Trend followers operate on the idea of market momentum – capitalizing on the occasions when prices begin trending in one direction… and continue moving in that direction. But even trending markets will contain small reversals; that’s why a tighter trailing exit order increases the chance of getting out of a trade before the trend has run its course.
And that may be why there’s a fascination that takes hold when a market moves in the same direction day after day. You can almost guarantee a comment out of the CNBC crew (among others) when the Dow or the S&P 500 puts together a streak of more than a few days. On a smaller time frame (hours or minutes) those little reversals are still taking place, but the daily close is the standard yardstick for market performance.
And right now we’re seeing plenty of streaking in the corn market – early in January it streaked upward, closing higher 8 days in a row. Now, it’s streaking lower, and yesterday’s close marked the 9th down day in a row for corn. We’ve seen some disagreement out there over the last time this happened, but according to our calculations, this is the 2nd longest streak of daily losses since 1982 (behind a streak of 10 losing days in 1984), and tied for the fourth longest streak over the same period (behind the record streak of 11 up days in 2008, and a streak of 10 up days in 1988).
Chart courtesy Finviz.com. Disclaimer: past performance is not necessarily indicative of future results.
So does this mean we’re due for another correction back up? We took a look at every losing streak of 8 days or more in the last 3+ decades to see how far corn fell during each streak, and what corn prices did in the following 1 week, 1 month, and 3 months:
Disclaimer: past performance is not necessarily indicative of future results.
As it turns out, big streaks lower have been a prelude to further declines about half the time. Only in the 1986 and 2003 streaks were there significant gains after the downward streak ended. In fact, corn futures continued lower in 56% of the time frames we analyzed.
Yesterday corn futures bounced off of the session lows, inspiring some speculation that the streak would be broken today, but with corn down -0.7% so far today, we’re already on our way to tying the record daily losing streak. What that means for corn prices in the coming weeks is still anyone’s guess, but Ag traders are positioning themselves in different ways – with Global Ag currently short and Rosetta long.