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Frequent Contributor

Trade Thoughts-why the market rallied on such limited bullish news

Trade Thoughts - I have been asked by several traders as of late why the market is rallying on such limited bullish news.

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My contention is that most of the larger S&D fundamental traders have already shot many of their short-side bullets, leaving them with a very limited supply of dry powder, or should I say dry powder that they want to commit to chasing this market higher.  Most of these "bears" were just as bearish at $12.10 as they are at $13.10...meaning nothing has changed in their minds. They still believe prices are going significantly lower. The only problem is they are financially committed to their "previous positions" and are committing additional fire power to holding on...NOT aggressively adding. This creates lopsided activity in the marketplace as NEW shorts are not coming into to offset NEW longs.  

 

My point is the "bearish" story has been on the table for months now, anyone who wanted to get short these markets has had ample opportunity and is probably already in to some capacity. On the flip side there are new bulls coming on board every day who think we are going to see some horrific crop failure. In addition there are also shorts who are being spooked, scared or forced out of their short positions, also causing more buy side pressure. The High Frequency crowd also sees the most pain being inflected to the "shorts," therefore they are trying to align opposite to create the volatility spikes.

 

Moral of the story, the fundamental S&D traders may eventually be right in their theory, but I am afraid they could lose an arm and or a leg before reaching their final destination. The fundamentals of the market aren't making a ton of sense right now, that means "money-flow" is in absolute control. Be extremely cautious in these environments, and always remember, "the market can remain irrational, much longer than you can remain solvent." Swimming upstream can be very tiring!   

 

Again a Blip from the VTR....well,  what are your thoughts boys?

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2 Replies
Veteran Advisor

Re: Trade Thoughts-why the market rallied on such limited bullish news

There is always bearish or bullish news on a daily basis that can take the market up or down.  The little trader like me really does not affect the market, it is the large institutional trader that moves the market at will.   BungeADM, Cargill...etc. that come to mind.

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Senior Advisor

Re: Trade Thoughts-why the market rallied on such limited bullish news

There can be no resolution of the market while US corn and bean crops are essentially unknowable at this point. That said it might be conjectured that conditions probably reule out a huge crop, but not necessarily a good crop (better average yields than last year for sure). On the other hand if it becomes hot and dry thenthere's plenty of down side to consider on production. Anyone making a firm bet one way or another as a way to make money is speculating. Buying insurance is different and the cost better be worth the risk.

 

A shift in the market now is probably more or less due to the members of the herd watching each other and wanting to stick with the herd and not get picked off as an outlier. Probably has little to do with firm opinions on production - figuring demand is probably more or less a given within a certain range. It shouldn't talke a huge move to make the market temporarily shift one way of another. There is no reason for the market to make sense other than the dynamics of someone 'balancing thier act , causing somebody else to move in a similar fashion and a slight wave to go through the herd.

 

The S&D will become a more important issue as the crop develops. There is more known about N Hemisphere wheat than corn and beans.

 

On the subject of wheat, the current factors are probably concern for supplies in Argentina, the coming moves of Egypt as it must replenish supplies very soon in the midst of a financial crisis and India's inability to come to terms on exporting.

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