Some Thoughts on "Short Term" Market Direction
Jun 12, 2011
I wanted to mention that I have been speaking with several producers as of late who are asking me about my "short-term" thoughts regarding market direction. It is of my opinion that prior to 2008, short-term price direction in "individual" commodities was a game that could be played, and played very well by some. Fundamental or Technical analysis of a particular commodity such as corn would be targeted by veteran traders in an attempt to predict short term-cycles or market "blips" on a regular occurrence. In today's world I have become more of the opinion that this type of analysis is no longer effective. If you are following anyone that thinks or believes they can predict such random movements, I urge you to heed my warning. Sure, I throw my hat in the ring each day and give it my best shot, not because I believe it is the best way to trade, but because everyone has been conditioned and trained to think in short-term intervals, therefore this is what readers want to see. I know I can not change the way you have been conditioned to think about the markets, but listen closely when I tell you that trying to predict "short-term" direction is a losers bet. Markets no longer exclusively react on individual merit. Each individual market is now linked to a massive web of ancillary markets that can tug, pull or push the core market in any direction at any given moment. Markets are no longer subject to domestic issues such as simple supply and demand numbers or technical indicators such as moving averages or trend lines, but rather global "macro" type events that can change in the blink of an eye, trigger domino type reactions that splinter into hundreds of individual dynamic moving parts. These parts are juggled gracefully each and every day as the markets attempt to keep this house of cards intact. As the parts evolve, take on new life, change directions, or as new parts enter and old ones fade away, the markets are in a constant state of change. Taking a long-term approach is what has enabled me to have success the past several years while others have been left scratching their heads. Predicting a "top" or a "bottom" in this type of environment is a complete joke. There are simply too many moving parts. Traders today have to paint with broader strokes to enjoy the fruits of their labor. Jumping in and out of positions is as random as tomorrow's trade action. Sure, you might see some short-term success, or should I say luck, but over the course of time the markets will certainly win out. No one knows for sure where these markets are headed, that is why I urge you not to get caught up in the day to day price action or specific selling points. I hate it when I hear a producer tell me they were $0.02 cents from pulling the trigger and making a sale, then all of a sudden the markets broke and never came back. Seriously, do people honestly think they can accurately predict market direction and the specific price and point that it will turn. The way to play the game is to view the bigger picture, if you think the tides are turning make some sales. This is why I suggest getting yourself to at least 50% sold at these levels. No one can assure us that prices are going to go higher form here. By selling 50%, you have essentially eliminated half of your risk and ensured good profits on this amount. By having a floor in place on another 20-30% you have eliminated even more downside risk, and ensured even more reward. The name of the game is "risk-management"...reducing your overall risk and securing profits. This is not the "Psychic Friends Hotline." Yes I believe prices could certainly go higher, that is why I am only 50% sold. You need to understand however, several things need to fall into place for the market to actually trade substantially higher from here. Without having a crystal ball, I am left to only "hope" these things might actually happen. Unfortunately "hope" doesn't pay the bills or put the kids through college, therefore I believe the most prudent and sound advice is to play this game from a long-term perspective, reducing risk and locking in profits accordingly when the market presents these opportunities. Trying to play the short-term movements, in my opinion, is a thing of the past. Reducing your size, managing your "risk" and taking a longer-term approach is the only way I see to navigate in these volatile waters.
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