There has not been anything new since my previous post on the 16th. Everything is becoming stretched.
My calls for a bottom in corn were early, and I blame that on not factoring in that oil was making an intermediate cycle low, pulling all the commodities down with it. When you connect the dots, you can see how tightly corn has been trading with oil and the entire CRB index, and the CRB Index with the dollar.
post on July 16, the dollar should be rolling over now and headed towards its 3 year cycle low.
The dollar cycle is very dependable. You can see that going back to 2005, you could set your calendar by it. In 2001, the Fed was in the midst of tightening the money supply in an attempt to reign in the dot com bubble. This policy resulted in a recession of course, but it did burst the bubble and crashed the dollar, and the dollar cycle has been very predictable every since. If this holds true, the dollar has likely peaked and will bottom sometime next summer.
The dollar has great implications for commodities which also have a cycle of their own which lasts about 3.5 years. A falling dollar is bullish commodities and stocks. Looking ahead, this phenomena will be supportive of commodities and grains. While we are in the turbulent time period of weather markets presently, I am generally bullish looking ahead.
Last week, I wrote that oil was at or near a bottom and might drop a few more cents to touch the 200 day moving average, which it has done. The ramifications of a bottom in oil will certainly help the CRB index, as well as corn and soybeans.
In fact, if you step back and look at the larger picture, oil appears to be creating a head and shoulders bottom of sorts, with the right shoulder consolidating along the 200 day moving average. Notice how the 200 day moving average (green line) has now turned higher. The trend is officially in favor of higher oil prices. A break of the $51 resistance area will mean a move to $60-61 fairly quickly.
An even bigger picture of oil (a weekly chart) shows that a move to the 200 week moving average would be entirely reasonable.
If this holds true, this helps give a higher probability that grain prices will remain strong into the fall.
Here are some important signals to consider this week.
The CCI (Commodity Channel Index) does an excellent job at spotting short term turning points in the grain markets. The way to read the CCI is that when it cross above the +200 level or crosses below the -200 level, and then crosses back below or above, you have a signal to sell (red) or to buy (green).
Another strong buy signal would be the hammer at the bottom of the weekly chart. Notice how the CCI behaves on the weekly. It has yet to print a buy signal, but will soon.
The daily soybean chart is somewhat muddled with no real signals since June when I strongly recommended getting to 100% sold.
What looks ominous to me is the weekly soybean chart which produced a major sell signal this week.
Wheat has reached extremely oversold levels. These are great times to lock in any basis on old crop. The December wheat contract is asking to be bought. We should have a rally that will get the futures back in the $4.90 to $5.00 area.
Much like corn, the December wheat contract will print a buy signal soon on the weekly chart, and like corn has printed a hammer.
In short, I am very bullish wheat and corn, and moderately to majorly bearish soybeans.
Another drag on grain prices as well as the entire CRB index is oil. Back on June 10, I predicted that oil would likely fall to $45 which they did yesterday. It was my belief that the drop in oil would pull grain prices lower as well, and it did.
Today, Oil has retraced 38.2% from its April low, and has pulled within a few cents of the 200 day moving average. It could drop a few more cents and tag that level, but I expect this move is mostly exhausted.
If we get a bad jobs number today, don't be surprised if the dollar begins its move towards its 3 year cycle low. That is all that needs to happen to reverse oil and turn the grains back around. It always amazes me how these technical and cycle areas of significance occur near major economic reports.
Corn has been severely beaten up over the last few weeks, and now beans are following. You probably have that feeling in your gut that you are doing everything wrong, and that is playing strongly with your emotions. These are points where most traders and commodity advisors will make their biggest mistakes. You don't think the large spec houses with their multi million dollar research departments know this? What can you do? Lets take a step back and see where you as a producer fit into this entire picture.
To see where you are now, you need to understand where you come from. As you recall, back in the late winter, the entire commodity complex, led by oil, was trading at multi-decade lows, and were at levels not seen since the early 1970's.
I had stressed that the consequence of this type of sell off would be a very strong rally which would carry all commodities with it, including the grains. At this time, the fundamentals for grains were bad, but I believed that did not matter because the consequences of all the shorting would be that eventually they needed to cover which would create a buying frenzy. I had explained that this is why you did not see rounded bottoms on the CRB.... that it was everybody trying to leave the position at the same time. The chart below shows the same CRB index today, 6 months later.
A closer look will show that commodities have rallied 27% off the lows. What, would you think it was going to go up for ever? A month ago, it was beginning to feel that way, and weren't we all getting excited?
Corn, soybeans, and wheat combined to appreciate 21.23% in 3 months time. Once sentiment had reached extreme bullish levels, many farmers were feeling a lot more comfortable. Again, the large spec traders were ready to pick everybody's pocket again.
The extreme bullish and bearishness that I study is measurable, and is what Sentiment Trader helps me with. Sentiment drives the cycles which I also follow. It is not as good as a crystal ball, but I have not found one of those yet. Until I do, this is the closest thing I can find.
Now the other large picture thing we need to know and understand is that the value of grain is not only determined by supply, demand, crop condition, speculator moods, etc, but also by the almighty dollar. As you probably are aware, due to exchange rates, a strong dollar is deflationary, and makes our commodities worth less around the world. A weaker dollar makes our commodities worth more.
Like commodities, the dollar trades on 3 year cycles. The last 3 year cycle low was in 2014. Sometime next year, the dollar is scheduled to bottom, and when it does, it will provide the fuel for the next leg up in all commodities, including the grains.
On Friday, there is an employment report which will likely move the dollar. If we get a bad number, the dollar will tank which will be great for all the grains. This at a time when the grains are all at yearly cycle lows.
Extreme prices work like rubber bands. The snap back rally from an extreme usually results in an extreme move in the other direction. No place is this clearer than with corn. Once trading 50 cents above the 200 day moving average just weeks ago, corn now trades 50 cents below the 200 day moving average. I cannot stress enough that these are not times to be fearful. Times like these are golden to take re-ownership and employ bullish strategies. They are also gifts to lock in basis levels.
I wish I could provide something brilliant about soybeans but I really can't. I think beans printed a cycle low on Wednesday with a very bullish reversal candle and touching its trend line. I am mildly bullish here, but do not have strong long signals like I do corn. If you have not sold a bean yet, you should probably try to get these locked in soon. My recommendations would have you 100% sold now at $10.61 and you have an opportunity to lock in today around $10.80.
Today, I would be most bullish of all for wheat. If you have just stored harvested wheat, get the basis locked in and keep your futures open. Selling puts here could also add a few dimes to your bottom line.
So in the larger picture, grains are still near the bottom of their next major cycle, along with the entire commodity complex while at the same time the dollar is holding on for dear life as it is preparing to drop into its 3 year cycle low. Expect prices to remain firm here, and higher into next year, and don't forget Friday's employment report which could have huge ramifications for the dollar.
Once a swing low has been established on the corn chart, a new intermediate cycle rally will begin. The beginning of a new intermediate cycle tends to produce large rallies. This has become a stretched daily cycle at 39 days now. Corn is due for a bounce.
My recommendation a week ago to sell puts was obviously early (which I tend to do), but with a double bottom and the beginning of a new intermediate cycle, you don't get better opportunities to employ a bullish strategy which will add some revenue to your bottom line. Today, you would be able to sell that same $4.00 put for around .54. Corn would have to trade below $3.46 for this strategy not to produce added revenue.