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BRIAN HOOPS

By Staff | Dec 21, 2012

A recent article in Futures Magazine looked back at one of the most successful educators, authors and traders of the last 50 years, the legendary Larry Williams.

Williams has left his legacy on the commodity business, developing such famous technical indicators as Williams %R, the “Oops Trade”, the “Ultimate Oscillator,” seasonality and indicators based on accumulation/distribution and the Commitment of Traders indexes.

Williams won the 1987 Robbins World Cup Trading Championship and again in 1988. “Winning that was an accomplishment,” he acknowledged, “but it is not meaningful in that it did not teach or share my research. My real accomplishments have been the first book ever on seasonal patterns back in 1973, my work on measures of accumulation and distribution and being the originator for all the volatility breakout strategies that have become so popular.”

Interesting enough, Williams won the 1987 RC by trading the same treasury bond system that we use in our office, which I bought from Williams.

In fact, I used some of the signals from his system to create another bond trading system that we use regularly. In 1988, Williams won again, only this time, his daughter Michelle won, using the same bond trading system for all of the trades.

As a tidbit of useless trivia, Williams daughter is the same Michelle Williams who now is a major motion picture star, appearing in Dawson’ Creek, Brokeback Mountain, and as Marilyn Monroe in My Week with Marilyn. She was also married to the late Heath Ledger.

Williams actually started trading stocks before commodities, but it is in commodities that he has won his most acclaim. “I first got hooked on the markets in the 1962,” Williams said, when President Kennedy forced a rollback in steel prices. “The headlines caught my attention, but I came from a family that had never owned a single share of stock.

“All I knew about the markets was that whenever we left the lights on, my dad would say, ‘Turn off the lights. Do you think I own shares in Montana Power?'”

In the article in Futures, Williams recounts early challenges he faced. “The most difficult thing back then was data collection,” he said. “Think about it. There were no downloads, no evening newspapers to get market information from.

“That meant you had to go to the brokerage firm each and every day to get the day’s numbers – open, high, low, close and volume – as well as the number of stocks that advanced and declined for the day. That was our daily download.

“It also helped to have a broker willing to give you the numbers over the phone for the days you could not make it to their office,” he said. “I had great brokers: Don Southard, Joe Miller, Ed Walters and Al Alessandra. Those guys really helped me so much.”

After Williams got the data and recorded it in his notebooks, he had to “run the numbers,” that is, calculate moving averages, on-balance volume and some oscillators.

That took about an hour a day along with charting each day’s numbers on the 30 or so stocks he followed. It became a labor of love.

Williams has been a huge influence on me personally. My analysis on the COT reports is directly influenced by Williams teachings, including the usage of the COT index and the sentiment index.

I have taken some of Williams teaching and tweaked it slightly to accommodate our farm hedge clients. Williams tools are an invaluable resource that I rely on each day.

CORN ANALYSIS

Corn closed the week $.06 1/2 lower. Last week, private exporters did not report any private sales.

In the weekly export sales report, corn sales shows 10.7 million bushels slated for 2012/13. This is below the 17.1 mb that is needed to stay on pace with the USDA forecasts of 1.15 billion bushels. Corn looks to remain in a trading range as supply issues are well known by now and the demand puzzle moves to the front of pricing.

The lack of exportable corn demand looks to cap rallies while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.

In the December supply/demand report, corn stocks came in slightly below the average trade guess and unchanged from last month at 647 mb. Producers should look to reown sales on weakness to the $7.15 area and reward the market with cash sales into resistance.

Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop. Re-own 50 percent of the 2012/13 corn crop with July calls if futures touch $7.16.

SOYBEANS ANALYSIS

Soybeans closed the week $.33 1/2 higher from last week. Last week private exporters reported 115,000 metric tons of U.S. soybeans sold to China.

In the weekly export sales report, soybean sales were 48.5 mb, this is above the 7.7 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb.

Last week, NOPA November soybean crush was reported at 157.3 mb, in line with market expectations of 157.4 mb, but reflected a solid increase from last month’s 153.5 mb and was the second highest on record behind 160.3 mb in 2009.

More importantly, November crush was up 11 percent from last year, following October’s 9 percent increase, while the USDA’s crush projection of 1.570 bb reflects an 8 percent decline from last year. In the monthly supply/demand report, U.S. soybean stocks were 10 mb lower than a month ago at 130 mb, right in line with trade estimates.

Prices will need to close above weekly resistance of $15.71 to confirm seasonal lows are in place.

This was previous support that was broken and will serve as resistance on rally attempts. Producers can re-own sales if support is reached.

Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. Re-own 50 percent of 2012/13 production with July soybean calls if futures hit $13.50.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.

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