The $50.00 stop which was placed on oil yesterday was hit, ending the synthetic corn position which I began initiating back on December 29. After being stopped out 3 times for .053 in losses, the position took hold on January 9 at $56.80.
This trade netted $6.80 per barrel on the oil or $6,800 total. When divided by 17,750 bushels of corn, this amounted to .383 per bushel which exceeded the initial goal by a nickel. Adjust off the .053 in stop losses back when we initiated the position and we netted .33. When added to the .35 collected on the wheat puts we sold back in December, we have a .68 jump on corn for 2017. The pressure is not there to hope for some sort of drought someplace to take corn back above $4.00. We could sell our corn now for $3.35 and still be above $4.00. (I have yet to make a physical corn sale recommendation for 2017)
The key to using synthetic strategies is to make these decisions at intermediate and yearly cycle highs and lows. I am still anticipating oil to have at least one more cycle lower to complete a yearly cycle low, but this correction could be halted pre-maturely if the stock market roars higher. Sometimes, oil will get dragged higher with a strong stock market. If oil is allowed to complete a normal yearly cycle low, we will initiate another synthetic position at that time.
Pick your poison.....the battle of wits has begun! You are no match for the markets brains!
I have to be honest, I have no idea what is going to happen with the unveiling of Friday's USDA report. This is why using an option strategy like the ones I recommended last month are so useful. They can take a lot of pressure off ahead of reports such the one on Friday. You would already be quite a bit further ahead had you followed this strategy on corn or soybeans and you shouldn't have much concern over what is contained in the report. You are making money either way.
If you have not made any 2017 sales yet, you are probably feeling especially pressured. You could sell some physical bushels, but $3.80 corn and $9.70 beans are not appealing prices either, especially since making such a contract would not allow you to participate in any sort of summer rally.
The best "option" I can see for now are near dated put options..... just something to get you past the report for a few weeks. Just to keep it simple, I am recommending May $3.55 corn and $9.70 soybean puts. The advantage is that if the market report is bullish, you will have left your upside opened. The downside is really just the cost of the option. The total cost of the corn option net of commissions will be about .07 where the total cost of the bean option net will be about .185. I am recommending the near term month because there is just no volume or open interest to go out to Dec on a serial put and they would cost twice as much. We could look at other things you could do to reduce costs, such as making the position a bear put spread. If you want to do something like that, I suggest you contact me.
You have until Friday morning to do something. If you wait until Friday morning to open a brokerage account, you waited too long. You do NOT have to fund a brokerage account to open one, but you must have one opened ahead of the report Friday if you want to buy an option. If you want to open a brokerage account with me, here is a link.
Corn is not in an actionable place for me. While the commodity channel index and the sentiment index are low, they are not what I would call extreme. Even the cycle counts leave open more room to the downside. Corn cycles usually run about 23 days from one bottom to the next and we are only at day 9.
Sentiment readings still show there are too many bulls at 35%. I would prefer this number a little lower before Friday's report.
I think we all know that there will be a lot of soybean acres planted this year. The question will be are more people planning to plant soybeans than what is anticipated or less. My personal feeling is that this report will be very bearish and we should see lower prices, but the charts show a different story. The cycle counts still are not bullish, but we will have a buy signal any day on the commodity channel index.
Optimism has not been this low in soybeans since about this time a year ago, and you saw what happened to soybeans afterwards. There are a few bulls out there, and I would prefer this number be at 20% instead of 30%, but still this is an extreme number. I would not be surprised to see a sell off for a few days after the report, but the market turn around quickly because the market simply ran out of sellers.
I do not possess a "dizzying" intellect, but believe strategies such as these could make a big difference in a year where the market keeps taking away, while giving very little back.
As I am writing this, oil looks to be trading a bit lower tonight. I am going ahead and placing a stop at $50.00 should something unexpected happen. I am still looking for price to move to near $46.00, but want to be sure to capture gains the market has given us.
3 Way Option Spread
Back on February 24, I shared an option spread strategy to increase floors on your corn and soybeans. The intent was to add this as a layer on top of your existing crop insurance policy because if you are collecting on your crop insurance this year, you are probably losing money. I will be updating this strategy throughout the 2017 crop year. As of today, both of these strategies would already be in the money.
As I mentioned on my last post a few days ago, oil was forming a bear flag and would probably have at least one more leg lower before this cycle would finish. I expect this to move to near $46.00.
Grain looks to me to be in the beginning stages of trading fundamentals which really look poor at the moment. On the bright side, the dollar is moving into its yearly/multi year cycle low now. This is supportive of grains, but I fear that the market is beginning to focus more on massive new surpluses. Its anybody's guess what will happen with the planting intentions report. I will be working on some sort of strategy to help lock in a higher floor ahead of that report next Friday.
