I wish to apologize for the month long hiatus. Last month, Microsoft stopped supporting internet Explorer. I was not aware of this until today. I thought I had some sort of problem with my internet service, or there was a problem with Weebly. These delays made it impossible to make a sensible post on the website. Now that that is resolved, I hope to post with more regularity.
For the past month, the weather and corresponding crop size has been the driver of the grain markets in a big way. Unfortunately, just not the way you probably hoped for. The wind of cycles, technicals, and dollar weakness has been taken over by the tempest of the largest grain crop ever grown. Nobody has fear anymore that we are going to run out of grain. That is the story, and it is really all you need to know. The fundamentals under the grain markets are horrible.
That said, I have a recommendation of how to manage any existing long futures positions, should you happen to hold any. I began recommending this on Friday. Allow me to explain the logic by beginning with the dollar.
At my last post on July 27, I attempted to illustrate the case that the dollar was on the verge of topping and entering a new bear market. The dollar was losing the 200 day sma, and I have stated that I do not believe the dollar would re-take it. A month later, that seems to be the case. This will be a major wind under all the commodities, but as I mentioned earlier, the grain complex is under a tempest of its own.
It is the dollar cycle, combined with trillions in printed dollars flooding the market which will drive the dollar lower. I explained all this earlier on a July 16 post. This weakness in the dollar will help push commodities a lot higher. If the grains were not so weighted down by this record crop, it would be going higher as well.
While I don't think we will see new highs in corn again..... maybe not even $4.00 corn again, corn does have a few things working in its favor. First, a week dollar will help the corn. A decisive break of the bottom dollar trend line will probably coincide with a weekly swing low. That will be the point where I will breath a sigh of relief and expect the beginning of a fall rally. Secondly, sentiment has reached an excessively bearish level. Remember, no major rally has ever occurred without extreme bearish sentiment first. We have that now with a reading of 26. One more day like today and the reading could be 20, which usually signals exhaustion.
Another friendly sign would be a breakout in oil as corn often reflects movements in oil. Oil is positioned for a big rally. Donald Trump would call it Yuge!
I expect energy to outperform all other sectors of the market the rest of this year. I am looking for oil to reach $75 by year end once oil breaks out of this monster head and shoulders pattern.
At the start of this post, I mentioned I had a recommendation for traders who have long futures positions where you feel you are trapped. Do NOT allow yourself to fall victim of holding onto a bad position to keep from taking a loss, or to ease a bruised ego. Like I said earlier, I think we will see higher corn prices into the fall, but strong market fundamentals are the tempest you must deal with. My suggestion would be this.
Sell your losing corn positions, and move the margin money to oil. The margin for an oil contract is $3200, which is roughly double the margin for corn which is $1400. If you own 4 corn contracts, roll them into two oil contracts. The oil will not have to withstand the fundamental pressures which will help depress corn prices.
An oil contract is 1,000 barrels. Every penny oil moves is worth $10. By contrast, a typical corn contract is 5,000 bushels. A penny move is worth $50. What you need to determine is how many pennies of potential are left in your commodity to see if this will work. If corn moves back to $4.00 from where we are today, it will need to rally .84 cents which will be worth $4,200 per contract. For oil to make a move worth $4200, it will only need to go up $4.20. That would have oil only back to around $50.50 That would be my recommendation.