Investors Don’t Like Their Corn… [Dirty Dozen]

May 13

Written By Alex M.

“You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades. ” ~ Richard Dennis

In this week’s Dirty Dozen [CHART PACK] we talk about key levels in Qs and crypto, discuss the start of some negative divergences in internals, look at a breakout in corn, and pitch a potash producer as a way to play a bottom in softs, plus more…

1. We continue to be long NQ and looking for areas to add. The next level of major resistance is the key level of 18,500 around the upper Bollinger Band.

2. Our Market Internals oscillator turned over last week. We can see below on the sub-charts why, as many of them are starting to diverge lower from the market. The aggregator is still in neutral territory and negative divergences tend to precede major market tops by weeks, at the very least. So no cause for alarm yet but something worth keeping a close eye on.

3. And we need to remind ourselves that we’re still firmly in a primary bull trend. So while we should expect average corrections, our focus should be on buying dips and buying rips until the backdrop says to start doing otherwise. Here our liquidity index shows that financial conditions remain solidly in the green.

4. The RoC on 10yr yields has dipped some but we have CPI this week and with this indicator still near the sell signal zone (red line), we’ll have to stay abreast on how yields trade later in the week.

5. Our Trend Fragility indicator which is an aggregate of positioning, sentiment, and flows, is back down in neutral territory with a reading of 72%. So the sell signal it triggered back in April has reset.

6. The German DAX made a new all-time high last week. Major global indices making new all-time highs is not bearish, just FYI (chart is a weekly).

7. Last month we pointed out the technical bottom in Chinese equities (FXI) along with the consensus bearish sentiment (link here). After a strong run over the past few weeks, China is now the leader in YTD returns amongst major markets (chart below from Koyfin platform).

8. We’re long BTCUSD and looking for technical setups to add. We have major support at the 60k level. A weekly close below would signal a likely trend change. I think this thing breaks out to the upside though, we’ll see.

9. Large specs are back to being net short BTCUSD and small specs are holding their smallest long positioning in months. At the same time, Sentix’s Strategic Bias index (a measure of long-term patient hands) remains quite bullish. So all in all this continues to be a good sentiment backdrop for long BTC.

10. We got long July corn the other week on its breakout from its compression regime. We’ll be adding to this position if we see followthrough to the upside.

11. Our Sentiment oscillator shows there’s a strong bearish consensus in corn. Green highlights mark past instances where sentiment was this low. This is what major bottoms are made of.

12. Intrepid Potash (IPI) is a smallcap ($330mn) producer of potash, so it has a high correlation to corn and wheat (which also looks to be reversing). The chart below is a weekly and shows the stock is breaking out to the upside from a major compression regime.