June 7, 2015
Still Buying Corn
Is this the sleeping giant? I have seen so many comments that Corn has zero chance of a rally as to be ludicrous…But I look at the long term chart, and the big swings this market routinely makes and can’t help but think there is a TON of leverage in the 365 call-375 put 1 & 1 recommended below…
All option prices in this newsletter include all fees and commissions.
As I’ve said before, part of this game is simple visualization of what you think a market chart will look like 3-6 months in the future…My question is here: Can you visualize Corn still sitting dead between these two strike prices several months from now? And if you follow all the agricultural commentary out there, do you see ANYBODY talking the upside of this market?
Even in the “old” days, when we traded between $2 and $4, $1.00 swings were quite common…
Regarding the 1 & 1, I consider the most important aspect of it to be what happens when you are wrong…With every one of these charts I produce, I am focusing on the losing side…and how large…or SMALL…the move against me appears to be before I can recoup 100%...And in Corn, or any of the markets I am recommending, if I AM wrong, I do see the distance these markets have to travel against me to have the 100% recoup kick in as being nothing more than small blips.
Still Buying Cotton
On March 29th, I presented research indicating that July Cotton typically moved significantly between March 31 and expiration of the July contract. With this in mind, I recommended several different option combinations that would benefit from a strong move in either direction…However, the volatility I was looking for has not materialized and the current low to high range works out to be the 2nd smallest in at least 20 years. July futures still have another month to trade but the July options will be expiring in a week, and unless we get something big happening between now and then, this recommendation will have been a loser.
HOWEVER, as I have repeatedly noted, ANY time I enter a sideways market…and if by the time those options expire it still has gone nowhere…I then absolutely believe the odds of a large move have only gone considerably higher. Futures ARE inherently volatile. They CAN go sideways, but eventually they DO GO SOMEWHERE…For sure, when that happens can take longer than you expect, but generally speaking, with every market we trade, when you get to the 8-9 month sideways mark, you have reached what is truly an extreme…and per historical tendencies, the odds for a move have become inordinately high…which is exactly where I think we now are in Cotton.
December Cotton has basically been trading in a 5 cent range for the past 8 months and I DO think the probability of a big move has gone through the roof.
I still regard Cotton as the cheapest major commodity on the board…and same as in Corn, Wheat and Soybeans, according to the overwhelming majority of “experts”, it supposedly doesn’t have a chance in hell of going anywhere on the upside…to which I disagree.
Cotton traded to $2.25 a pound in 2011, and while I certainly am not looking for anything close to that as an objective, it does suggest, that in today’s rip roaring, global hot money environment, a solid attempt at trading back to the $1.00 mark could easily be what comes NEXT in this market...While the average cotton analyst will tell you, “This guy is nuts. There is too much cotton”, I can assure you that what I’m suggesting is NOT unreasonable. This is an age old story. Nobody ever thinks a market is really going anywhere when it’s laying on its lows…but then, somehow, time and time and time again, all the “bearish fundamentals” prove to be nothing more than explanations of the past…and before you know it, a market has jumped 20%-30% and everybody THEN gets bullish.
I THINK COTTON IS A BUY. THE CROP IS IN THE GROUND (BUT I HAVE HEARD A LOT OF FARMERS SAY, “NOT PLANTING THIS YEAR”) BUT IT HAS NOT BEEN MADE. THE WORLD ECONOMY IS DEFINITELY ON THE UPSWING…WHICH IS BOON TO COTTON DEMAND…AND I DO THINK DECEMBER COTTON COULD BE PUSHING THE ONE DOLLAR MARK BEFORE IT GOES OFF THE BOARD…
CONSIDERING ITS LOW PRICE (ABSOLUTELY UNDER THE COST OF PRODUCTION) AND ITS 8 MONTHS OF SIDEWAYS ACTION, I THINK THIS MAKES FOR A FANTASTIC “1 AND 1”.
