Here’s Why There Is A Trade In Corn

Coming into the USDA crop report I tried to make a game plan and come up with what would be the perfect scenario for an entry point in Corn. When a security of any kind gets killed for months going into an announcement like this, a lot of the bad news is likely priced in. The market is clearly expecting a bad number. I’m not going to sit here talking about corn inventories or even what the number was; that doesn’t even matter to us. It’s the market’s reaction that we care about. The point is, we were looking for the aggressive sellers to take the bad news and keep selling. In this scenario, the market would put in a new 4-year low while momentum diverges positively. An immediate reversal higher is our confirmation of a bottom.

Normally the market never does what you hope, but I’ve seen this scenario play out too many times to not hope and anticipate that it will develop. It might be one of my favorite setups in fact. Sure enough, the announcement came out, the knee-jerk was lower, Corn made new lows, and then immediately reversed higher:

8-12-14 zc

A candlestick like this coming off an announcement of this magnitude is the epitome of ‘sell the rumor buy the news’. The Japanese call this type of Candlestick a “Hammer”, because they say the market is “Hammering in a bottom”. Tuesday’s post announcement low is where I’d place my stop. The target is up near 420 which was support from January. We can go higher than that for sure, but that’s the first area we’re eying. With Corn at 366, this gives Corn bulls a very favorable risk/reward ratio, which is really all we care about.

Also look how far we are from the 200 day moving average. The mean reversion process just began I believe. Follow through higher on Wednesday would be very bullish in my opinion.

I like it.


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Tags: $CORN $ZC_F $JJG