Another “Sweet” Commodity Rotation Coming Soon
Recently, I talked to you about how the grains would soon turn down as traders rotated out of them and into beaten-down coffee.
Well, the tide is about to turn for another set of commodities too.
Corn is another commodity that has been chased in 2012. You’ve seen it mentioned quite a bit on the nightly news as the momentum chasers piled into this trade due to the droughts that crushed corn crops all over the place.
Corn is presently up 16.79% for the year. However, money from this high-flier is about to rotate into a beaten down commodity: sugar
Sugar is down 26.51%. It’s the second worst performer of the year (with only coffee performing worse this year on a percentage basis).
So let’s see what this looks like when comparing corn’s ETF (CORN) to sugar’s ETF (SGG) below.
This Steep-Angled Trend is About to Crash
You’ll see that these trends can reverse even more quickly than they formed. In 2011, corn’s steep climb relative to sugar made major strides to the upside within four months but then crashed back down within only roughly two months.
In 2012, we’re having a repeat. The uptrend in corn versus sugar has lasted around five months so far this time. Even if the collapse takes four to five months this time, it would be a huge gain for sugar.
Momentum traders are still enamored with corn. But that’s going to change soon because these steep-angled trends don’t last forever. Once the corn trade begins to unravel, it will likely unravel quite quickly. Money will be searching for a safer commodity home, and it will be found in beaten down sugar.
So once this trend reversal is confirmed, we could see the sugar ETF (SGG) rally about 30% within mere months … more than likely three to four months or less.
Therefore, watch for these grain and corn trades to fizzle out. Once they do, coffee and sugar are going to be the new stimulatingly sweet trades to be in.
Have a nice day!
Editor, Commodity Trend Alert