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1) theoretically they don't care about price direction, just the basis. in
reality (having spent a few years on the commercial side myself) hedgers
often hold long or short cash positions _unhedged_ and become more willing
to hedge as prices become "favorable." that is why a significant build up
of commercial positions often indicates this group's attitudes toward price.
2) one reason to follow the large spec O/I is that fund behavior is
dominated by something like "draw-down aversion"... awareness of key chart
points, along with a growing long or short spec position, helps to keep one
aware of the potential "stored energy" or "fuel" for a short covering or
long liquidating type move.
dan chesler
-----Original Message-----
From: mr_bond@xxxxxx <mr_bond@xxxxxx>
To: Omega List <omega-list@xxxxxxxxxx>
Date: Tuesday, November 17, 1998 11:32 AM
Subject: Hedgers, funds, and who moves markets
>
>[1] If commercial hedgers by definition always have a neutral market
>position (i.e. long the cash market/short futures or vice versa), then
>why is their buying/selling activity useful information? Theoretically,
>they really shouldn't *care* where the price of soybeans goes. I
>thought the entire purpose of the futures markets was to transfer the
>risk from hedgers to speculators. Now why then would it matter if ADM
>was buying 1000 corn contracts if the purchase is just as a hedge?
>
>[2] From what I've seen, the vast majority of commodity funds have
>dismal performance. If this is true, why should we want to follow their
>activities?
>
>If what I have said above is true, then what moves the markets? And if
>it is not true, why not?
>
>I realize these may be dumb questions, but if someone could enlighten me
>I'd be most appreciative!
>
>Thanks in advance,
>
>Dave
>
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