Well, the market has been searching for something to wring its hands about. Today we seized on European banks, and the sudden realization that China’s economy is big enough to give us pause.
Its the end of the quarter, end of the month.. a lot of money managers are heading off to the Hamptons, Aspen, or where ever the beautiful people go these days. Europe is moving into the Summer diaspora of vacations. All of this, combined with a spook from China, was enough for the bulls to take their losses and live to play another game.
If you look at the pic above, it kind of spells out graphically what I have been concerned with with the Dow, and obviously with the S&P. For simplicity sakes, I only talk about the Dow, but the same chart, roughly, comes up for the S&P as well. The April high at 11,200 represented a 62% retracement of the Correction from 14,200 down to 6,450. 11,200 was the approximate level in Dow Cash, and low and behold, that was the top of the bounce.
Support levels to step in and buy are 9430, 8866 and finally 8300. These levels will attract trade, and therefore be opportunities to enter a counter trend trade to your advantage.
Anyone who tells you how far it will ultimately go is suspect. I do know, however, sooner or later, when the last bull is shot, the market will turn and we will rally.
A broker here in my office, whom I respect, believes we could go down the tubes and mirror the US in 1860 to 1890. Imagine 30 years of this? Interestingly, this same individual mentioned that on an inflation adjusted basis, we have been sideways in the Dow since the 1970’s. All of this movement has been a function of inflation. What would a hyper-deflationary world look like? Good question. I hope for my kids sake, we don’t find out.
Switch to the Grain Market and tomorrow’s USDA final acreage report. Remembering that cheap food is a priority of any government, I would expect surprises to be on the bearish size. Anything greater than 88-90 million acres for corn and we’ll most likely spike lower.
Will there be continued follow through after a 7 session 44 cent sell off?
From my perspective, its looking like the long farmers are finally capitulating, giving in to the desire to hold on for higher prices, as there fear of sub-3.00 corn outweighs their desire for 4.50-5.00 corn.
I would be more inclined now to by this corn dip, risk 10 to 15 cents, and look for a 45 cent to 1.00 rally from these levels.
The Beans look most promising for a rally. They have held up remarkable well over the past week, as the corn and wheat have led the way down, fueled by down moves in crude oil, and a skid dish world wide equity and debt markets.
As always, don’t get married to your opinions. Trade with your exit strategy already in place.
Good Trading
