic trading programs too much credit. not a day goes by that a price move in the market is attributed to algo’s in some form or other as being responsible. This is especially true in quiet markets.

From my perspective, the algo’s add ZERO value. Strategies they use, whether it be quote stuffing (placing and then immediately cancelling orders), and layering (using hidden orders on one side and visible orders on the other) can potentially be used to manipulate prices. Not that stuff like that hasn’t always been possible, for example, I remember, years ago, clearly overhearing a broker receive instructions to sell 100 hard, as if he had 500 to sell, in an effort to drive prices lower.

But deterministic algorithmic trading such as VWAP (volume weighted average price) strategies can be front-run by other algorithms programmed to recognize such trading. Momentum ignition strategies, which essentially induce algorithms to compete with other algorithms, can push prices away from fundamental values. All of that is not good, since the market is no longer trading legitimately based upon its own merits. The result is people lose confidence from the user producers, for whom these markets were created. Seems to me we are seeing thinner markets as those users and producers avoid participation, thus harming the consumer and increasing volatility.

Anyway, those are some thoughts. What I don’t like is that this new approach is becoming the norm and creating an even increasingly thinner market. If it weren’t for convergence, they would appear even more worthless.

Just my 2 cents.

The industry is shrinking. The trading floor, where I spent my career, used to be home to 2,700 workers, now fewer than 250 remain. And that’s just the ICE trading floor. Two floors below in the same building a similar loss of workers is nearly as visual on the NY markets of the CME. I am not sure about Chicago. And with the collapse of MF Global, 1,066 employees there have been fired about two weeks ago.

I keep hearing that more and more upstairs people are being let go and firms scale down their workforce. Occupy Wall Street? Or is it un-occupy?

Has anyone listened to me about the spreading of the debt crisis overseas? For two years now I have been saying this will not go away and it will spread to the other countries. It is not that they will not get bailed out it is just that they cannot get bailed out at the same time.  Private investors and companies are not going to put money into failing governments! They would rather park their cash in the bank and get ready for another recession which could be rather deep.

There is a good system moving NNE from central OK and KS. The rains over the eastern halves of both states will help tremendously while the western third of KS and OK as well as most of TX miss out on beneficial rains. According to Intellicast estimates, West of Manhattan KS will remain dry while 70% of OK is covered with .50-2.5″. After this big system, look for a dry spell to move into the region for the next 10-14 days. Temps will cool but nothing dramatic to scare producers. Overall a good start in the eastern regions but that is not where they grow the high protein wheat in KS.

The above map is the Intellicast 30-day precipitation versus normal forecast. After the current system hits eastern KS, NE, OK and CO there is little seen for the next 10-days for the western half of the HRW region. I agree that the eastern, especially the NE region will look good after this system but the SW region is another story. The 30-day estimates point to no help for TX and into SW KS making the HRW crop questionable still.

Games are being played with the new electronic trading that you might not hear about. Here is something that happened this week.

A layup trade is when an option, or options, are packaged and traded along with futures. For example, buying a synthetic put would require the simultaneous purchase of a call option of the same strike price and expiration as the put, along with the sale of a futures. This is because a long put is equal to a long call and short futures. Just as a long futures positions is equal to a long call and short put position in the same strike. I realize that some of you may not fully understand that, but if you break it down it’s true, but let me go on. Each day we see more and more lay up transactions. Often transaction of this sort might be executed delta neutral. In other words the offsetting futures portion has an equal but opposite equivalent to the options side.

This week an RFQ, or request for quote, was submitted on the electronic platform, asking for a fence quote using a delta of 37%. Again delta is the term used to describe how much the option position acts like a futures. In this case it meant that each options fence, (a fence or collar, is an option position where you buy a put, and sell a call, or vice versa) acted like 0.37 of a futures contract. In order for the position to be exactly neutral, you would need to trade 37 futures against every 100 fences. Got it?

Well, the RFQ also wanted to use a futures price that was distant from current market, with me so far? In doing so, a responding market maker would price the option fence accordingly, using the value of the fence based upon that far away underlying futures price. When the market maker quote was made, the requester, sold only 1 fence. Now that doesn’t sound too bad, but how do you trade 0.37 of a futures? Not even the computer can do that, so the ICE platform adjusts the trade rounding off the futures. Had the delta been .55 or 55%, then it would have rounded up to 1 futures, but since it was .37, or 37% it rounded down to zero, or no futures. Bottom line the RFQ used the market maker in the pit and quickly made a hefty profit of about $1,500.

Several pit brokers participated from what I understand, each getting used. However, many complained and ICE performed its duty. The result was that most trades involved got canceled, but not all. I ask you, is this system fair? When someone intentionally places orders in an effort to play games what kind of market do we now have?

The market is crazy today. The S&P is up over 40 points. Did anyone see the dried ink on the paperwork saying the Greece bailout was done? Honestly, I do not trust what is presently going on but am happy the market has rallied from the bottom. Financial stocks are leading the way which has been a long time coming. Hopefully, BOA can get out of the penny stock area and shoot upward. Those who were caught short had to cover today which could be the reason for the rise on the last 20 points halfway through the day.

I’ve been asked to provide things the average trader might not consider. Here is one.

We all know about charts. Charts are important tools that show where the market has been and where it is. Technical analysis attempts to use charts of past behavior in an effort to predict where prices might be headed. They use a variety of approaches, studying chart patterns and simple as well as sophisticated mathematical models in their efforts. Fundamental traders study supply and demand and try and predict price trends based on perceived changes. But here is another factor that ought to be considered, market psychology.

What do I mean by market psychology? It is an effort to appreciate and understand the attitude of the participants in a particular market. Sometimes surveys are taken. For example, a sample of market players may be approached to provide their view, are they bullish, bearish or neutral towards a particular market? Then that information is quantified to provide an understanding of a markets expectation. Often a simple poll is taken and a consensus of opinions published. We most frequently see this done by news organizations in advance of a fundamental report being issued, a crop number, or a government economic statistic. But what about asking a group of traders?

First of all, are those asked liable to tell you the truth regarding their market view? Some savvy players have been known to play liars poker. So taking a reliable sample is critical.

I have been in this business for many years. Much of my time has been spent on the trading floor. In all my years in the business, I have come to the conclusion that option traders are smart. They are smarter than the old guard of futures traders that used to populate the trading floor. And I think they are smarter than the average trader. So I always like to perform a little survey among option traders as to their opinion. You can’t do this easily, unless you know the people. Ask your broker, which way is the pit leaning? He may not know, but if he uses the floor for execution, that is something a good floor broker can tell you.