Concern is the name of the game
Jan 07, 2009
Right now the name of the game is concern in regards to inflation due to the anticipated massive government spending. Essentially, a lot of big money is looking around at low yields on interest rates, a stock market that is very nervous, dropping housing values and uncertainty about land values. When investors look at their alternatives they have decided to invest a lot more into the commodity sector. They simply point to last year and say why not again this year!
This all sounds good and even feasible on the surface but I have to say that unless the underlying fundamentals are solid, it will not be able to sustain a rally. Granted you can have a bubble and drive out all the shorts but eventually there has to be a reason for the market to rally.
This concern about the market is getting a little ahead of itself and I believe it all came back into focus today. While we did not erase all of yesterday’s gains we did work off a lot of the overbought status. I have to suggest there is a strong tone of wanting to buy breaks right now than wanting to sell rallies even after the amazing rally we have seen in corn and beans over the last 30 days.
I still suggest that the January USDA Supply and Demand report should be bearish for corn but bullish for beans, but the final push—The question obviously is which is more important? I believe for corn long-term upside potential we really need to keep prices on the defensive in January and February. This will give more incentive for larger bean acres and smaller corn acres. We could see a big payoff for to store corn later 2009 to 2010. I feel all short term traders who are now speculatively short should be very careful, a close now above $4.28 would be a clear technical breakout. As for hedgers it may be prudent to put on a short term February corn call which is called a serial call. I would hold for the reports, if the market rallies you are ok. If it breaks as I am suggesting, take off the calls at a modest loss.
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