August 2000

Investors may trade in the After Hours Market (3:00 - 5:30 p.m. Central Time) on the Nasdaq Stock Market.  On a quote page, the Bid column will show the price a prospective buyer is prepared to pay at a particular time for trading a security.  The Ask column will show the price at which someone who owns a security offers to sell a security.  During regular market hours, the last sale is shown in the Last column.  However, during the After Hours session, the last sale is displayed in the Form T column.  The last sale is an electronic entry by a NASD Member firm representing the price involved in a transaction of a Nasdaq security.  The trade report must be submitted to Nasdaq within 90 seconds after the execution of the trade.

Participation by Market Makers and ECNs in the After Hours Market is strictly voluntary and as a result may offer less liquidity and inferior prices.  Tip:  Investors who anticipate trading the After Hours Market are strongly advised to use limit orders because stock prices may move more quickly in this environment.

The following illustration shows After Hours trading, the last Form T trade, Bid price, and Ask price using Ensign Windows with the Data Transmission Network data feed.

Tip:  To enable Ensign Windows to chart the After Hours data, change the @Nasdaq day session closing time to 17:30 on the SetUp | Symbol Properties form.

A common use of two moving averages is to buy when a faster moving average crosses above a slower moving average, and sell when the faster average crosses below the slower average.  The illustration shows a 5-bar simple moving average plotted in dark blue crossing a 15-bar simple moving average plotted in red.

Moving average signals have advantages and disadvantages, and both are illustrated on this chart.  The advantage is that moving averages work well in trending markets (May - July).  By keeping you in a position, it heeds the counsel to 'let your profits run'.  Averages filter out minor market reactions such as those shown in the first and last weeks of June.  The disadvantage is that moving average signals 'eat you alive' in choppy markets (April and end of July) because of the lag time in the signal.

Because of these opposing characteristics of moving averages, technicians have often sought to optimize the signals by backtesting various parameter combinations for the two moving averages.  In general, faster averages reduce the lag time for the signal, but introduce additional whip-lash trades.  Slower averages filter more minor reactions, but increases the lag time which gives back more profit at major turns.

A compromise that seeks to decrease the lag time, yet still filter minor reactions, can be found in using a 2nd average that is a fast moving average forward shifted to the right instead of a slower moving average.  Tip:  This is accomplished in Ensign Windows by adding two moving average studies to a chart, and setting the Shift parameter for the 2nd average to something like 5 for a displacement 5-bars to the right.

The following chart shows two 5-bar moving averages, yet the 2nd average is shifted or displaced 5 bars to the right.  I call this a forward shifted moving average.  The two averages are identical in shape because they are both 5-bar moving averages.

Let's compare the signals on these two charts and talk about some of the differences.  The lag time on the 1st Long signal is less.  The signal is two bars earlier at a close of 5650 instead of at 5700.  The 1st Short signal occurs three bars earlier at a close of 5750 instead of at 5525.  Because of the change in lag time for these two signals the Long position taken in April changed from a losing trade (Buy 5700, Sell 5525 = 175 loss) to a winning trade (Buy 5650, Sell 5750 = 100 profit).  The better sell price (5750) also contributes to more profit in the short position taken in mid May.

However, you will notice these new averages get caught in the market reaction the first week of June for a whip-lash.  The whip-lash gave back the profit that was gained by having quicker signals with less lag time.

I made no attempt to optimize the parameters, or to find a combination that would eliminate the whip-lash.  I simply picked an example chart that had both sideways movement and a nice trend.  This trading tip illustrates the use of a forward shifted average, and discusses the advantages and disadvantages of using moving average crossovers to generate buy and sell signals.

Time and Sales data shows the time stamp, price and tick volume for a security, giving a complete price history for a trading day.  Time and Sales is available for any symbol.  Ensign Windows has a powerful search feature to display Time and Sales for any data collected during the past three days.  Time and Sales is a menu item from several places in Ensign Windows, such as from a quote page menu or from a chart menu.

