If it looks, like it, acts like and smells like it, we could be looking at the break out from our 4 month sideways chop in the grains. CZ pushed up against the 390 level, SX is up against 934,and old crop looks like its coiled and ready to test 1020 and then 1075.
Wednesday’s supply and demand could give us the fuel to finally break up and out of the resistance which has characterized these grains for the last 4 months. The oats, otherwise known as the canary in the coal mine, seem to have taken a break after a violent move higher, followed by a small correction. Looking at the daily charts, we are certainly at a turning point.
Fortunately, we will only have to wait two more days to see where this train is headed.
I think, that technically, corn looks like the fresh life of contract low placed the day before last week’s acreage report looks extremely bullish. Also, looking at the open interest and volume, we plainly could see that the spec funds had it wrong, short corn and long beans in front of the number. However, unlike most losing traders, spec fund managers at least have the discipline (or their hft programs have the disciplined programmed into them,) to puke when they are wrong. Now we have a situation where trend following managers are looking at their 200 day moving average keys. Those that are bullish are salivating like Pavlov’s dog. If their trade is triggered, they will open fire. Again, unlike many an unsuccessful trader, fund managers follow their signal and do not second guess it. Can they get chopped up in sideways markets? Absolutely, and that is what we have all been suffering through here this year!
However, over the long term, these fund managers know to follow their signals and leave the second guessing to 1 lot traders and new letter writers.
I believe that continued rally in the Wheat will, ironically, be the driving force behind this Summer’s bull story. Why? Mainly because, fundamentally, it makes no sense. Every trader/analyst/broker with a resting pulse rate above 10 knows that “the world is awash in wheat”.
Up until this week, spec funds were still short over 30K contracts of wheat. This morning the figure was estimated at 3,900. The rally has been fueled by traders who “knew” there was too much wheat, suddenly being forced to take into account the strength of the invisible hand of the market… Awash in grain or not, the wheat is headed sharply higher. And is it more important to be “right” or is it more important to make money on the side of the market that is productive? I would argue the latter.
Is it really too hot in Russia? Are there really 13Million acres of wheat that didn’t get planted in Canada’s great plains which have been under water? Are there really weather issues in Australia? I don’t know.. I do know that the market is strong, and in 6 months, looking back, we’ll see the real reason the wheat is doing what it is doing… Right now, all we know is what we know and this is the limiting factor in our decision making progress.
If you’ve sold your grain, its time to re-own. If the market rolls over on a surprise supply/demand number, we’ll roll back down into the bottom of our trading range we’ve been mired in since May.
However, if all systems are go, we will have our first taste of a weather market. Weather markets are all we have to look forward to for a growth story. We missed the “planting delay” bullish ness, which we suffered through in 2008 and 2009. Perhaps in 2010, its time to turn the page.
Friday’s close will tell the story, but right now, I will say that I’d rather be long going into this report rather than short. We know where are floor appears to be in corn. We were there just 5 trading sessions ago.
I think its time, now that we punished the bulls with that move, that we punish the bears appropriately, with a test of significant resistance levels above the market. 415 CZ, and 1075 SN.
If you want to take advantage of a spike higher, you have to be long here. Unfortunately, we can’t second base unless we take our foot off of first.
Good Trading