Please do not wait until next Thursday or Friday to attempt to open a brokerage account. If you would like to try any of these strategies I promote on this site, you should have your account ready. You do not need to have the account funded ahead of any position you try, but you should at least go through the process to have it ready. I don't have to be your broker to try these strategies, but here is the link to open an account with me.
Oil has already reached the $51 target I set out to achieve when putting on the trade back in December but I am still in the oil position. I am seeing some things which lead me to believe that oil still has one more leg lower to go before reaching its yearly cycle low.
Oil has traded to the 200 day moving average on the near by chart, and seems to have found support there which you should expect. Because oil is in the timing band for a yearly cycle low, we should expect oil to break its yearly cycle trend line. When that happens, the next area of support would be at the last intermediate cycle low which was around 43.
Oil looks like it could be forming a monster bear flag on the December chart. Should this confirm, the measuring distance would have oil moving to 46. That would be enough to push the oil optix below 25 and set the stage for a monster rally. This would be a $10 move from where we entered the position. That is worth $10,000. When converted to synthetic bushels, that would be worth .56 per bushel.
The largest moves you have with any asset is that initial thrust out of a yearly cycle low. Because of the extreme bearish sentiment present at yearly cycle bottoms, the first move out is huge. We will want to buy this position when the time comes, probably some time late next month.
The crude oil short has been a long and suffering position to hold onto. Anybody who follows crude closely would not be surprised by 5% daily moves, but the loss Wednesday was abnormally large when compared to recent history. Long drawn out moves like what we were holding can produce explosive moves, and this move did not disappoint in that regard. Wednesdays move was the largest in more than a year.
After being stopped out several times, we finally got a short order to stick back on January 9 at $56.80. I was expecting a large move which is why I stuck with the trade. I had some clients stop out in February at $56.50. The next time the yearly cycle is due to bottom, I will probably recommend a larger stop.
When I outlined how this oil position would work in the context of grain back in December, I said you should expect a target of $51 as a minimum. We have already exceeded that target, and probably have a couple more dollars to the downside to go still. Sentiment Trader still shows sentiment readings at 43% bulls. This yearly cycle will not be complete until we have sentiment readings closer to 20%.
What all this means is that each oil contract which was shorted at $56.80 is now worth $6,470. Divide that by 17,750 bu of corn (explained on the December 30 post) and you would now be up .365 per bushel on this position. Combine that with the wheat put short back earlier in December and you would now be up over 70 cents a bushel on corn. These synthetic trades are a lot easier to make than trying to pick moves in corn and soybeans. Even with wider stops than we were giving, this would be safer than trying to trade grains in flat trendless years.
Much of my bullishness in the grains were based on the dollar. Just as oil is now trading into its yearly cycle low, the dollar is still in the timing band to move into its yearly cycle low. A year ago, oil and commodities traded into a multi year cycle low which produced powerful rallies in oil, grains, precious metals, etc. The dollar is now also in the timing band for its multi year cycle low. Unfortunately for grains however, this daily cycle we are in is right translated (peaked on day 19) which means we should not expect the dollar to move a lot lower until later this spring. Near term, however, we should expect the dollar to move lower into its daily cycle low. This might give us our last good opportunity to sell grain this spring.
I have yet to price a bushel of physical corn. I have made synthetic moves to try to boost price, but have yet to recommend selling a single bushel of corn. Since the August low last summer I recognized that corn would be in a grind higher into the price discovery period for crop insurance. I hoped to have some sort of sell signal happen in that time to pull the trigger on corn but there were no signals using the tools I trust and we are running out of time. Seasonally speaking, the months ahead don't provide the opportunities we need.
To make matters worse, for the first time since late last fall, corn and soybeans have made a lower low. Corn was stopped from moving lower at the 200 day moving average, but we now have a failed daily cycle and should expect lower prices for a few months. I would view any rallies from here on out to be selling opportunities. With the dollar set to move lower over the next week, and with a FOMC meeting just ahead, you need to have a strategy in place to sell some corn. A rally back to $3.98 should mean pulling the trigger on a large block of corn you expect to grow, or to consider the 3 way option strategy I laid out last month. If you need a brokerage account, click here.
Sentiment readings are not encouraging either. I am not seeing anything technical in the market besides a weakening dollar to provide the fuel necessary to push prices higher. The only thing I can see on the horizon would be the March planting intentions report.
Like corn, Soybeans also produced a failed daily cycle this week.
And like the corn, sentiment on soybeans are neutral.
So like corn, I believe that any rally moving forward should be sold. We could get a rally in beans this week depending on how the dollar reacts. If we get weakness in the dollar as it trades into its daily cycle low, that could push beans back to the 1020 level. If that happens, you have to make sales.