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CORN – Dec ‘09 Electronic
Open – $3.30, High – $3.37 1/2, Low – $3.22 1/2, Close – $3.26 3/4 Down $.08 3/4
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Yesterday I said: “One would or could almost get excited by today’s action but I think it is just a head fake. I have two possible sell signal setups for tomorrow’s session in corn. The first is if we gap higher tonight (open above $3.35 1/2) then there is a sell signal at $3.35 on a STOP order. The other is if we take out $3.35 1/2 either tonight or tomorrow and then another sell signal will be produced at $3.35 STOP. Both signals are conditional and need the market to do the things I described before the signals actually generate. The protective risk management buy stops should be $.02 above the most recent high at the time the sell stop fills.
Since 1989 there have been 10 years the market has closed higher on Sep 1st than it did on Aug 15th and there have been 11 years that it hasn’t. So far we are on pace to close higher on the 1st than we did on the 15th just like we did in 2004 when we had a record crop. The Dec futures closed $.14 1/2 higher on Sep 1st 2004 than they did on Aug 15th, 2004 and the market just faded away from there.
I delta hedged our position on Friday because we had some long Sep puts that were going to expire and I didn’t want the full downside exposure of the corn market therefore I delta hedged our position. This position still gives us some upside protection in the event the market rallies hard but it protects us in the event it moves lower as well. I wanted to note my position as I am talking my position today but I would talk about something I didn’t believe in.”
Dec ‘09: Only one of the two sell signals I talked about yesterday were actually good. The second signal I talked about was the one that sent the market lower today as we made a new high above $3.35 1/2 and then proceeded to move lower from there. Once we made a new high above $3.35 1/2 the sell signal was generated at $3.35 STOP with a risk management buy stop at $3.39 1/2 stop. We are still neutral the corn market at this time and will look for reasons to be otherwise long the market but for now there isn't much out there other than the potential for a frost.
If the sell signal that was generated today is text book we should see another move lower tomorrow and possibly test the contract low of $3.11 1/2 in the near future. I don't have a good feeling about corn and if we make a new contract low and close below it I am looking for corn to reach the $2.60ish area basis the Dec '09 corn contract.
Bottom line: I am looking for the market to experience an early high tomorrow and weaken as the day progresses.
Dec ‘09 Corn – Support/Resistance for 08-26-09
(R3) Resistance 3: $3.37 1/2
(R2) Resistance 2: $3.30
(R1) Resistance 1: $3.28 1/4
Today’s close: $3.26 3/4
(S1) Support 1: $3.22 1/2
(S2) Support 2: $3.20
(S3) Support 3: $3.17 1/2
MEAL – Oct ‘09 Electronic
Open – $306.90, High – $314.90, Low – $303.60, Close – $308.50 Up $.50
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Yesterday I said: “Similar to corn today looked like a great day on the screen but I’m not fully behind this move just yet. I will be if and when we break through the downward trend-line around $318.00 but for now I think we are just trading the weather forecasts and the potential for a frost which is building some premium back into the market. What usually takes place and what is hyped are typically two very different things.
As of Friday we are neutral the soybean meal market and are looking for a place to re-enter through a known risk strategy. I exited our long $320 Sep calls on Friday morning and will look for a place to get long the market via an option strategy. Most of the market action for the next few weeks will be fear and weather driven and the weekly Oct ‘09 meal chart is beginning to show a wedge pattern that would suggest a major move in one direction or the other is pending. The market needs to break out of and close above the down trend-line or below the up trend-line. I am looking for a turnaround Tuesday tomorrow.”
Oct ‘09 meal: It looked like another day off to the races early in the session but the market failed to hold its gains. The high in soybean meal did come early today as thought and made for kind of an ugly close. I am not overly excited about getting aggressively long but on a break in price I will be actively looking to retain ownership of an option strategy because of the wedge formation that is building in the weekly chart. The wedge pattern suggests a big move in one direction or the other is coming so we need to make sure we are prepared for this potential move if it happens.
I am looking for meal to find continued weakness tomorrow and support should be strong around $303.60 but if we get below that we could see some sell stops trigger and propel the market lower. If you need coverage for meal look at using a known risk strategy to give you upside potential.
Bottom line: I’m looking for the market to experience an early high and late low tomorrow.
Oct ‘09 Meal – Support/Resistance for 08-26-09
(R3) Resistance 3: $315.10
(R2) Resistance 2: $312.90
(R1) Resistance 1: $308.30
Today’s close: $308.50
(S1) Support 1: $303.10
(S2) Support 2: $301.60
(S3) Support 3: $300.00
HOGS – Oct ‘09 GLOBEX
Open – $46.825, High – $48.80, Low – $46.80, Close – $48.30 Up $1.475
Thoughts – Long Term (into December) – Negative
Yesterday I said: “Oct ‘09 hogs had a sell signal at $48.00 stop today because the market gapped higher than Friday’s high on the open this morning and then traded back down below Friday’s high of $48.00. This signal is the same as the potential signal I talked about in my corn comments that is set for tonight. The noon cash report was relatively negative but came in mixed this afternoon. There hasn’t been much change in the cash market other than it isn’t tanking nor is it taking off to the upside, it’s just hanging out.
I hate to say it but I believe today was the beginning of another leg lower in the Oct ‘09 hogs. The corrective rally we had last week was nice but today just put the cap on that move and turned things ugly from what I look at. This move seems to happen quite often when we get a rally the market gets too excited, gaps higher and then pukes. There has been very little change as to why we should think the market should rally, there isn’t much of a reason at all other than it is historically low when you look at producer margins.
I don’t like the market at all in here, it looks like we could see another move lower and I think we should challenge our Oct ‘09 contract low of $43.05 and eventually break into the $30’s. This year correlates with the years of 1998 and 2002 which if you can remember made its ultimate low on 09/01/98 and 09/03/02. It is interesting that the same signal that we got today to sell the market is the same signal that bottomed the market in both 1998 and 2002.”
Oct ‘09 hogs: I am surprised to see the market move as high as it did today with the cash news still coming in within a range and no shortage fears on the end of the packers. The market rallied early today and held firm once the noon cutout report stated that hams were sharply higher at $5.00 higher and ultimately came in $7.11 higher at the end of the day. The higher hams allowed the pork cutout to be $2.51 higher on the day, however, the market was anticipating this today so be careful tomorrow.
Once the pork cutout number was released this afternoon the market popped higher but then we saw some offers come into the market selling it. I am not going to read that much into it but it is interesting to see how this seems to happen. The Oct '09 contract has now setup for another sell signal tomorrow if the market moves above $48.85 and then a sell signal will be generated for $48.75 STOP with risk management buy stop $.50-$.75 above the most current high. It is my belief that the cutout number was mostly factored into today's trade.
It seems to me that if there is a need to hedge, now may be a good time to look at a limited risk strategy because I believe the Oct '09 contract is looking for a top in this area and setting up for another move lower in the near future.
Bottom line: I’m looking for the market to make an early high tomorrow.
Oct ‘09 Hogs – Support/Resistance for 08-26-09
(R3) Resistance 3: $49.86
(R2) Resistance 2: $49.075
(R1) Resistance 1: $48.85
Today’s close: $48.30
(S1) Support 1: $47.50
(S2) Support 2: $46.675
(S3) Support 3: $46.00
(S4) Support 4: $39.64
(S5) Support 5: $35.275
(S6) Support 5: $29.40
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