Well, this market really wants to go lower. With any bounce, you need to be prepared to get your old crop sold. The new crop should still have pricing opportunities next year, but near term you could experience an inverse thrill. I am still recommending we use an option strategy for this near term move.
Oil looks to me to be at an actionable place to hedge any oil needs you have for the rest of this year.
Because the government shutdown cancelled out last weeks WASDE report, the grain markets really have not had a lot of news to trade on. Wheat has experienced a nice rally, but corn more or less has traded sideways since the end of September. This "coiling" effect tends to result in explosive moves higher or lower. When the time is right for a move, you will probably be very happy or unhappy, depending on your position. Below is the grain ETF JJG, which I use as an index for the overall health of the markets.
There are approximately 250 trading days in a calendar year. If you look back over the past three years, cycle lows have occurred 18 times. This means we should expect a rally out of a low about every 40 days.
We are now on day 56 of the present cycle......about 15 days beyond normal. When the government dickers with the market place by shutting down or delaying regular reports, this is to be expected I suppose. Had the normal WASDE report been released on October 11, we would likely be well into a new cycle already. As it stands, the market continues to coil within a larger symmetrical triangle. I have explained what these do on the terminology page.
Symmetrical triangles are usually continuation patterns meaning we should expect the price to continue lower. Because of the coil, I would expect the move to be strong. A sudden move such as that would push prices back into its next cycle low and become the start of a new cycle. Given we are already late in this current cycle, I am thinking this will happen very soon....perhaps as soon as next weeks FOMC meeting on the October 29 and 30.
The height of this triangle would be how far we could expect prices to fall. The height between 44 and 50 is 6 points. (this is actually 5.6 points to be exact). That would mean that the grain complex as a whole would drop a little over 10% from where we are today to 40.6 which is substantial.
Why would the FOMC meeting cause this type of move? The dollar cycle is in the timing band for its yearly cycle low and is currently trading at an area of significant support. I would expect this bottom to coincide with the FOMC meeting. This will probably result in a quick and powerful dollar rally that will pressure stocks and commodities, but will not be long lived. The reality of money printing will eventually take hold, probably when the dollar reaches its 200 day moving average and resume its journey southward into its 3 year cycle low sometime next summer. This should provide some better opportunities to price grain early next year, but there probably will not be many the rest of this year.
I will be posting some option strategies on the opportunities page in short order to place some sort of short term floor.