Over the past couple weeks we’ve noticed that the bean complex has had some buying pressure from big money. We love seeing this type of bullishness in commodities from managed money. We have also been watching seasonal patterns in beans which indicate higher pricing into springtime planting. Reports also show that farmers are planning on planting less beans per acres. Everything we are seeing points bullish.
Trade Idea:Long July/Short December Bean Meal-The seasonal pattern is highly correlated with 5 year and 15 year averages tight and trending. Over the last few years this spread has shown increased volatility mid May, if trading this spread May typically marks the high print. The 15 year average price high is $30 to $40, currently trading at $10, this spread certainly has a lot of potential.
We have resting orders at the up-trend line down to the grey box, between $6.50 to $5.50. Stops are being placed below $2.00. Risking 4 to 5 points.
Wheat has been in rally mode for all most two weeks, coming off 2015 lows of 4.92. Price rallied into what we think is a bear flag (not a text book set-up) and is now consolidating within this pattern. We are starting to sell wheat with anticipation that price fails and sells off to contract lows. Stop placement at this time is above 5.34. We are under trading this set-up managing our risk below 1% total risk. Volume has been increasing as the “flag” was being formed, which is not the type of volume trend you want to see. But we remain bearish on the technicals and will play this swing lower. We are currently short with our stops above 534.50.
Live cattle spreads are still looking great, seasonal patterns are tight and correlated. Front month live cattle could see a rally in the coming days to establish a higher low, but we think any rally is a selling opportunity.
Trade Idea: Short August/December Live Cattle- Seasonally we couldn’t ask for a better spread to trade. The 5 year and 15 year averages are very correlated and tight, with correlation in the upper 90’s. Out of the last 15 years this spread has traded lower 14 out of 15 years, and the average low price over the last 15 year average is $-12.00. Now that -12.00 average low price is not a profit target, but more of a idea of what could happen. Fundamentally speaking we remain bearish on live cattle prices, and today the USDA WASDE report will come out which will give us an updated view on the fundamentals. Technically we like selling this spread around $-2.50.
Win%———93% 14 out of the last 15 years
Days in Trade———55
This week we will be looking at Cotton as a potential swing trade. Lets start by looking at the weekly chart below.
Cotton made an impressive trend trade throughout 2014. Any short trend traders that sold this when the floor was removed made a huge return. Our focus will be on the tight consolidation that we are currently trading in. On the weekly chart we can see a descending wedge, and we know descending wedges are bullish in nature. But this being a swing trade, we are looking to sell and buy those areas inside the wedge.
Our next trade inside this wedge will most likely be a short position. We want to sell this at 62.00-62.25 with our stop above 63.00. If we don’t get filled and cotton wants to sell off we would look to buy the bottom end of the range.
Gold has been in rally mode all year (2015) and is now approaching a great technical spot for a swing trade. With this trade idea we need to take a contrarian stance to establish this position.
Below is a weekly chart of /GC. Gold is in a nice descending wedge which forms normally in a downtrend as a continuation pattern. We are looking for gold to sell off and for a continuation of its down trend.
Below is the daily chart of /GC. We are looking to sell short around 1300, stops need to be placed above 1325 and our primary target is the lower horizontal support line of the descending wedge. We do have multiple levels for profit taking, but our analysis is for gold to pullback to the 1200-1180 level.
Lately everyone is coming out putting their two cents on where the S&P 500 is headed. I figured I would throw my thoughts out there.
Looking at the chart we can plainly see that the SPX has been trending higher, almost text book perfect for the last two years. Over the last two years the SPX has been in a tight up channel, making higher highs and higher lows. The most important thing about the trend and the technical pattern we are in is, will we continue to see more of the same? My answer is yes! Until we break to the down side making the pattern no long valid we should continue to see the same. With that said whats the upside target? Traders for some reason like round numbers, so my target would be for a print of 2000, about 50 handles away. This target is only valid if we continue to see the same type of price action. The time frame for this to happen is anyones guess, if we hit my target with no pull back that would be unhealthy for the market in general. I would have to believe some type of pull back would happen before we hit 2000.
In conclusion S&P 2000 at some time this year would be a reasonable target after a pull back or two. Keep in mind that market conditions can change, and if they do watch for a violation of the current price pattern.
Targeting a pull back to support before higher prices is now the focus. I think you can look at this a few different ways. The first would be a moving average, I like the 50 and the 150. If price pulls back to the 50 we could see some support with up tick volume and a bounce to higher prices. If price breaks the 50 day the next line in the sand would be the up trend line. At the up trend line we need to look for strong up tick volume for prices to move higher. If price breaks below the up trend line the last line in the sand would be the 150 day moving average.
My personal “want” from the market is sideways action!
We have been watching a soybean meal spread over the last few weeks and we are at a high probability spot to sell this spread. Front month soybean meal is trending higher with soybeans, but we are starting to see some weakness in soybeans and we think soybean meal will follow. On top of that we have a strong seasonal pattern and typically we see demand for soybean meal decline in mid to late summer months.
Trade Idea: Short October/Dec Soybean Meal– The seasonal pattern is highly correlated with the 5 year and 15 year price average patterns. Historically this spread has traded as high as $10.00 before the seasonality start date, and thats looking at data since 1985. The 15 year price average is around $4.00 to $4.30. Now we don’t usually refer to average price, but in this case we will because the technicals are setting up with agreeing fundamentals. Looking at the spread chart we think the resistance area around $4.00 would be a good place to take the initial position. We have an open order GTC at $4.00, our risk will be $600 per contract.
Win%———-93% 14 out of the last 15 years trading this spread
Days in Trade———57