Agriculture commodities have been in a bull market for the past 8 months. For most of that time, it seemed this rally would never cease as it ignored all seasonal price tendencies. Price has been consolidating now and actually lifted following the March Acreage report but appears to be running out of steam. Corn can't seem to hold price above $6.00. Corn prices are currently the highest they have been since 2013 when prices exceeded $7.00.
Moore's has a May corn short that has been profitable 15 of the last 15 years in mid-April.
We know that seasonally speaking, it is normal for corn to have a strong weather market that sends prices higher in May and June but first, according to Moore's we usually have some profit taking before that happens. Sentiment Trader also confirms that it is normal to have a brief lull in price near the end of April.
Corn formed a swing high last Friday giving a sell signal. As you can see on the image below, corn is overbought on the stochastic and falling from overbought levels on the 5 day RSI.
The May corn contract will give a sell signal once it drops below 200. This could happen Monday.
The weekly chart also shows corn as being very overbought.
The large speculators currently hold more long positions than they have since 1995. They won't have to liquidate many positions to create a pretty scary drop in price.
The optimism index shown below is presently at 82. The last time the corn optix was this high was during the peak of the 2008 commodity bull market when corn exceeded $7.00. The optix is actually higher now than it was in the 2011-2012 grain bull market. Last fall on October 27, the price dropped .225 after the optix peaked at 79. Again on November 27 the price dropped .1575 after the optix peaked at 81. On January 13, the price dropped .1575 after the optix reached 90, and on February 8, the price dropped .3275 after the optix reached 88. On Thursday, the optix peaked at 87 just as the price made a swing high. This means we got a sell signal near the close on Friday and there is a very good chance that price has begun its decent.
We look to short May corn at $591. As overbought as corn is, a .30 drop to the 50 dma would seem reasonable. There is no other support on the chart between where the price is now and the 50 dma which should be near $55775. .A drop to this level would be worth $1,662.50. We will place stops above the swing high price at $6.02, meaning we are risking $550 per contract which gives this trade a 3-1 risk reward ratio. The margin on a corn contract is $1,650.
We don't expect to be in this trade past the end of the month. We suggest keeping the position size small.
We are looking to buy the Australian dollar to start April. The Australian fiscal year runs July-June. The Australian dollar has tended to make a bottom in late December, rally into the first month or two of the year, and then trade sideways into March before rallying into mid/late April. This segment of that seasonal trend has been particularly reliable. The trend for this year does not fit the exact scheme of previous years but does give us a good setup. Price did not bottom in December as it usually does but did have a strong rally for the first 2 months of the year to reach the 2021 high on February 25th before dropping into a sideways choppy consolidation for most of the month of March.
Moore's has the June Australian dollar as a buy on April 4th, with the trade being profitable 15 of the last 15 years and an average profit of over $1,100.
According to sentiment trader, the best month of the year to buy the Australian dollar is in April.
Many things are supporting this rally, weakness in the US dollar will be a large driver. Positive economic data is being reported in numerous reports, especially jobs data coming in 300,000 above expectations last week, and a $2.25 trillion infrastructure plan will have a largely negative impact on the USD with many reports suggesting this is the first of two $2 trillion dollar infrastructure plans. A strong dollar is not going to be good for an economic recovery so monetary policy will continue to be eased and the value of US currency will be negatively impacted, providing support to strong currencies like the Australian dollar where they have harder monetary policy and are know for having higher interest rates in place to combat inflation.
Using Fibonnaci retracements from the 2021 high to the current low, we can estimate a price rally near the 61.8% retracement level of 0.78269. We will look to enter the June Australian dollar at 0.763. This rally would be worth $1,969. We will place stops below the recent low at 0.753 risking $1,000, a 2:1 risk reward ratio. Margins per contract are $1,980.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.