Folks, I don't have to tell you that corn is not behaving as expected. The action today (and tonight) is quite ugly. I would describe the selling as aggressive liquidation due to a Chinese soybean cancellation, and Fiscal Cliff concerns. Markets hate uncertainty.
I am concerned enough to no longer be bullish, but see enough fundamentals (and technicals) to not be bearish. The market can appear hopeless prior to some major bounces. Extreme bearish sentiment is the hallmark of the best rallys.
The wheat market also had a bad day. Price is near the 200 SMA, and we will have a buy signal from the CCI oscillator soon. Don't forget, you also have a Crop Insurance floor at $7.28. Any sales made now will remove about .75 risk if you have an 85% policy, but could eliminate a tremendous amount of top side potential.
If you are feeling a bit beaten up today, I will post some things over the weekend that should cheer you up.
A quick post on corn. We should have new buy signals from the RSI tomorrow or Friday. Corn closed today just above the 150 SMA.
Wheat did manage to close just below the 150 SMA, but the RSI will likely give a buy signal again Thursday or Friday.
The dollar showed some strength today. Despite the weakness in the dollar the past month, commodities have also shown weakness. I will be curious to see how the grains react while the dollar makes its mid cycle bounce.
As long as these moving averages hold, I remain bullish.
There are numerous tools available to help make marketing decisions. Obviously, some are more effective than others. The big problem with technical analysis is that once a fool proof method is discovered, the market makers make sure it won't work forever. I am not married to one particular method over another, but one which helps greatly is cycle analysis. For example, I like taking the dollar chart and comparing it against the corn cycle.
We just so happen to have a new failed dollar cycle. This means we should expect the dollar to trade lower into its next expected cycle bottom, which regularly happens in 18 to 28 day intervals.
Using cycles, you would estimate the dollar would now trade lower for the next 9 to 19 days, or about 2-3 weeks into its next daily cycle bottom.
There are daily cycles (short term), intermediate cycles, yearly cycles, and the three year cycle. Once a daily cycle fails, this signals an intermediate cycle decline. I happen to believe this drop will magnify, taking out the previous intermediate bottom and possibly even the yearly cycle bottom. Bernanke has the printing presses going at full steam, which should result in a waterfall decline into the dollars yearly cycle low. Once that bottom is reached, you should be ready to make some advanced grain sales.
So what does this have to do with corn? Since 2003, there have been 9 yearly cycles ranging in 9 to 18 months each counting the current 14 month cycle we are on now. That means the average cycle bottom to bottom is about 12.5 months. Suffice it to say, we are in the timing band for a bounce now. See the bull flag?
With the expectation that the dollar is beginning to drop into a new intermediate cycle low, and corn in the timing band for a bounce, the cycles alone would tell me this is not a great time to consider a large corn sale. Technical analysis gave a buy signal on November 16, which happened to be the low on corn when the CCI and RSI gave buy signals as price also had a near touch of the 150 DMA with a hammer doji. It just does not get any more bullish than that. You won't see the CCI give another buy signal on the corn again, but another touch of the 150 sma adn the RSI will again give a buy signal.
How high corn can go is really not answerable. At the very least, $6.60. The real question is when. A rally of corn into late February (which corresponds with a waterfall decline in the dollar) will likely carry corn higher than that.
Soybeans gave a clear buy signal as well. Not that you would ever buy soybeans or corn for that matter, but these kinds of signals are a great opportunity to sell some puts, which is a bullish strategy. On November 16, I recommended selling the at the money February put with a $13.90 strike to collect .50 cents. We should see soybeans at $14 very soon.
I realize the grains have been lack luster this past week to say the least which is unusual considering the dollar had fallen all week as well. The dollar fell below its previous daily cycle low. With 11 to 21 days remaining until the next cycle bottom, we could see the dollar reach the previous intermediate cycle low set back in September.
Despite a lack luster week in the grains, neither corn or soybeans broke key technical areas. By far, the weakest of the grains was wheat which started off this past week sharply lower, eventally breaking below support. A further drop to the $8.12 area would provide wheat with a 38.2% retracement, and would not only pull wheat very close to the 200 DMA, but might also trigger a buy signal on the CCI oscillator. I remain very bullish wheat.