Corn futures sank to a two-week low this week from the forecast of showers in Argentina. Pressure also came from expectations that the index funds will rebalance their long corn position this month, which may involve selling up to 175 MB. Last week, the trend following funds increased their long corn position 65 MB to 1.720 BB, while the longs of the index funds rose 15 MB to 2.250 BB. Right now, the problem that I see is that too many traders are bullish commodities. This is evident from the sentiment index showing that 81 percent of traders are bullish corn. A reading this high usually forewarns of an impending top. Last week, sentiment was at 85 percent. In other developments, export inspections were a paltry 15.6 MB. However, it was a short week because of the holidays. Next week, the crop report will be released on January 12th.
March corn peaked last week at 634 followed by pullback to 600.25 on Wednesday for a decline of 5.3 percent. The poor close on Thursday indicates that prices could back off to 588. Previous comments have mentioned that the potential exists for a rally to 650, or possibly 680. However, we cannot fall much below 588 for this to happen. If prices are above 634 after the middle of next week, be alert for a top. Otherwise, it may be during the third week of January. As I have said before, the patterns of the daily, weekly and monthly charts point to the market being in the final stage of its advance from the June low of 356.75. With the CRB Index now above its 2008 high, it suggests that the next important top in corn could be a multi-month or a multi-year high. Next week, the odds are 60 percent that March futures will be lower.
Soybeans stumbled this early this week from moderating conditions in Argentina and the recent strength in the dollar. However, traders are unlikely to abandon their bullish stance. Last week, the trend following funds added 40 MB to their long position increasing it to 780 MB. This is only 20 MB short of the record set in November. The longs of the index funds stand at 975 MB, which is 30 MB short of their record. Currently, eighty-five percent of traders are bullish soybeans compared to 93 percent a week ago. A reading in excess of 90 percent is a red light flashing and forewarns when sentiment has reached the status of a speculative bubble. In other developments, export inspections were below estimates at 20.1 MB. However, business was down because of the holidays. China took 13.4 MB or 66 percent of the shipments.
March soybeans made a short-term top last week at 1409, which was followed by a setback to 1357.5 on Wednesday for a decline of 3.6 percent. The market rebounded to 1398.75 on Thursday and should find support at Wednesday’s low followed by 1345. Currently, the wave pattern shows the potential for a move higher to 1440, 1460, or possibly 1495. If we trade past 1409 after the middle of next week, be alert for a top. Otherwise, the wave pattern shows that it may be during the third week of January. Be advised that for the reasons mentioned in corn, the next important top in soybeans could be a multi-month or a multi-year high ending the advance from the low made last June at 906.75. Next week, the odds are 60 percent that March futures will be lower.
Concerns of tightening global stocks caused by massive flooding in Australia have supported wheat. The reduction in their supply of milling quality wheat should swing more export business to the U.S. Meanwhile, the market lost its traction early this week and backed off. While problems in Australia are bullish, the news may be getting stale. In other developments, inspections last week were a marketing year low of 10.3 MB. Currently, the trend following funds have blown out of their short position and are now long 10 MB. The index funds are long 1.060 BB.
After peaking at 825 last week, a target mentioned in previous comments, March wheat fell to 776 on Wednesday and turned up. Unless we fall below this level, the wave pattern shows the market working higher to 845-855. If the high made last August is exceeded, prices could climb to 890. Cycle analysis shows that an important top could occur during the last week of January which has the potential of wrapping up the advance from the low made back in June at 505. Next week, the odds are 60 percent that March wheat will be higher.
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Comments and suggestions are provided for information purposes only. Information contained herein is obtained from sources believed to be reliable but not guaranteed to its accuracy or completeness. Readers using the information contained herein are responsible for their own actions. No presentations can be made that recommendations will be profitable or that they will not result in losses. This information is neither an offer to sell nor solicitation to buy of the commodity futures mentioned herein. The writer may be trading in the commodities mentioned.