August 29, 2023

Why Be Short?

As I am forever writing here…and as a big sign on my office wall reminds me…YOU WILL BE WRONG. YOU WILL BE RIGHT…And that IS the truth---I AM both right and wrong in the markets…So the following charts noting row crop Short Recommendations I made last year are not posted here to make me look smart…Both Corn and Soybeans later also had sharp, money-losing-for-me rallies which I absolutely did not anticipate…I’m showing you them again simply to demonstrate that there are solid reasons for my predictions that often presuppose VERY sharp, big, fast selloffs/collapses in various markets…because, again, as can easily be seen in these examples, that IS how the markets frequently DO go down, especially when they are starting from historically high levels…which IS still the  current case in a number of commodity markets…and will be addressed further below in this newsletter.

May 18, 2022

June 15, 2022

MAY 7, 2022

May 18, 2022

And I will tell you that the same sort of action is almost perpetually true for any commodity market, that for reasons related to the fact that most speculators tend to be buyers (that get trapped/fooled by media opinion and eventually, almost inevitably, become panicked sellers), as well as the fact that when ALL of the headlines are bullish and raving about “strong demand” and “shortages”, even actual end users are influenced into heavily contracting (buying) for their future needs, thereby meaning you later can have a VACUUM of actual end user buying as that market starts falling away from its highs…which is precisely the reason why you so often get these 1-3 month collapses, which, simply stated, are due to having a combination of heavy producer selling (who have also bought into the bullish story and have NOT sold their product), AND speculative longs running for the exits…AND relatively ZERO end user buying. I assure you, this is not some contrived explanation to support my expectations for big, fast declines. That IS how, and why, bull markets do have a tendency to end by initially going straight, straight down.

Having watched this happen repeatedly for 4 decades, I’ll tell you that it has basically been that way “forever”…But much more importantly, as a function of the Internet and our 24-7 Information Age Media, I believe the existence of massively one sided MOB PSYCHOLOGY market opinion has become even more common…and that those opinions are today MORE heavily invested in (when speculators hear the same bullish “logic” coming from every analyst on the planet, it DOES give them the feeling of certainty as to what is going to happen)…which ultimately leads to even bigger collapses than we used to see. To wit, I count at least 10 commodity markets that suffered 40-50% declines during the past 18 months.

All of the above leads me to continue believing MAJOR downside moves are still imminent in both Corn and the Soybean Complex, with Soybeans being the specific subject here…

So yeah, we have just had yet another weather scare rally…of about $1.00 during the past month…but as can be noted from the Soybean top examples following, this is almost identically par for the course in this market…THESE ARE REAL WORLD EXAMPLES OF WHAT SOYBEANS HAVE OFTEN DONE…RIGHT BEFORE THEY DID ACTUALLY COLLAPSE.

On the next 7 charts, check out the similarities in how the majority of Soybean tops traded in their last 2-3 months…immediately before they totally went in the tank…during the past 25 years:

Now take a look at how this last $1.00 rally compares to all those examples…all of them rocking down and then up again…looking bullish on every upsurge and ready to take of higher…until they DON’T, and then, literally from one nondescript day to the next? Soybeans just start to crash and burn…

Today’s Soybean market…

Within the context of a basic trading fundamental, “Buy Weakness. SELL strength,” I think this last rally has presented the PERFECT place to get short…

Here’s the big picture…

And here’s how I DO think this is about to happen…and how to position for it…

And as I am absolutely convinced that if we see $13 again…We WILL then be headed for under $11.00…And not to just throw big numbers out there, I can easily imagine that 2-3 months from now the ag press will be full of analysts, traders and farmers totally freaking out as the $10.00 level gets taken out.

With this in mind, I’d suggest that, in addition to the 1360’s, having some further out-of-the-money puts is not a bad idea.

So yeah…Same old shit. Still screaming “Short Soybeans!”…but based on good reason, solid data…and years of knowledge and having been here before…Where waiting for a great trade to happen just wears me out, psychologically and financially…And when everybody thinks I’m an idiot and wrong to be bearish…and have totally given up on the idea…When basically nobody is on this any longer with me…

AND THEN IT HAPPENS…AND IT HAPPENS JUST AS BIG AS I HAVE BEEN SAYING IT WILL…WHICH IS PRECISELY WHERE I THINK WE ARE.

Obviously It could be that Soybeans are just going to stay up here (at $14.00!) or go higher even…And, one more time, I might be dead wrong and losing money…but I DO think this IS it…right here and right now…and I AM AS SHORT AS I POSSIBLY CAN BE.

And here’s to hoping that 3 months from now I don’t have a whole bunch of people telling me how smart I am and “wishing I had done it.” I’ve been there before many times…and I just hate it.

This market is going down from HERE…and a LOT.

DO give me a call if you agree…and want to make the bet.

Thanks,

Bill

770-425-7241

866-578-1001

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, Corn