The day after the announcement of the biggest corn crop in US growing history, this market found its legs, led by the most unlikely, soybeans. This in the midst of forecasts of smooth sailing in the production of the South American Beans. This is a year where so far, the fundamentals have been similar to what Ed Seykota deemed “funny mentals”. If the charts are to be believed, the soybean market is showing surprising bullishness in the face of fundamentals which suggest the bears should be ruling the day.

I learned a long time ago that when a market gets bad news and is able to bounce back or absorb the move, it suggests underlying strength, which is not readily visible. If successful trading was simply a function of information, time and supply, we would never have price fluctuations. Thankfully, we have the infinite uncertainties which impact the ultimate price discovery process.
Bottom line, it looks like the soybeans are going to lead us. They led on the way down prior to the release of Tuesday’s USDA figures. And now it looks like they are trying to lead the grains back.

With the volatility we are seeing, there will be plenty of opportunities for both the bulls and the bears to make money. The pigs, however, who try to catch every move, will get slaughtered, like putting jello into a blender.

Look for the gaps to be filled sooner rather than later on the daily charts. I wrote about that last night. And today, they made a big dent in the CH gap lower. There isn’t that much left to fill to the upside, and my feeling is that the specs who got caught on the limit day down, perhaps flipped and got short today. Typically, the market will punish the pigs, who try to take advantage of every 10 to 30 cent gyration. We could have seen the lows for a bit, if I am right, and now the specs flipped and got short. There’s nothing worse than being late on a big move, losing, then attempting to flip and get back to even. That’s why I think there’s about a 70 percent chance we go up and fill the gap in the next three sessions.

In the stock indexes, we continue to get warnings and fear reporting. As we await more earnings, and more worries about “fill in the blank”… this is just the type of environment where the market will climb the wall of worry. Today, after the Dollar Index moved smartly lower away from the key 78 level I wrote about several days ago, the new bearish story was that the “dollar crisis” was coming back. Going into the Christmas break, if you remember, the fear was the unraveling of the dollar carry trade, which was going to be the undoing of the market.

China made the surprise announcement that they were going to reign in their bank’s capital requirements. Am I the only one who thinks that’s funny that such an announcement came just days after China announced that it would allow futures and short selling? What is the Chinese word for IRONY?

I am sure there will be a fresh focus on the danger’s an overheating Chinese economy would mean for the US… Now that the bird flu was a bust, we need a new fear story to consume the news pages. A melt down in China’s economy might just be the thing to spike interest. I can imagine the CNN headline now, complete with its own theme intro music… The real China Syndrome…2010, Will it mean the end of life as we know it here in the West?… Cue the graphics and the music…DA Dum DA Dum. Perhaps they’ll bring on the Australian guy w/ the broken nose to investigate the impact of Chinese underworld figures, now that Al kaida in Iraq has lost its sizzle….

Once again, the financial press has not failed to look for the worst possible impact of the fluctuations in the dollar vs. the currencies of the rest of the world.
No matter what, it seems, the financial press is jumping on the “next great problem”. That makes me so bullish. When was the last time the general opinion in the financial press was any thing other than a fade?
These were the same people falling all over themselves predicting Dow 25000 when we were flirting with 14,300 back in October 2007, and we all know how that ended.

So if you’re bullish, pray every night that the headlines in the financial pages and on the cable financial shows remain spooked and looking for the “CORRECTION OF 2010” That to me seems to be one of the best reverse indicators that we as investors or speculators can look to as a general rule. All in all, 2010 looks to be full of opportunity for hyperbole, tempests in teapots, and maybe, just maybe, a continued rally in the US stock’s for no apparent fundamental reason.

Good Trading