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Ray Grabanski: Market top?

Ray Grabanski 03/17/2011 @ 11:43am President, Progressive Ag www.progressiveag.com

There have been some concerning price signals recently in commodities, of all kinds (grains, metals, softs, crude oil and energies), that are indicating potential highs may have finally been formed, especially softs and energies.  Recall that softs have been the driving force higher in the CRB index, with prices well above 2008 highs, as they have spearheaded the 2010/11 market rally.  But soft markets have taken a turn for the worse, with most well off recent highs and indicating that potential tops have been formed.  

Commodities may be in some trouble now, as the CRB index formed a downside weekly reversal last week that could mark the end of the bull market of 2010/11.  

There are other negative technicals as well, with the soybeans and wheat forming monthly downside reversals last month and followed by large weekly losses last week.  Corn has now confirmed the possibility of a market top by dropping more than 7% from the recent high (the third time since the rally began last June).  

For corn, a monthly downside reversal is in the process of being formed in March, if corn closes at this level or lower that will be a reality.  The dollar also formed an upside reversal last week, with cotton also forming a weekly downside reversal last week. The combination of the heavy downside selling in grains along with selling in other commodities (energies, softs) and stocks suggests a possible top in grains has finally been formed.  Interestingly, the cattle did not participate in this weekly negative formation, as we formed new highs in cattle the week of March 7 (albeit hogs were not higher last week).  

The possibility of a top in markets cannot go unnoticed and unrecognized, as once again in bull markets a decision has to be made as far as selling additional grains.  This time there may be more extenuating circumstances indicating a potential top has been formed.  The negative reaction after the USDA report is part of it, with USDA basically saying the world grain supplies got better last month for the first time in many months, with improved crops in Brazil (corn 2 mmt and soybeans 1.5 mmt), Argentina (wheat +1 mmt, and soybeans 

unchanged), and Australia (+1 mmt wheat).  Overall, corn supplies were increased (slightly smaller demand with slightly smaller supplies), wheat increased +4 mmt, and soybeans also slightly improved supplies (+1.5 mmt).  USDA also for the first time dropped wheat US exports 25 mb, hiking ending stocks a like amount.  

The market reacted negatively, as it appears we finally may have started to limit our demand, and that might just carry us out to the new crop harvest.  

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Brazilian Rain and US Planting Outlook