Hard to believe it has been over two weeks since my last post. There have not really been any sort of movements to comment on. The February unemployment report came and went and brought with it a small bounce in the dollar like I suggested it might. It was just enough to break the daily cycle trend line but as of this writing does not appear like it will close above it. None the less, it does confirm that a new daily cycle began on February 2, and will likely proceed in a left translated manner. This next cycle should break the intermediate trend line around 98. I hope to have sold significant amounts of physical corn and soybeans by then ahead of the planting intentions report.
As I have been warning, the dollar is declining into a multi year cycle low which probably will not bottom until sometime this summer. Fundamentals and weather will dominate the grain markets at that time, but for now, as long as the dollar continues this decline, grain prices should continue working higher.
This trade has nearly worn me out. Some of my brokerage customers had stops triggered and declined to re-enter. I have been sticking it out, and was happy that oil finally appears to be breaking down. Its really been the safest position to trade, although I have been talking this for nearly two months now. According to Sentiment Trader, oil is at the highest risk of any major asset they follow. I expect oil to move into its yearly cycle low.
The besides the emotional strain of shorting an asset which just won't move lower, the real consequence is that it allows extreme bearish sentiment to be less extreme. It allows the moving averages to catch up, and it lessens the profit potential of a trade. This trade will work, but the time it is taking to develop has taken some icing off the cake. Thankfully, there is still plenty of cake. The time has probably cost this trade a dollar, which is 5.6 cents per bushel of the synthetic corn position.
Today, the December corn contract closed at the highest level since June 27. We now have a contract which has broken (barely) above its congested trading range of the past month. It has also closed above its 200 day moving average. Technically, corn appears poised to make a bit of a run. I said last month that the decline in the dollar would reward corn with a nice pop. This will be the pop.
I said a pop, not a bang. I really don't expect something crazy here, but an advance to the 78.6% Fibonacci retracement seems reasonable by months end. That would be at $4.09.
When corn reaches that level, we may have extreme bullish sentiment, but we will certainly set up a sell signal with the CCI.
I recommended selling March wheat puts back on December 7 and collecting .35 in premium. To keep all the premium we collected, we need wheat to close above $4.30 by February 24. This was done in a synthetic way to boost revenue for corn.
It is hard to believe, but there is still room for soybeans to move higher from here. I suggested back on November 28 that $11 soybeans were not out of the question. Sentiment readings are presently at extreme pessimistic levels. If November bean prices can break above $10.40, they would only need to run 56 cents more and we will be at the next Fibonacci level, and there is no resistance between here and there. Again, the drop in the dollar is all the fuel soybeans need to do this. Speculators do not like being on the wrong side of beans when they begin a rally. If you have not sold any beans, just stay put and see if this develops.
If you followed my recommendations to the letter thus far, you would be 50% sold at $10.05. With the conditions which I just explained, I would rather not be sold at all, so I am buying back my sales on paper using a bull call spread, and I am recommending that you do this as well. I am recommending buying the $10.60 call and selling the $11.20 call. This is a non marginable trade which will cost around .15. The maximum gain on this position would be .45 net. The position would expire March 24, just ahead of the planting intentions report. If the position maxes out, it would get your 50% sales price increased from $10.05 to $10.50.