The Futures / Inter Market Report

Trading the World’s Markets                            

July 11, 2008

                                            
Matthew Caruso, CMT                                  
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Corn at seasonal sell off – Updates 1, 2 & 3

I have an article which has been published in the July issue of Stocks & commodities magazine. It is entitled “How to hedge against a bear market”. Perhaps you may find it to be of interest.

            With so many markets breaking out in the past few weeks, it is hard to find a market that isn’t yet extended from its breakout point. At least a good part of the recent action was anticipated here in prior to it occurring. This week I want to take the contrary opinion to what most people are thinking. Although corn is in an incredibly powerful uptrend, there are several reasons to believe that the trend needs a correction before it continues. Of course, price will need to confirm this before any action can be taken.

            What really has me looking for a decline is the very reliable seasonal sell off that occurs at this time of year. Mother Nature puts pressure every year at this time as indicated with red arrows in figure 1. The extent and length of the sell off is not necessarily predictable, rather it’s this general time frame that is bearish. As well, commercials have been consistently selling into this uptrend and are holding a rather large short position. Their position adds some credibility to the thought of a traditional seasonal decline occurring this year. As well, my sentiment indicator just reached a bullish extreme at the highs in the market and is yet to get bearish. Despite all these potentially bearish points of interest, corn is still in a very strong up trend. We will now take a look at what point that would change.

Figure 1 chart by genesisft.com

            It is very likely that the recent up leg in corn was a parabolic blow off move. As you can see in figure 2, the daily ranges greatly increased as is typical in a blow off move. Also, once the short term up trendline was broken, corn went limit down – displaying the strong potential selling pressure. However, this main market up leg which began last October is still intact.  A break of the up trend line in figure 2 would be needed to confirm the top of the bull leg up. At the very least a series of lower highs and lower lows would be necessary to begin shorting corn before a break of that long term up trend line.

Figure 2 chart by genesisft.com

Update 1 – British pound

Last week I presented the idea that the pound could climb after an initial test of the channel break out. This week that came into fruition.

Figure 3 chart by genesisft.com

Update 2 – Gold

Two weeks ago- after giving several reasons for Gold’s uptrend to resume, it exploded higher. - http://tradesystemguru.com/content/view/191/58/.

Figure 4 chart by genesisft.com

Update 3 – Copper

The original idea presented for copper 3 weeks ago was for a June rally. Almost like clock work, Copper collapsed at the start of July after a nice up move in June.  - http://tradesystemguru.com/content/view/190/58/.

Figure 5 chart by genesisft.com

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