April 1, 2016
Upside Explosion Looks Imminent in Wheat
That’s the look to me…There are four charts here…and that’s pretty much it.
We’ve had a crop report this week so all the supply numbers are now known…for the umpteenth time…and I am going to remind you again that pretty much every grain bottom in history was accompanied by big piles of product…And then also tell you that those “big supplies” are the reason why prices have ALREADY reached current levels…and as hard as it may be to believe, have NOTHING to do with where prices go from here…nor do those supplies imply that, as I’ve heard from any number of farmers, “it’s going to be a long time before this stuff can go up.” BELIEVE ME. BIG SUPPLIES HAVE LONG SINCE BEEN PRICED INTO THE MARKET…WE ARE TRADING THE FUTURE…NOT THE PAST OR THE PRESENT…How many times do have to see it? Where you’re a farmer and just totally bummed out by current prices, and all the talk about “big stocks”, and thinking “No way the market is going up any time soon”, and the next thing you know Beans are up $2-$3 or a few bucks in Wheat? Really. HOW MANY TIMES DO YOU HAVE TO SEE THIS TO KNOW THAT YOU BUY THIS STUFF WHEN EVERYBODY HATES IT?
As I’ve written for years, the markets are more of a giant mob psychology game than anything else…and price swings are more a function of traders (large, small and commercial interests) getting in AND out of the markets…with a LOT of the action being determined by which way the wind is blowing with Large Speculative Traders (funds), which are NOT, as one might suppose, a pack of futures trading gurus. For sure, there are some superstars out there, but believe me, just because you have a big wad of money to manage does NOT mean you know what you are doing. I literally could not even begin to count the times I’ve seen the funds get their wallets obliterated…Which is precisely why I think the Wheat market is fairly set to explode on the upside…and by explode I mean we could easily see something like a $1.50-$2.00 move within a matter of weeks or a few months.
The bottom line is the funds have been shorting Wheat for months…and have lately, I believe, made the mistake of piling far too heavily into that short position, and with Wheat having recently shown signs of turning around (up about 30 cents in the last month), I think they are now “trapped” in an incredibly large (RECORD LARGE) short position, that, from what I can gage, could only be about break even…or even already sitting on losses…And with this in mind, and Wheat now slightly UP for the year as we end the first quarter, I think the odds of a blisteringly big, fast short covering rally (where the funds have to ‘Buy Back” all their shorts) have really gone through the roof...
Here’s what it looks like to me…Decide for yourself what YOU think is coming next here…and I DON’T mean 6-9 months from now.
And as I’ve pointed out before…and you can see it just by eyeballing the chart above…there has definitely been a frequent correlation between heavy large spec short positions and vigorous rallies in Wheat.
Here’s the long term look…Even when we were trading at much lower levels, $2.00 moves were almost routine…
And here’s what the money and numbers look like in this idea…I think this is big leverage…AND if there IS any further downside left here, it won’t take much of a move to be able to recoup 100% of what you spend…and then reposition at even better prices.
This ain’t pie in the sky guys…These ARE great numbers…and this thing CAN move just as quickly as I’ve drawn it…Doesn’t mean it will but it definitely can…and WILL I think.
And I do think this is immediately ready…so if you’re thinking the idea makes sense…do call me this weekend or Monday.
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The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Wheat