Don't Panic, Don't Overtrade, Don’t Get Whipsawed
Alan's Weather Market Rules & Observations
1) The large spec funds are net long or trying to get there; they want prices to go up.
2) The spec fund managers talk to wire service reporters, the ABCD grain companies rarely do.
3) If there is a science more inexact than economics, it's meteorology.
4) With inexactness in meteorology (and multiple forecast time frames) come multiple variants of forecasts.
5) With multiple conflicting weather forecasts, emphasis drives trading. Emphasis is controlled by the wire service reporters and analysts. See #2.
6) You can't have a drought if it keeps raining. You can't flood out crops if it quits raining.
7) What you see out your back door represents less than 1 millionth of the crop.
8) Farmers don’t want to pass all price risk off to others, just negative price risk. Avoid outright long or short positions in weather markets. Use options and spreads in combinations to control risk until the top is obvious.
9) Look at the Price & Probability Forecasts™ for reasonable price objectives that can be met in almost all years. Maintain perspective!
10) Always sell something if P&P objectives are reached and the market is overbought.
11) Sell a LOT if #9 is met, and we are also at major monthly chart resistance.
12) Don't buy puts or calls outright at the highest implied volatilities (premiums) of the year. Those are common in a weather market. Sell something against your main position to offset the excess volatility premium.
13) Bulls win some, bears win some, and pigs get slaughtered.
14) It's better to have 50% of something good than none of something great.
15) Yield losses are deducted from optimal, not from average or trendline. Some losses occur due to weather every year. Don't deduct twice for the same impact.
16) The news is always the most bullish at the top. Corollary: If you trade the news, you lose.
There is a risk of loss in futures & options trading. Similar risks exist for holders of cash commodities. Past performance is not necessarily indicative of future results.
Copyright 2002, Brugler Marketing & Management LLC.
