That was quite the sell off. The market was due for a drop off, but the magnitude to which the new crop sold was surprising. While targets were met on the bean side, corn never could get any kind of pop to it.
I think the bottom of this daily cycle is in, and we should rally through the end of the month. Corn is certainly showing signs of buyers stepping in. These hammer doji's (which are circled) on the corn chart indicate buyers stepping in. This is Dec Corn.
Because price fell below the January 7 low, we have a failed daily cycle on new crop corn.....an overall bearish sign. Any bounce that occurs here should be met with selling.
Old crop corn, however, did not fall below its January 7 low, and should have a stronger rally. The higher low is bullish. Again, price is putting in a hammer today as of this writing.
Old crop soybeans likewise have room for a pretty nice rally.
November soybeans hit the $13.50 sell target and immediately retreated southward nearly triggering a buy signal on the CCI. Prices now are at a support level which was first established back in April of 2011, and is still significant today. I would expect this level to hold through the end of the month.
Wheat sales should not be made at this time, as we are very close now to floors set by crop insurance guarantees.
Now that a bottom appears to have been made, I have some ideas on new targets for future sales. I will post those ideas over the weekend on the opportunities page.
I feel confident that grain prices will move higher into a new intermediate cycle, even though we are yet to confirm it. I don't believe I am alone in this regard however. Friday was the third highest volume day in the past three years, and I mean buying volume on corn and for wheat. While not as stellar, bean volume was more than respectable. Apparently, the big boys agree.
The January WASDE report was favorable. We have a reduction on the corn and soybean balance sheet, and a modest bump in the wheat carryout.
Traders reacted by putting in a swing low on the weekly corn chart. If we can get a above the downward sloping trend line, I think we will have confirmation that a new intermediate corn cycle is beginning. When we get a break of that trend line, I will change my sentiment to bullish. This is a market that was waiting on something to trigger it to do what it wanted to do and the WASDE report should fit the bill. The market wants a new intermediate and yearly cycle.
Soybeans did manage a lower close, but they no trader wants to be short below 12.60 on the NOV it seems. I remain confident on the recommendation to sell puts on 11/16. A break of 12.55 would be very bearish, and would confirm a failed soybean cycle.
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.