Wednesday Evening 2 June 2010
A few weeks ago, an astute colleague who knows as much about the grain
trade as anyone, was touting the short side of corn when price hit 380. We
took the myopic view that price was in the middle of a large trading range
and did not look more closely at the situation. Today, we did.
Among the many market axioms, one is to buy strength, sell weakness.
We acted on the latter by taking a short position in July Corn at 354 as price
was breaking under the established April-May trading range lows. The last
three day’s ranges are all low end closes, and this makes the statement that
sellers are clearly in control.
There are never any “guarantee” trades, but there are high probability
outcome situations, and this is one of them. The premise behind selling
weakness is that the price direction and character of the market has already
been proven, and the odds favor more of the same. The risk is fairly minimal,
and if price continues lower from here, stops will be lowered to ensure a risk-
free trade, the best kind.
The caveat to this trade is that Wednesday’s low close could just be a probe
to see what kind of selling and stops lie underneath the trading range. If
there are none, price will rally back into the range, and all bets are off. Either
way, it is a quality trade, and we have a small edge going into it.
