More Warning Signs of a Market Top, But Bulls Won't Go Down Without A Fight

July 12, 2012 01:04 AM

What Traders are Talking About:

* Bearish reaction to bullish data. USDA painted a bullish picture for corn and soybeans with its Supply & Demand Report yesterday, but futures ended under pressure as initial gains triggered a strong wave of profit-taking. The disappointing price performance included key bearish reversals in Dec. corn futures and Nov. soybean futures. While that's an additional warning sign a market top is near, bulls aren't going to just roll over without a fight. With dwindling supply picture, there's likely to be plenty of buyers under the market on price breaks, but now that the drought is fully "known," it will be hard to attract strong waves of fresh money into the long side of the corn and soybean markets.

The long and short of it: The "easy" money has been made on the long side of the market. Expect increased price volatility -- potentially extreme volatility -- moving forward.

* Hope for rains remains in short-term and mid-range forecast. Forecast models continue to suggest extremely dry areas of the eastern Corn Belt will get rains over the next several days, with some private forecasters suggesting inch-plus rains are possible. But the outlook for the also-dry central Corn Belt isn't as promising, with much of Iowa and Illinois expected to get a half inch or less of precip through the weekend. The National Weather Service forecast for July 17-21 also holds hope of increased rain chances, as a bubble of above-normal precip is forecast for eastern Minnesota, eastern Iowa and the entire eastern Corn Belt.

The long and short of it: If rains actually develop, it would be psychologically price-negative for corn and soybeans markets -- even if the rains don't appreciably improve crop prospects.

* FOMC minutes fail to excite investors. Minutes from the June 19-20 Federal Open Market Committee meeting released Wednesday afternoon failed to spark investor risk appetite. While several members of the Fed Board feel a third round of quantitative easing (QE3) is needed, additional economic stimulus doesn't appear any closer. The next chance for any hint of QE3 will come next week when Fed Chairman Ben Bernanke testifies before Congress on the economy and monetary policy.

The long and short of it: Strong demand for U.S. and German government bonds despite record or near-record-low returns signals investor risk appetite remains tepid amid global economic worries.


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