October 13, 2016
Wheat has started its Bull Move
In this business, it is important to do your homework, think independently and be as self-ruthlessly objective as you possibly can be.
It is also important to understand, as I am always reminding you, that the markets are really the world’s biggest video game, played with real money, and governed more by media generated mob psychology than anything else…and that the value of ANY of these pieces of paper is just a function of perceptions and money flow…into AND out of markets.
And finally, in that, in a sense, you are trying to predict what the FUTURE news headlines will be, you do need to have some imagination…and at times, simple INSTINCTS that lead you to conclusions about what you expect to see in a market.
Right now, all of my “scientific” analysis…and my 36 years of experience…and my instincts tell me that SOMETHING big is about to happen in Wheat. Due to the fact that IT IS LOADED WITH SPEC SHORTS, and that it is back at incredibly low price levels (below the cost of production) that would have been deemed impossible a few years ago, and that the general sentiment towards virtually every major crop we produce is the most bearish I have seen it in well over a decade…AND that there is record world demand for Wheat, Corn AND Soybeans, I obviously, and still, want to be on the buy side…And yes, we do have record world production of wheat but I would note that virtually every bottom EVER in this market was accompanied by record production…The bottom line is that with world demand basically ALWAYS setting records, it is imperative that production set records as well…Otherwise, instead of $4 wheat, you might see it at $20 (this is not a prediction).
Wheat made what I would call a “wash out low” six weeks ago, which I’m sure pretty much blew anyone with bullish expectations (as I have had) out of the water…And as difficult as it may be, when ALL of the fundamentals and ALL of the rhetoric argue for nothing but LOWER, or “no upside potential”, IS when you do want to own the market…ESPECIALLY when you know that a massive speculative position already exists…ESPECIALLY when you know that this position MUST be exited at some point…and ESPECIALLY when you can surmise that this exit is unlikely to be a quiet, ho-hum affair.
We’ve been through a few bearish crop reports recently…without the market going any lower…There IS a point where every farmer who would sell at these levels has done so. There is a point when the funds simply have cumulatively reached their limits and CAN’T sell any more. And there IS a point when ALL of the bearish factors HAVE BEEN accounted for in prices…and there is, therefore, a point where the ONLY way you can go is up…and I think we are there. Yes, I have seen this market as a buy since last spring, and have been wrong, but that has NOTHING to do with the present.
I keep showing you this chart with good reason…The Record Commercial Long Position DOES represent business on the export books…And the Fund Shorts? Well, I maintain they WILL get it handed to them…and there is no size or velocity on move that will surprise me…
The 40 year perspective (from a recent newsletter)…
And here is a close up of recent action…and one of the reasons I believe something big is about to happen, one way or the other….
Maybe the biggest up day in a year is just a fake out…But it could just as easily be Day 1 of a major move…And I DO like the fact there were no news items out to “explain” the strength…At any rate, having made the lows 6 weeks ago, and having passed through several bearish USDA reports since then…WITHOUT seeing new lows, I do think the odds are high that all of the bearish news IS already “in the market”, and considering the size of the fund short position (Yes, I keep beating this drum because it IS relevant…Again markets move on traders getting in and OUT), a $1.50-$2.00 move, even by year end, would not surprise me in the least…Sometimes the markets are in “sleepy” mode and sometimes they DO fly…They DO…and the lift off, as I said, can be from one day to the next.
Here are two ways to go…
Using the 1 and 1…
Or just “all in”….
Not dreaming…This might be it…We DO have some degree of a “signal”, so if you are inclined to get some of this, please do not wait until you’ve seen another 20-30 cents to call me…
Get some of this to go with the Eurodollars…
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The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Wheat