For Corn Bulls: Money Flow is KING....

Published on: 14:39PM Oct 08, 2014
Corn traders are asking if the recent five-day "running of the bulls" is the start of a longer-term rotation or is it simply one last gasp before the bears place the final stranglehold on the market? Interestingly open-interest has jumped higher since Monday meaning this could be a bit more than simple short-covering.  From a technical perspective we should see fairly heavy resistance just ahead of $3.50 in the DEC14 contract.  My hunch is if we can somehow close above this level there should be more heavy short-side liquidation along with more significant bullish tech interest.  Keep your eye on this key area as the trade prepares to digest Friday's highly anticipated acreage and yield estimate. Most sources inside the trade are looking for the USDA to project about 14.5 billion bushels in total corn production on a yield of around 175 bushels per acre.  Obviously the harvested acreage number remains a BIG unknown.  There seems to be about 2-3 million acres in limbo.  From my perspective this acreage number is a real wild-card. Lets also keep in mind the Iowa harvest is running about three-weeks behind it's more traditional 5-year average. Before you get all bulled up, just keep in mind, generally when Iowa produces big record setting crops the harvest is later than normal. Also keep in mind overall US corn crop-conditons for October are the best we have seen in the past decade.  CLICK HERE for my daily report....
The "Three-Headed Monster" Surprises The Trade - Many inside the trade seem surprised by the recent bounce... but should you really be surprised?  I've been saying for the past couple of weeks that the "sideline" seems like the safest place to watch the game, at least for a few at-bats by the bulls. Theres no question the low-hanging fruit on the downside has already been picked by the bears. Form here the game becomes much tougher.  Below are the three main reasons I suggested reducing your shorts and taking on a more neutral stance: 
 
  • Weather Risk - The market had become extremely complacent in regard to "weather."  We had reached a period of time or rolled into a valley where most all of the US weather risk had been removed from the market and the South American weather risk had yet to become a factor. Hence it seemed as if "weather risk" was clearly to the upside and not the downside. 
  • Short-Covering Concerns - Obviously with record or near record short-positions being established in both wheat and soybeans I started to become more fearful that all parties where paddling form the same side of the boat.  In the past few years this has become extremely dangerous, especially when you consider the horsepower and torque the quant's, algo's and other High Frequency Traders now posses.  In other words a sudden weight shift accompanied with this much speed and power can create extreme unforeseen shifts in market sentiment.
  • New Money-Flow - With many of the largest money-managers putting more funds at risk, specifically into the US stock market, many have accumulated large profits.  In an effort to protect these profits and investments there is talk of increased hedge interest in non-correlated assets.  Meaning some of the larger fund managers might try and protect their portfolio of profits by purchasing the overly depreciated non-correlated weather related assets.  In other words they might find it smart to buy the heavily depreciated corn, soybean or wheat market as a hedge against extreme weather uncertainty or inflationary type concerns. Keep in mind the most heavily depreciated commodities Year-to-Date are Corn (-34.4%), wheat (-33.8%) and soybeans (-26.5%). If they are hunting for bargains these three might stick out like a sore-thumb?  CLICK HERE for my daily report...
Summary, money-flow is always KING, and in today's markets you have to recognize when we are starting to approach a more extreme top or bottom. Make sure you understand what I am saying here.  It's not when we reach the bottom or top, it's when we feel we are approaching an area that could be considered the bottom or the top. Once we have identified that we are entering or approaching this area we have to more closely start monitoring "rotation" and "money-flow." There are simply so many moving parts and various strategies being used by today's investors that we have to understand and keep one eye constantly on the much larger macro picture and specifically how the larger money-magers are using or viewing the commodity markets.