FOLLOW THE SMART CORN MONEY?
It typically pays to follow the Smart Money Hedgers once they reach an extreme. They don’t always get it right, but they do more times than not. Here’s a theory: If you were to base your portfolio solely on following the Smart Money once they reach an extreme (of course applying risk management, and applying a great deal of patience) your portfolio will most likely be in profit over time.
Anyway back to Corn, let’s look at the downsides, first, off we are back at the September 2009 lows and in a heavy downtrend. The weekly chart shows signs of a ‘Dead Cat Bounce’ in play, which typically are short-lived before the downside resumes. How reliable are Dead Cat Bounces… Hard to say, we don’t often hear that term nowadays it’s becoming unfashionable, but if you can get past the silly phrase it could be used as an indicator for your research I suppose.
As well as the bouncing cat, we are holding below our 200 periods moving average on what I like to consider the more important time frames, 4hr, Day, Week & Month. (since I like to hold Commodities for at least the medium term, up to 12 weeks). Seasonality over the coming few months is also looking suspect, as these are usually (based on a few decades of data) poor-performing months. But I wouldn’t pay too much attention to this as seasonality can be a debatable topic at the best of times.
The upsides to buying Corn (depending on your time horizon) are actually quite convincing. First off the Smart Money is buying, as mentioned earlier it does pay to follow them. And at the same time Retail traders are very pessimistic about future prices, meaning there betting on a further decline. Now If that’s not a buy signal I don’t know what is, especially the latter! Retail traders seem to love getting it wrong at turning points, they just can’t stop clicking that sell button when there’s no one left to sell to or their buy button when they should be back on their sell button. It’s cruel I know, but we need them to keep being wrong. Surprisingly to most novice traders or not so surprising, those 2 fundamental points (sentiment amongst market participants) are what’s actually going to drive prices higher or lower. Personally I’m with the Bulls on this one…
Even so we have to consider the technical outlook. On the Daily time frame, a Bollinger Squeeze is in play, I have to admit I do like a Bolly squeeze as it can help to determine when a particular asset is about to fire. Standard Indicators that work just as well as all the others, such as the MACD & RSI, are showing signs of curling from their bottoms, more so on the weekly time frame, which is suitable for a medium-term hold. On the lower time frames 1, 2 & 3hr all are holding above the popular moving averages, 3, 5, 10, 20, 50, 100 & 200. And on the Daily time frame the 20 period moving average seems to be providing nice support. Just below that 20 period moving average we have trend line support taken from the lows of Tuesday 21st April this year, where prices began to range and consolidate, creating this Bollinger Band squeeze we are seeing. The next major resistance level to watch out for comes in at 327.0 (currently 319.0)
So with all that in mind, what’s the play on this one? Personally I need a little more convincing that now is the time to buy! I want to see it first break out of this range and then will wait to see if an uptrend is established, which usually means waiting further to see if pullbacks create higher lows etc. For the more aggressive buyer, buying here (319.0) provides a good risk management option as your stop loss could be placed below the recent low (Tuesday 21 April) at 309.0 keeping your stop nice and tight.