Today, I’ll share a trade that has a perfect track record in recent years…
More important, it just signaled again.
If you follow this signal, you should be able to pocket double-digit gains in six months on a “boring” asset.
It’s simple, really. If you want to make money in the markets, you need to buy what’s cheap. And you need to buy it when no one else wants to.
The opposite is true as well. A good time to sell is when something’s expensive and EVERYONE wants it. When everyone wants an asset, there aren’t many new buyers left to push prices higher.
This is the basic idea of trading or investing on “sentiment.”
We’ve showed time and again here in DailyWealth that this idea is a great way to figure out the pulse of a market and make contrarian bets at extremes. Today, it’s leading us to a bet most investors would never consider…
You see, a certain commodity has boomed in 2018. It rallied double digits from trough to peak. And investors are now extremely bullish.
This commodity crashed the last five times this happened. And the next fall has already begun.
The opportunity is betting against corn.
Corn doesn’t sound like a sexy trading idea, I know. It’s not Elon Musk putting people on Mars. But hear me out…
After a steady climb higher, futures traders are now extremely bullish on corn, based on the Commitment of Traders (COT) report.
The COT report gives us a gauge of how traders feel about an investment. It tells us what futures traders are doing with their money in real time.
When futures traders all bet in one direction, the opposite often happens. Today, futures traders are all betting on higher corn prices.
We’ve seen similar bullish levels five times in recent years. And corn prices fell dramatically in each case.
You can see this on the chart below. It shows the corn exchange-traded fund (“ETF”) – the Teucrium Corn Fund (CORN). The arrows represent the last five times futures trades were betting on higher corn prices to the same degree as they are right now (and the most recent example as well)…
Prices fell dramatically in every case. In fact, each instance led to a double-digit decline for the corn ETF over the following six months. Take a look…
That’s a perfect track record… and an average loss of 19% in six months.
Futures traders haven’t been this bullish on corn in nearly two years. And simply put, you really don’t want to be long corn when these traders are this bullish.
The commodity is already rolling over. The corn ETF is down 4% in recent days. And history says this is likely the start of a major downtrend… with potential double-digit losses.
Shorting the Teucrium Corn Fund is the simplest way to profit from this idea. But even if you don’t make the trade, this is another example of why sentiment is vitally important to investors.
Go out looking for crowded trades… and then make the opposite bet. That’s how you earn outsized returns in the market.
Bill Bonner went to law school with Fed Chair Jerome Powell... Co-authored 3 New York Times Best-sellers... And is one of America's most successful entrepreneurs. Bonner's made 3 big macro-economic predictions in his 40-year career, all of which came true. Now he's issuing his 4th and Final Warning. 2023 could be a difficult year for you and your money. See Bonner's warning and 4 recommended steps here...
Source: Daily Wealth