April 14, 2022
Part of this job is to sometimes just look stupid…and feel that way about yourself…And sometimes to look smart…But the bottom line is that my having recently been either of the two ever predicts which “look” comes next…And quite understandably, there is a natural tendency for people to follow my recommendations when I’ve been “smart,” and to ignore me when I have been dead wrong…As a result, what often happens is that as I continue standing by my “wrong/early” opinion, sounding something like a broken record…when the trade finally DOES “get there”…when the odds for success, and the profit potential, have gone sky high, only a handful of guys (the old guard who have been there before) are usually ready to step up…one more time…And those are the people who make the bucks when I become “smart” again…And no, this does not mean my SHORT THE CROPS idea is definitely about to work, but I DO THINK WE ARE THERE…that every possible bullish “factor” IS already priced into the markets…which IS why they have already reached stratospheric levels…And, like every commodity bull market ever, sooner or later they DO get clobbered.
The truth is, I think the top in Corn and Soybeans was being made…until Putin’s bloodthirsty invasion…but has been delayed due to Russian and Ukrainian possible crop acreage losses, as well as the Black Sea being shut down as an export route to the West…with the result being that one more “leg up” has taken place in both of these markets. BUT…in the way of the FUTURES markets, I firmly believe that the impact of this event has been incorporated into prices (which is why they’re called “Futures”)…AND THE NEXT BIG MOVE IS GOING TO BE DOWN…and when it does happen, I think $3-$4 a contact ($15,000-$20,000 per futures) will be nothing…and all things considered, especially the massively long speculative fund positions, I see a $5.00 break as almost a given.
When markets are up like this, and everything you hear or read is bullish, farmers and traders tend to forget what is “normal,” to the extent that if I were to now suggest $9-$10 Soybeans as a very distinct possibility…this year…people would just think, “What a dumbass! That guy doesn’t understand anything about commodities.” But that IS the way it has been at EVERY top I have ever seen…when EVERYTHING you hear is “Bullish. Bullish. Bullish!”…that the past, and what has been “normal,” does get totally forgotten…
Another way of putting it is, and it is counter-intuitive: At a top, there are exactly zero reasons to get short.
I have been on this idea for a long time and it has been losing money…but I DO think the high tick we made 6 weeks ago on the night Russia invaded Ukraine was THE high…and that the sideways move since then has just been an accumulation of more speculators classically buying into the bullish story…right before the crash gets started.
I CONTINUE TO SEE THE TIMING HERE AS “ANY DAY NOW,” AND CONTINUE TO REMIND YOU THAT THERE WON’T BE SOME EVENT OR NEWS STORY THAT SIGNALS THE BEGINNING OF THE DECLINE…SIMPLY THAT THE MARKET WILL REACH (OR ALREADY HAS REACHED) THE POINT WHERE EVERY POSSIBLE BUYER OUT THERE, WHETHER THEY BE END USERS OR SPECULATORS, HAS BOUGHT…AND THEN, HOWEVER BULLISH ALL THE NEWS IS, YOU DO HAVE NOTHING BUT SELLERS IN THE MARKET…BOTH IN THE FORM OF NEW SHORTS COMING IN, AND MORE IMPORTANTLY, A TON OF SPECULATIVE LONGS, AT HISTORICAL HIGHS, WHO EVENTUALLY WILL BECOME SELLERS…AND UNLESS THE GRAIN MARKET HISTORIES OF THE PAST 50 YEARS OF GRAIN MARKET HISTORIES ARE IRRELEVANT, WHAT LIKELY COMES NEXT IS A MONSTER DECLINE.
If I am wrong, and there is another thrust higher, so be it…but what I remind myself is that at some point, we WILL see the same sort at least 25-30% sell off that can be easily noted on the chart above…
I keep beating it to death but it's true...and is the single biggest factor in making tops so tough: At the top, ALL OF THE ANALYSIS WILL BE BULLISH...Every supply-demand graph you see will indicate, "There isn't enough!" And so you can bet that on that first down day, or first down week, or first down month, you WON'T be hearing, "Sell now!" That's not how this GAME works.
Tops can be quite similar…
Markets DO repeat themselves…And while is doesn’t mean the result will be the same, many of the numerous grain market tops I’ve shown you in recent months are almost mirror images of what Soybeans look like today…Just to refresh your memory, here are a few of them followed by a factual summary of how Soybeans DO routinely collapse from bull market highs.
Today’s Soybean Market…
And a few other Soybean tops that look somewhat similar…Preceded by steep climbs, then briefly sideways…then DOWN.
Here is a summary of every Soybean Collapse during the past 50 years…EVERY one of them had at least a 20% drop…and EVERY one of them hit these lows within 3 months of beginning the decline.
Here are a few option possibilities…And this is not a pipe dream…This IS the way it DOES often happen…
And yes, I am still Short Soybean Oil as well……But am immediately focusing on the Soybeans…
And I am STILL on this because I do honestly believe it has gigantic potential. As always, I might still be dead wrong…and if I am, you will assuredly lose money.
Contact me if you want to know more.
All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Soybeans, Soybean Oil, Corn