The Time and Sales search capability is used in this manner.  The first edit box can hold a date in the format of mm-dd.  If the box is blank, then today's date is assumed.  The 2nd edit box can hold a time in the format of hh:mm.  If the box is blank, then the latest time stamp on a given date is assumed.  After entering either the date, a time or both, click the Find button to have the Time and Sales form display a tick sequence from that point backward.

Example:    A Date entry of  08-14  would start the display with the last tick for a symbol stored on the 14th.  The tick sequence would flow to earlier ticks in the day.  A Time of 10:32 would start the display with the ticks time stamped at 10:32 today, and flow backward to 10:31, 10:30 etc.

To return to a display of the current ticks, double click on either edit box for the Date or the Time.  The double click will accomplish a clearing of the entries in those boxes and a Find of the current tick.  The current tick is found when a Find is done and both edit boxes are empty.

The display can be scrolled up or down by clicking the blue arrow buttons.  The scroll is a display set of ticks as a group.  If the form is showing 25 ticks, then a down click will jump down in the sequence 25 ticks to display the next set of 25 ticks.  Down ticks have a red background color and up ticks have a cyan background color.  These colors are selectable on the bottom of a quote page.

Ticks that are displayed in the Time and Sales form can be viewed as a chart by clicking the Chart button on the Time and Sales form.   A chart window will open to the right hand side of the T&S form and show the ticks being viewed.  The last tick on the right hand side of the chart will correspond with the first tick listed in the T&S form.  As the T&S form is scrolled, the chart will automatically scroll to stay in sync.  The chart bar spacing might be such that the chart displays more tick data than is shown on the T&S form.  The chart has full capability such as optionally showing the volume, the bar data panel, and adjustable bar spacing.

Bad ticks can be eliminated from the data set pool by double clicking on the row showing the tick on the Time and Sales form.  The T&S chart, if showing, will repaint to remove the deleted tick from its image.

Lance is the owner of 9 grain elevators in Eastern Idaho.

ES:  What grain crops are grown in Eastern Idaho?

LS:  The largest grain crop is malt barley.  The 2nd largest is soft white wheat closely followed by hard red spring wheat.

ES:  What is the market for these grains?

LS:  Malting barley is used by Anheuser-Busch, Coors, and Great Western.  The hard red wheat crop is exported to Portland, Oregon, destined for Asian markets.  The soft white wheat is used for livestock feed, or milled in Utah and California to make flour, cookies, and noodles.

ES:  What is the growing season?

LS:  Grain is planted in late March through April, with malt barley planted first.  The harvest is in August and September.

ES:  Tell us about crop economics.

LS:  Malt barley costs $5 per hundred weight to produce.  90% of the crop is precontracted with Busch, Coors, and Great Western.  The crop is typically profitable.  A typical producer will have 600 to 1000 acres in malt barley, and use it as a rotation crop with alfalfa and potatoes.  All malt barley is irrigated with yields of 100 to 140 bushels per acre.  Irrigation is via manually moved sprinkler lines, or automatic center pivots using water pumped from the aquifer beneath the Snake River valley.

Presently, soft white wheat is being grown at the government's guaranteed loan rate of $2.48 per bushel.  Though farmer's have lost money growing soft white for the last three years, it is a part of the crop rotation.  Depressed prices have caused a decrease in acreage.  It costs Idaho farmers $2.75 to $3 per bushel to produce.  When the price drops below $2.48, the crop is turned over to the government as collateral for the loan guarantee.  Soft white wheat is currently selling for $1.80.

Hard red spring wheat is selling for $2.70 for the 14 protein grade.  13 protein has a 48 cent deduction, and 12 protein has a 96 cent deduction in the price.

ES:  How is the protein grade determined?

LS:  A sample is taken for every three trucks from a grower, and graded locally by a federally licensed inspection service.  Protein content is affected by fertilizer, temperature and water.  At the end of the growing season, the crop receives less water to moisture stress it, and increase the protein level.  Less water lowers the yield, but raises the protein level.

