Discussion in 'Commodity Futures' started by Cutten, Dec 22, 2006.

  1. Cutten


    This market looks really interesting right now. First, after years in the doldrums without a major bull market, it finally took off (along with wheat) earlier this year. You then had a bit of a retreat/consolidation, wheat going back below 500 on some profit-taking. However, corn held up very well by comparison, staying fairly near the highs even as wheat traded lower. So corn is acting relatively stronger compared to the wheat market here.

    Now, after this correction in wheat, and corn trading near its highs, you get a breakout today to new highs. Both wheat and corn also went right through the 04 highs earlier this year. Quite frankly I think this is really bullish price action, pretty much everything since the lows of this year is saying corn is in a nice bull market. Add to this the fact that it is not really in the news very much, outside the specialist commodity press. For example, on they do not have a headline today for corn, even though it has just broken out to new highs for the year. And the popular crowd basically hardly knows that corn exists, let alone wants to trade in it.

    So let's recap:

    i) a multi-year basing/consolidation period of low prices
    ii) very robust price action this year, with an initial substantial run up, then a moderate bout of profit-taking
    iii) good strength relative to related markets (e.g. wheat)
    iv) after a period of consolidation for a month, the market breaks to new highs
    v) very little attention paid to the market, the new highs seem "under the radar" and the idea of a major bull market in the commodity is clearly far to the left field

    To me that suggests a trade worth taking. Now, just to do a bit of risk control and contingency planning, let's look at what could go wrong. The main risk here is that it's a false breakout, perhaps just taking out some stops above the market during the holiday season. If that is the case, then the breakout should fail within a few days, and reverse back. So, the logical approach is to have on a moderate position now, and if the breakout holds, add to the position once you get confirmation from the market; if the breakout falls back, sell out and just hold either a small long-term position (if you have conviction on the long-side), or get flat and wait for a proper breakout to occur.

    That looks like a nice and simple plan - right now you can scale in as the breakout develops, or just cut losses quickly on a moderate position if the breakout fails. If a proper bull run develops then you will quickly have on a full position (should be full size by say 400ish if the move continues), if the trade goes wrong then a quick exist can be made on the initial 1/4-1/3 size position. It's a trade where, if you are worng or just premature, you will know pretty quick, with limited risk. And if right, there's nice upside potential - the highs of 1996 around 550 would be the first target, that's a gain of over 40% from today's prices.

    Any thoughts?
  2. Which corn, and why?

    Has the demand picture fundamentally changed? If so, Dec corn might be a better bet (and the chart pattern looks stronger). Or, has the supply picture changed, in which case July corn may be a better bet.

    Your mileage may vary, but buying commodities while looking only at technicals is spooky to me. :)

    Take a look at Cocoa a few months ago for an example why.

    I'm not trying to bias you one way or the other, just throwing out some questions you should be asking yourself.
  3. Im with ya..... gotta love 20/20 foresight. I wanted a move down to 333 before getting to excited about corn. I am not a breakout trader so I am reluctant to chase it in a resistance zone. It looks good though, I just want it to pullback a bit more so I can get in at the sweet spot. Wheat on the other hand is going to the moon.
  4. Neodude


    I've been watching the CBOT corn too. I hope that today's action had some volume behind it, otherwise it might be a trap. Over the last couple of days it was looking like corn was topping off and ready to head downwards.

    With all this talk of alternative fuels I'm wondering how gas prices are effecting corn, especially with the demand for ethanol being so high at the moment...

    Let hope it breaks through the last highs and keeps going.

    Happy Holidays,
  5. soybeans on fire as well today.
  6. Ah! A short term supply problem. You should buy near-term soy as the stocks will be depleted by the fire.
  7. u think so? i dont know this mkt at all but i was tempted today to go long at open...bah.
  8. No, it was a stupid joke about "soybeans being on fire" causing supply disruptions.

    Soybeans do have the weaker fundamental case--theres tons of supply. However, the price is following corn on the feeling that if the price doesn't run up, every farmer will plant corn next year, and no one will have any soy.

    My concern about the Corn runup is that shortage in stocks has been known about since July. There's no surprise that we have the lowest ending stocks in 15+ years, and when we first knew that, Corn was 35% lower than it is today.

    But, don't step in front of a freight train. :)
  9. ahh allright.:D sorry, mst just kicking in.
  10. Cutten


    Just to update in case anyone followed this - I've sold out and am flat after the failure of the breakout, and with their being a subsequent sharp decline too.
    #10     Jan 4, 2007