The technical aspect of corn!

Published on: 08:30AM Jul 17, 2008
Today I want to talk about the corn charts. Since June 27th the market has experienced a 12 day break which has netted the shorts a $1.34 gain, not bad! If you look at the May 29th rally of $5.9975 low to the June 27th high of $7.96 for $1.96 in 22 days, which 68 cents of the gain has been taken away in 10 fewer than days. This is why many say the bears make money faster when the event occurs. Now that the market has broken 50% level of the June rally we are forced now to look for more long-term technical support levels.
The first noticeable level would be the 6/4 to 6/5 breakout event or “gap”. The bottom of the gap is $6.435 and the top of the gap is $6.505. This I would suggest will be the next level of support for Dec 08 corn.  If this level is broken due to long liquidation because of expectations that corn yields are improving closer to the 152+ yield and the continued concern about cash flow liquidity of the financial sector, one has to suggest major long-term support will exist at the March to April lows at $6. These levels I believe will not be breached until:
  1. There is solid confirmation that the flooded acres were not as bad as anticipated and yield response has been confirmed above 152 bushel. It is my bias both of these factors can really be confirmed until we are well into fall and by then the market will be looking forward to the winter markets.
  2. The bigger wild card that could force the market below these levels if we start see a melt down in the financial markets worse than currently seen along with a sharp and sudden break in crude oil.

Conclusion: Tomorrow will be 13 days down, an excellent time count for a blow off bottom. If we don’t hold, then one could easily expect another 5 to 8 days down which gets the market into an 18 to 21 down count. The SSTO indicator which reflects overbought and oversold status suggests we are now moving into ranges where it will be difficult to maintain this aggressive pace of selloff. Finally, I know you will tell me I’m crazy but we are going into a full moon, and it’s been my observation people get crazy around these times. With emotions over charged there is risk the market could overshoot the correction. On the expected technical bounce off this selloff I would suggest it will be difficult getting Dec corn much more than 1/3 of the correction or some place between $6.90 but not over $7.
As for how far we can go down? I really feel that over the next 5 to 8 days the odds are more than 70/30 in favor of at least trying to test the gap.  One should be preparing one’s self for a sharp bounce off the lows once this market tests the $6 to $6.30 level.
Will we come back to the old highs?  As I suggested yesterday it all depends upon the final acreage and yield figure and how stable the economy remains. My bias: The supply side is going to be tighter than current estimates but frankly the odds of Dec 08 corn making new highs now is more than likely less than 20%. The real potential for corn to move back to the highs will be in the Jan to March time period when we have to keep prices high to assure planted acres.
Should you sell it today?  Based upon the chart analysis I have to suggest there is about 50 cents of downside opportunity but my gut tells me it’s getting very late in the cycle to really try to press for short gains. Instead I want to get started around day 18 (July 24) to day 21 (July 29) down off the June high of getting prepared to buy feed needs for most of 2009 and start getting long calls in the July 09 in place to enable clients to sell 2009 corn in the Jan to March time period of 2009.
If you want to go over details or would like to read more daily recommendations regarding reownership or marketing strategies, email me at [email protected] or [email protected].

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