Here are the numbers…
Here’s the big picture…You tell me…Would 80-85 cents look like a big move?
Still Short Feeder Cattle
And I still think anyone actually buying and owning cattle at these levels is flirting with financial disaster.
I know there must be some cattle guys out there thinking, “Will this guy never stop? He’s been predicting a monster sell off since last year. Doesn’t he know THE CATTLE JUST AREN’T THERE? Prices will be good for at least a couple of years. He is an idiot.”
I have yet to see a major commodity bull market that has not eventually caught an entire industry flatfooted…and through decisions based on assumption the bull was still going…subsequently led to major capital losses.
I have yet to see a big bull market that didn’t STILL have a perfectly logical, fundamentally, SOLID BULLISH STORY, when it made its top tick.
And I have yet to see a bull market, AFTER it had ended, that was not still being viewed as though it was continuing its upward trajectory…that even though that relentlessly giddy period of rising prices that had made EVERYBODY in the business a lot of easy money had ended…even then, EVERYBODY still thought there were good times ahead…and were still making purchasing decisions based on that assumption.
BOTH LIVE CATTLE AND FEEDER CATTLE MADE THEIR ALL TIME HIGHS LAST OCTOBER…ALMOST 8 MONTHS AGO…AND TO ME, VERY MUCH APPEAR TO HAVE BEEN BUILDING A GIANT TOP EVER SINCE…BUT EVEN SO, I KNOW THAT ATTITUDES AMONG CATTLEMEN CONCERNING FUTURE PRICES ARE STILL JUST AS OPTIMISTIC AS THEY WERE WHEN THE MARKET WAS ZOOMING LAST YEAR…WHEN ROCKETING PRICES MEANT YOU COULD BUY ANY ANIMAL, AT ANY PRICE, AND MAKE MONEY…BUT, THIS SORT OF SITUATION DOES NOT GO ON FOREVER…AND THE EVENTUAL, AND ALWAYS INDUSTRY SURPRISING OUTCOME IS USUALLY THAT PRICES DECLINE TO LEVELS THAT, AT THE TOP, SEEMED IMPOSSIBLE TO IMAGINE.
I CONTINUE TO STRONGLY RECOMMEND BEING SHORT FEEDER CATTLE AND CONTINUE TO ANTICIPATE PRICES FALLING TO THE $1.50-$1.60 AREA.
I don't care WHAT the numbers are that EVERYBODY knows about...I've seen it COUNTLESS times...All you need is one 4-6 week period where there are too many sellers and the buyers just aren't there...And the next thing you know, the market has dropped 50-60 cents and nobody understands why...Most recently, WHO in the Cattle business even dreamed we could drop almost 50 cents between last November and February...It happened then, "unexpectedly", and I say it's about to happen again.
This set of options has a LOT of time to go one way or the other…
At recent cattle auctions, a lot of people have been willing to pay ANY price they have to for calves…and from what I hear, it has been particularly crazy just in the past 2-3 weeks…But I firmly believe ALL of those buyers have succumbed to exactly the sentiment I mentioned above…More so than ever, the bull market has ended but they are all still thinking that 2015 will be just like 2014…AND IT WON’T.
And yes, I am still bullish the stock market
And still think we’ll see 20,000 in the Dow this year
As I keep saying, I know there are bulls out there but I just keep seeing over, and over and over all sorts of banks, brokerage houses and talking yakheads trying to be the “genius” who picks the top in equities…No long winded comment here…The USA and world economies are headed higher…and probably a lot faster than any of those “seers” is expecting. Be long stocks. A decade of bad stuff is behind us now and global economic activity is “busting out all over”.
REALLY…This is just a small sampling of opinions from the past week…And when have you EVER seen all the brokerage analysts actually get it right?
Give me a call if you want ideas as to how this can be traded…
Otherwise, pick up the phone and call me if any of these 7 markets interests you.
Lot of leverage in all of them I think…or I wouldn’t be recommending them…
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Cattle, Cotton, Corn