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Rich Nelson: Monday crucial to market

Corn Fundamental Support: Heavy-selling came from a couple sources Friday. First there was a disappointing profit taking bounce seen Friday. Most were looking for those who had sold all week to buy back Friday. They did initially but that only lasted 15 minutes. Sellers moved back in on a small scale to put corn just below even on the day again. 

Mid morning, a private analyst estimated planted corn acres at 91.9 million. There are few people who feel corn acres will actually amount to USDA’s current 92.2 million. Topping all of this off was another bounce in the dollar. Corn continues to trade a high correlation to dollar movements as it has for the last three weeks. 

Friday’s rumor in the dollar was talk that Greece wants out of the Euro zone. That threat is nothing new as it has been discussed before. It had been mentioned from the floor that some fund selling was here today but not the size that would be expected. In the July contract, we saw a move below the 100 day moving average which does not paint a positive picture. Last time this contract fell below that average it did bounce back above it the next day. This will make Monday a very important day for old crop. If it does not bounce back above the 100 day, at 691, the next strong support is not found until just below 620. Monday will mean a great deal to this market from weather to technical trading to seeing if funds want to heavily trade grains. There is no doubt that bulls will want to see continued poor weather forecasts because the bearish factors are adding up short term.

Direction: Demand side fundamentals as well as technicals suggest a continued move lower with weather offering the only support. Expect a continued slide Monday leading into a planting pace number to find a jump. Trade after that is likely to be calm leading into the Wednesday crop report which will guide our direction for the rest of the week. Watch for the trade expectations on that report early next week…Ryan Ettner

Previous Corrections: Through this afternoon, corn prices had fallen 13.7% from the previous contract high. This is not out of bounds compared with previous declines. We will point out this one has taken longer than normal at 25 calendar days in length. The other three major corrections took from 10 to 14 days from top to bottom…Rich Nelson

 

Working trades:

 

  • (5/4) Sold December corn 800 call 32, risk 42, objective 17. Closed 26 1/2.

Lean Hogs: At the end of this week, we can suggest one of the three demand problems may have been eliminated. As the chart shows here, unleaded gas has fallen 27 cents from its April 29 highest close. Depending on how quickly this moves into retail pricing, we could see consumers feeling a little better about their weekly food and gas budget. That could also leave a little room for the extras, like bacon.

One Down, Two to Go: That still leaves us with two demand problems left. Wednesday and Thursday we showed chicken production and pricing charts. The chicken industry’s blundering still leaves consumers with a cheap alternative at the meat counter. The second issue is weather. So far, we have not had a good warm and dry weekend to officially “start” grilling season.

Direction: With one of three negatives taken care of, we will slowly take action next week on our idea this market has overdone it to the downside. Now we need the weather and the chicken situation to change to get back the rest…Rich Nelson

 

Trade Recommendation:

 

  • (05/06) Sell July 86 put 1.25, risk to 3.00, objective 0.

Rich Nelson

Director of Research

Allendale Inc.

4506 Prime Parkway

McHenry, IL 60050

815-578-6161

 

Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.  One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.  For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results.  There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

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