r e l a t i v e // strength

corn and cattle 8/20

cattle

The cattle on feed came out at 107% of year ago levels which will likely spur selling on Monday's market open. I took profits on Friday ahead of the report on a short position. The reaction to this report is important. If there are indeed losses on Monday following the bearish number, then follow-through losses until midweek would confirm an intermediate-term shift in sentiment. The market had been in the high 92 levels for the October LC contract.



The October contract may head back down to the uptrending support line in the near term as the market figures out how to digest the variables in play.


corn

I'm beginning to shift some of my study focus to the March '07 contract for corn and I may even look forward to the further out contract months. Reason being that the longer-term bullish sentiment is still intact but the Dec contract may not be the right time horizon to realize the best part of the continuation of the bullish pattern.



Although the March '07 contract has broken the longer-term uptrending line, the flat support level in the 245.25 area may prove a little tougher to break. The market is nearing a nice entry point possibility for a longer-term positional trade in corn. As noted, the demand picture is still very bullish the resumption of that sentiment will likely happen after most of the market is convinced that lows are in place and there could be quite a spectacular recovery.

That line of thinking has to be tempered by keeping the thought in mind that "big crops tend to get bigger" and the bearish USDA numbers released on Aug-11 may only be the beginning of a bearish break in this market.

With that said, longer-standing support lines make the buying opportunity relatively low in risk given the upside price potential. Another adage to remember in times like these is that markets are most bearish at the bottom. We'll see how it plays out, but positioning with at least some cheap calls should be a reasonably conservative trade. This market's action early in the week will be important as traders attempt to find out what kinds of lows were posted last week.

posted by jared @ 7:59 AM