That has been the question on the minds of grain traders for some time now as it has been strength in the meal which has dragged the entirety of the grain floor higher. Funds are big, big longs in the meal and as also net long in the beans and in the corn based on last Friday's COT reports.
Today's USDA report generated a negative reaction in the beans, and especially in the meal, when the dust finally settled at the close of pit session trading. The report showed a slight increase in yield but that was fully priced into the market.
Essentially, the way I am reading the reaction to this report, is that it did not contain enough of a bullish surprise to justify beans levitating up at current levels. After all, we have seen them put on more than $1.50/bushel over the last few weeks. With a run like that, it would have taken a strong bullish surprise to generate much in the way of determined buying up at these levels. The beans did not get that in the report and it looks as if their inability to extend the bump higher after the first few seconds of the report, started some profit taking from some of those heavy speculative longs.
I do not want to count them out too soon however as those who have been buying them are looking more at demand issues rather than supply issues. they have been able to use a recent torrid export pace by China, coupled with logistical issues in the eastern portion of the belt, to obliterate a great deal of the shorts, not to mention pushing even harder on their profitable longs.
However, in watching the chart performance of the January meal, we may have, and I am not convinced just yet, seen a top in this complex. The meal led it up and the meal will lead it down, if indeed it is going to do so.
I am not focusing so much on the December meal because that particular month might still be impacted by the transportation bottlenecks and has seen some very wild buying and selling as it swings back and forth. However, most in the trade expect whatever remains of those issues to be cleared up sometime before the end of the year, and maybe by the end of this month. Thus we are looking past the December meal and focusing on the January meal.
That month missed a textbook outside reversal day lower by 10 cents today. The strict definition of such an occurrence is when a market that has been in an uptrend, makes a new high, exceeding that of the previous day, and then proceeds to move steadily lower throughout the session scoring a low EXCEEDING the previous day's low. Ideally it also CLOSES below that same previous day's low.
Look at the chart and you can see that the January meal exceeded the high from Friday, then moved lower throughout the session, taking out Friday's low in the process and then closing at $364.70 compared to Friday's low of $364.6.
So it did not quite make that close below the previous day's low. Yet the range it established was well outside of Friday and it occurred on extremely heavy volume.
I am also noting that the market ran up to the near the 75% Fibonacci retracement level where it failed. Also, today's high failed to reach the $384 level essentially establishing the potential for a double top with a weak right side.
All this gooblygook might not mean anything much to some but for those of us who study the charts, it does look like a serious chink in the armor of the meal bulls has been inflicted. Yet, as treacherous as this market has been of late, I am not getting too dogmatic about it just yet.
We'll have to watch subsequent price action and see what we get and then perhaps we can get some confirmation, one way or the other.
A quick note on gold.... the violent short covering rally of Friday reversed rather quickly today as soaring equities and sinking commodities, along with a resurgence in the Dollar, brought a large amount of selling back into the metal. Mining shares gave back nearly every single bit of the gains made that day as well.
We'll probably range for a while unless we get a stronger signal from another outside market to work with. Bears will try to take it back down to $1130, while bulls must get the price above $1180 to have a shot at doing something more than a one day wonder.
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Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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