Corn is popping – and so is Wheat and Soybeans!

While stocks suffered hugely volatile up/down swings last week (and were a nightmare to trade), traders in the oft-neglected agricultural commodities that are continuing their spirited recoveries (as I have pinpointed in recent blogs) enjoyed sleep-full nights. Stock index traders have not had such restful dreams!

Basically, as the ags worked lower and lower from their last year’s highs with huge global harvests leading to huge stockpiles, I had been tracking their downward progress and noting that hedge funds were building massive short positions. Long-time readers will know that when speculative hedge funds do this they eventually become so overweight in shorts that it takes only a small reversal to kick off a much larger short covering phase. And that could lead to a more serious short squeeze as more ‘bullish’ news emerges to encourage more short covering.

And that reversal can often come with no new major news event. In effect, it can come stealthily in the night such that conventional traders who focus mostly on the news feed and not on the technicals will miss it and continue to believe any bounce is just a normal bear market rally and will hold their shorts and even short into it.

And that is precisely what has been happening in recent days.

Latest COT data shows the hedge funds lifting their short positions in scale in Wheat in accordance with my forecasts (but much less so in Corn and Soybeans – so that should come later).

Some traders wonder why I follow these arcane markets that are most certainly off the radar to most (especially in the UK). A confession – I cut my teeth on them well before the internet age when stock index and currency futures were just getting started and it was the ag futures that ruled the roost. In that stone age, prices were quoted in 1/4 cent and to obtain them and place orders, you had to call your broker. There was not even a Bloomberg terminal. I kept price charts from the Wall Street Journal the next day by pencil on graph paper. Happy days!

I thus have more than a sentimental regard for them – in fact they can produce even greater stunning price moves than many more familiar markets. – especially Soybeans.

To illustrate the profit potential, the bear trend in Wheat from the March 2022 high of 1,356 to the March 2024 low at 524 is a span of a Fibonacci 62% (another Fib clue for me that the low was likely in at 524). Just a modest £25/pt spread bet could have resulted in a move of £28.8k in an account. That bet size could have been handled easily with even a small account of under £10k

For comparison, Placing a long £2 bet at the Dow low last October would have resulted in a gain of 6,000 points to date. At a £2/pt bet in an under-£10k account – that is a potential £12,000 gain. or about 1/2 the potential gain in Wheat. See what I mean?

As I mentioned a while ago, I believe this market has great potential to surprise – to the upside. A lot will depend on this year’s weather – and is less forecastable than the future prices. Al least we have some clues.

This winter and spring have been horrendously over-rained in Europe and harvests will very likely suffer. As to the USA, Australia, Ukraine, Russia and so on – who knows but at least we will have a La Nina working with lower temperatures and selectively heavier rainfall. This is an ideal scenario for a volatile season.

As for the beans, they have certainly popped strongly off its Wednesday dip. Here is the chart I posted to VIP traders Club members on Thursday morning

The market had just planted a second kiss on my upper tramline and if a traditional Scalded Cat Bounce was in the offing, a rapid advance to my pink target should ensue.

In fact, that is precisely what happened with an 80 cent three-day pop to meet my pink target. Bingo! And that is exactly on the neckline of what I believe will turn out to be a classic Head and Shoulders reversal pattern – provided it can make further advances given the extreme overbought momentum indicator that suggests an imminent pull-back.

My other current positions known to VIP Traders Club members.

The ags are not alone in offering some potentially great opportunities. Here is a round-up of my current positions:

NaturalGas – Has been dragging along the bottom for some time and I have used that time when it has been well out of the news to quietly accumulate long positions well under the 2 cent mark. It is trading well under the August 2022 high of 10 cents from over-supply and a warmer (?) European winter. But with Russia gaining ground in Ukraine, I see a more determined Western imposition of sanctions against Russia’s gas and a tightening of Western supplies to come, despite record high US output.

A reasonable upside target is in the 6 cent range later in the year.

