My dilemma over the prices of corn & soybean meal

The long-term chart of Soybean Meal is outstandingly bullish. Yet, the chart of Corn is potentially quite bearish. Which one is lying? What does a trader do?

Being double minded is a dilemma every discretionary trader faces from time to time. It is not a fun place to be. It is where I am presently on grain prices.

The daily and weekly charts of Corn are quite negative (at least potentially). The daily chart (not shown) displays a possible H&S top. The weekly graph shows a descending triangle. In fact, the Corn charts point to a price target of $4.00 +/- $.25, pending the completion of the large top. I am short Corn. I have a strategy to add to this short position as my current holding becomes profitable.

Yet, the long-term charts in Soybean Meal are potentially explosive. The quarterly and monthly graphs display a potential 4-year continuation triangle that portends a price of $550 per ton.

The daily Soybean Meal chart is in a strong advancing trend — but is, in fact, quite overbought by just about every measure.

So, I have reason to be constructive about Meal and negative about Corn. There is reason to believe Corn can lose to Meal. The chart below displays the relationship of Meal to Corn prices (expressed in terms of the dollar value of the nearby contracts). Historically Meal remains cheap compared to the price of Corn. But there is no way Meal can go to $550 while Corn goes to $4.00. Such a relationship would become a new all-time high in the relationship by a country mile. And this is not going to happen.

Here is where I come out on this dilemma.

1. Meal has met its upside target on the daily graph, so I will not chase the rally. It would take at least an 8-week consolidation period to interest me in the long side.
2. The spread (one contract of each) has moved about $6,000 in favor of Meal in the past three months, so I am late to this party.
3. The Corn market has given some early warning signs of a top, although a top is far from complete.

So, I will remain a light short in Corn, protected by stops. In the final analysis, my opinion is that each chart needs to be traded on its own merit. One of these markets is lying. But I can only trade what the market shows me at the moment.

Markets: $ZC_F, $ZM_F

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