My Explanation of the "Blow-Off Top" in Grain Prices
Aug 26, 2011
If you aren't yet getting my daily report, I spent the last couple days discussing the various "fundamental" reasons about why I thought grain and soy prices could continue higher, however, one thing I didn't mention was a simple "trading" tendency that still has yet to occur, and leads me to believe a push to higher ground may still be in the cards. There is no "guarantee" of this taking place, but in all of my years, most all "Big Bull" commodity markets tend to end with some type of "blow-off-top." Simply meaning they take one last deep breath and explode beyond most anyone's previous expectations. Just look back at all of the big bull markets of the past - Crude Oil, Silver, Cotton, Gold as of late, all have contained massive "blow-off-tops." I consider this a period where everyone sits in disbelief and doubt as we continue higher and higher. During these periods the "Bears" simply are not willing to short the market, and there is a type of frenzied, or should I say panic buying in the air. This tendency generally happens in commodities rather than stocks, because of the "fear" or thoughts associated with lack of supply. Stocks on the other hand tend to have what I call "blow-off-bottoms." Stocks seem to have more methodical type gains, and "fear" is more centered around thoughts of a market type crash. This is when traders panic and frenzied type "selling" takes place. In both markets the final massive push however is driven by "fear" and fear alone. In commodities, it is the "fear" of running out, or the fear that not enough "supply" is available. For stocks it is the "fear" of a market crash. With this being the case, and if this theory is correct, then we still need to see a "blow-off-top" in the corn and or soybean markets. Up to this point it seems that each new high is met with some type of new hurdle, and a slight set-back occurs, followed by yet another new high. Sure, we have taken some hard hits along the way, and the markets have certainly tumbled, but we have continued to bounce back without the help of any extreme "blow-off-top." I am not sure when this "blow-off-top" takes place, and or how high prices will go. Just make sure you recognize this phenomena when it occurs, and do not have your blinders on or mistake it for some type of free "magic carpet ride." This price action will be your "sign" to get off the bus in an immediate hurry!
Understand, each and every day that we work higher I become increasingly more nervous, as once again it seems that ever sailor on board is only looking over the bullish side of the ship. Each and every time this has happened during our current bull run, the markets have somehow found a way to break. Yes, we have rallied back, but the breaks were painful for many in the process. We all know we have once again reached this critical tipping point. Almost every trader, or advisor I know is leaning over the "bullish" side of the ship. The question now becomes if we can keep this big ship on plane, or we end up throwing a few men overboard. Just remember, high frequency traders and fund mangers can quickly rock the boat in one direction or another when the "outside" markets start being questioned. In case you hadn't noticed the "outside" markets are once again being questioned, so make sure you have your life preserve on hand and secured. I am NOT bearish! I just want you to know that a 10% correction could be seen at any point right now, especially with everyone one on one side of the boat.
Longer-term, as producers we also have to be prepared....
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