ES:  What are the acreage yields?

LS:  95% of the soft white crop is irrigated, and yields are 80 to 120 bushels per acre.  The 5% dry farm crop yield is 25 to 50 bushels per acre.  Most dry farm acreage has gone into the C.R.P.

ES:  What is the C.R.P.?

LS:  C.R.P is the commodity reserve program.  The government pays the farmers to put the land back to grass and leave it idle for ten years.  Farmers participating in the C.R.P. are paid $45 per acre per year.  Some 50,000 acres in Bonneville County, Idaho, are in the C.R.P.  This has really hurt the small country elevators because it has reduced the size of the crop for market.  Some city folks who saw the C.R.P. coming, went out and bought dry farms cheap, and now the C.R.P is making their payments for them.  The land is idle and their only expenses are property taxes.  Dry farms cover the hills of the Snake River valley where it is too expensive to pump water or water is not available.

ES:  Tell us about the elevator business.

LS:  We have four profit centers:  1) storage, 2) handling, 3) trucking, and 4) seed cleaning.

Handling is where the elevator buys wheat from the grower, and resells to exporters in Portland or to mills in Utah and California.  We buy soft white wheat for $1.80 a bushel and sell it to the mills for $1.95 to $2.00.  The 15 cent per bushel markup is called our handle.  When the government receives a crop in the loan guarantee program at $2.48 per bushel, the government pays us a handle of 10 cents per bushel and a storage fee of 3 cents per month.  About 20% to 25% of the soft white wheat crop is being defaulted on now.  We also have a fleet of 9 trucks to do custom hauling. 

ES:  What is the L.D.P.?

LS:  L.D.P. is the Load Deficiency Payment program.  The government has a P.C.P., or Posted County Price which is updated daily.  A grower can elect to collect a loan deficiency payment and keep ownership of his crop.  It works in this manner.  The P.C.P. today for soft white wheat is $1.82, and the loan guarantee price is $2.48.  So, the farmer could walk into the government office and collect 66 cents per bushel and retire the guarantee.  He would then either sell his crop to us, or put it in storage and sell it later.  Or, he could turn his crop over to the government for the $2.48 per bushel guarantee price.

ES:  How do you ship?

LS:  Shipping is by Union Pacific Railroad to Portland, or to mills in Utah and California.  We order rail cars with a two week lead time.  Our elevators ship 100 rail cars per month, with each car holding 3300 bushels.  The cost of a rail car to California is $2700, or about 80 cents per bushel.  It costs more to ship grain from Eastern Idaho to Portland than it does from Nebraska to Portland because we are a captive market served only by the Union Pacific Railroad.

ES:  How is this year's crop?

LS:  Weather has been warmer and dryer than normal, but most of the acreage is irrigated anyway.  This year we have a good crop which matured early.  The typical protein level is 9 1/2 to 10 1/2 for soft white, and 13 to 14 protein for hard red spring wheat.  Prices are depressed in the United States because the supply is high, even though the world supply is down.

ES:  Any advice for wheat speculators?

LS:  Speculators need to know the market well enough to know when wheat is under valued or over valued.  They should never buy a position they cannot afford to stay with and make margin calls on.  Usually one's judgment is right about a market being under or over valued, and by riding out fluctuations the position will return to being profitable.  Do not try to get the top or the bottom price.  In our business, we hedge using options on Chicago wheat, or hedge hard red spring wheat with MW options.

ES:  Tell us what information source you use?

LS:  We rely on market reports from Ag Resources in Chicago.  They issue an early morning report, a mid-day report and an afternoon report.  We have delayed DTN data terminals in three locations.  We also use DTN Internet (AgData.com) for quotes and news.

ES:  Can inquiries be made for more information?

LS:  Yes, have them e-mail me at:  mailto:KeeperOfWheat@prodigy.net