Fund Liquidation Hits the Grains: Are the Fundamentals Gone?
May 05, 2011
A WILD Ride in the markets today as the larger funds continue to close out long positions in massive amounts. You have to believe spill over pressures and rebalancing has certainly made its way into the agricultural markets. During the past 10 days alone, I have heard open interest in corn has dropped by close to 150,000 contracts (equal to about 750 million bushels). I am telling you now it is tough for any market to mount a rally with this type of liquidation taking place. Just take a look at what the liquidation has done to the silver market the past couple of days...unbelievable! In similarly astonishing fashion, crude oil had almost a 10% drop, down close to 10$...WOW! Ever since Bernanke and the Fed made their post-game announcement last Wednesday, and the end of QE2 becomes more of a reality the big boys have started taking their chips off the table. You can say what you like, the numbers don't lie. Despite this strong liquidation, I truly believe corn and perhaps even wheat have a strong enough story to carry them through this storm. Adding more weight to the downside, are thoughts inside the trade that consumers who will not be able to trim gasoline usage will be forced to make cuts to their budgets in other areas. Several now thinking the areas that may see the first cuts could be the higher end protein foods such as beef and pork. Copper, cotton and sugar are also seeing concerns arising in terms of demand. If you haven't signed-up for my daily commentary, you need to. I have been writing in the report for the past two weeks and will continue to say it... "Money-flow is coming out of the commodity markets!" There is uncertainty in the air in regards to what happens to commodity prices in the short-term. I suspect money flow to pour back in at some point, the question now becomes how long does the exodus last and how long will the big boys who have left the trade sit on the sideline? This is exactly why I wanted you to get yourself 50-60% sold, and into a more risk adverse and manageable position. Now we can hunker down and patiently wait for money-flow to return or another bullish scenario to unveil itself. All I can say is try and hold on while the big boys play the game and move the money.
*Until money-flow, rebalancing and fund liquidation eases you absolutely should not be buying strength or adding to any types of rallies. The big boys are currently using the rallies to exit...not to add!
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