T-Bonds – yields have been rising (well against consensus) as traders pulled back from their Fed rate cut expectations (another fairly predictable result of the Herding Effect). I have been closely tracking Treasuries, but now I see lower yields ahead at least for a while and I took long positions on Thursday.

The Dollar – Again and against overwhelming consensus, I became bearish a few days ago and went long both EUR/USD and GBP/USD as sentiment had become way over-stretched. As with the T-Bonds, the dollar dip should reverse later into a vigorous bull run.

Gold/Silver – both have been in strong corrections for three weeks and I am finding the usual difficulty in timing re-entries in very volatile scenarios. My policy remains this – if I am stopped out the first time, I will look to re-enter provided my analysis remains supporting my bullish view. I remain bullish both.

Coffee/Cocoa – After taking great profits in March and April, I decided to take a rest from the caffeine to detox and I am certainly pleased I did as I dodged bullets with Cocoa collapsing last week by about 40% as West Africa rains arrived to break the hockey stick. With prudence now paramount, these are no markets for me at present as I seek opportunities elsewhere (see above).

Crude Oil – Again, after taking great profits earlier, my latest foray resulted in a Break Even trade as my long position was stopped out in the cascade of selling taking it down to the support area around 77 – 78. This is a 12% decline off the 87 high a month ago. The overall trend remains up and I am looking to re-enter.

Stock indexes – Ah yes, the indexes. I almost forgot them. There are so many cross-currents now and with the ‘bad’ news is good mantra back in favour, I decided on Friday to take remaining profits on my Dow shorts and take a new long FTSE position. Our UK index should continue to benefit from stronger banks, commodities, financials and remain mostly independent from the US indexes.

I reckoned that if the market will not resume its decline (off the Spring Equinox ATHs) in the face of poor economic data then what will do it? Sometimes, you just have to face the facts and remove yourself from the arena. Stubbornness has its place (When at first you don’t succeed then try, try again), but with a natural coward’s disposition, I prefer to take to the flight mode rather than a fight one when big money is involved.

Of course, I still lean towards the current rally as a bear market bounce with a major reversal up ahead but without a good idea where the likely reversal point will come, I not have the burden of holding a losing position hoping for the turn that may never some. Psychologically, that puts me in a good place where I can hopefully assess markets rationally and not so emotionally.

Remember, all market forecasts are exercises in estimating outcome percentages – there are no certainties – although it is tempting to believe that in hindsight. Remember, although Tesla became wildly successful it had to overcome major set-backs along the way when running out of money appeared the most likely option.

And buying dips in bull markets can be catching a falling knife if it is really in a new bear trend (only to be confirmed subsequently).

That is why my overwhelming approach is to suspect a trend change only when an extreme sentiment measure has been reached (as in the dollar recently with a 90+ DSI bullish reading).

There is little doubt that the general bullish positive mania for assets remains sky-high. The recent dip in Bitcoin and recovery (?), the ongoing AI mania, house prices in the stratosphere (compared to earnings), sky-high prices for art, meme stocks, ODTE options and so on is testament to the mania.

So will the developing commercial real estate debacle break the spell? or will China? Or a new war? Or even a huge cyber attack that shuts down the internet? There are so many known and unknown unknowns, are there not?

Anger levels are rising with student (plus others) demonstrating on many campuses. It seems young people are switching from climate alarmism (is Net Zero off the political agenda already?) – a battle they are losing – to Palestine/Israel as their latest focus. As I wrote last time, these are displacement angers whose root is an unconscious feeling that things are just not right and their future is uncertain and possibly dangerous.

Almost everything is in increasing turmoil – and the young are responding. And that is being increasingly reflected in the financial markets where I expect the rest of the year to be likewise full of turmoil. This is not the time to sit back and relax with a ‘buy-and-hold’ strategy in place. It’s the time for nimble traders/investors who can ride/surf the coming waves.