Oil closed higher on the continuous oil chart yesterday, and today the December oil chart is showing strength. This means that the cycle will likely be right translated and we should expect to see higher prices for the next month or two anyway. My strategy this late in the daily cycle is to keep the stops more snug to keep as much of our gains as we can before prices drop into a daily cycle low. We are probably still a week or two away from this daily cycle topping. Dec Oil will probably work its way to $49 before this cycle tops.
This locks in a profit of $2.10 per barrel, or $2,100. For the synthetic positions, this will mean an additional
Stops were triggered at $47.50. This synthetic trade is now closed.
The oil positions have not provided the returns so far that I had hoped coming out of an intermediate cycle low. I must admit I am a bit disappointed. The chart below shows how explosive returns can be as price rallies out of an intermediate cycle low. I attribute the sluggishness this time to the fact that sentiment was not at an extreme. Extreme sentiment fuels hard rallies. The chart also shows how common for mid cycle lows to occur early at intermediate cycles, just as this one did.
I have pushed up the stop for $46.50 to lock in a profit. I recommended buying the position at $45.40, so this locks in a profit of $1.10, or $1,100 per contract.
Bull markets are marked by right translated cycles. The oil cycle usually runs 30-50 days. For a cycle to be right translated, then it must top at least after the cycle is half the way finished, meaning 15-25 days. Oil is presently on day 20. The previous high was on July 5, which was only on day 9. For this to be a new intermediate cycle, its first daily cycle should be right translated. I think it will be, but this sluggishness has factored into the decision to tighten the stop.
This sluggishness is also tempering my expectation for this trade. My initial expectation was for oil to make $52-54 in its first daily cycle, I am beginning to believe it will take at least two daily cycles to get there. That being the case, I may recommend that we exit positions should oil reach the 38.9 Fibonacci at $49 if price must grind higher to get there.
Most marketing publications use Fibonacci Retracements as a tool to spot potential targets for actionable events. Most people who trade use Fibonacci's and they are one of my favorite tools. The other side of the Fibonacci retracement is the extension. What if price trades above a consolidation area where it has never been before? Enter the Fibonacci Extension.
2018 July Wheat has pushed against such a level at 261.8%. In addition, the CCI will soon project a sell signal. I don't make wheat recommendations as a general rule, but this has sell written all over it. I am recommending to get to 50% sold 2018 wheat at $6.025.
I had mentioned on my last post that oil should be moving into a half cycle low and thus creating the point where by a trend line can be drawn. This cycle is presently on day 13, so we should enjoy a strong bounce for the next week or two. If you wanted to participate in this trade or add to your position, you probably want to get on board today. The risk is easily managed here with a stop just below the mid cycle low near $44.50. You can still get on board near the same price as where the original recommendation was made back on June 27.
I finally have something to write about regarding grains which really is the purpose for me writing anything on this blog in the first place. I am 50% sold cash beans and 0% sold corn. I am making some substantial sales this week.
These weather rally spikes seldom last long unless higher prices become necessary to ration the crop. I don't think we are in that situation, but if we sell too much this week, we can always take re-ownership later should we need to. This is why a brokerage account is necessary for most farmers.
The chart below for JJG (corn, soybean, wheat etf) clearly shows that these events tend to last only a few weeks. They are usually triggered by some sort of event such as weather, but not necessarily. I think the overall reason these events happen is due to a large number of short contracts held by large speculators, which in the rush of getting out of positions creates buying frenzies. Eventually the market runs out of buyers (green circles) and the sellers seize control again and the market driving prices back to where they were before (red lines).
Picking where prices will move is nearly impossible. My best guess is December corn will have resistance at the $4.20 area from last summers highs. At a minimum, you should sell 50% of your corn here and probably place some sort of sell stop below it say around $4.05 if you wish to gamble with the other half. I will be at 100% sold at $4.20
If 2018 corn reaches $4.30, I am pulling the trigger on 15% of the crop.
If you only sold soybeans when you had Commodity Channel Index sell signals, you would consistently be selling at the highs. We still do not have a sell signal on soybeans yet, but we will have one soon. What we have now is beans touching a major resistance level at $10.43. You should probably price at least 50% of what you have left to sell here. This will have me positioned at 75% sold. I think we could possibly still have another push higher to sell what you have left.
I am not yet ready to sell any 2018 soybeans, but we will have a CCI signal soon. Given the track record for selling at these moments, I will probably make a recommendation to sell...perhaps in the $10.30 area. Fibonacci extensions would take price to $10.44. Price should move in that range.
Back on June 27, I sent out an email notification that oil was tradable after breaking out above its daily cycle downtrend line. This probably marked an intermediate cycle bottom and created a tradable area to enter another synthetic grain trade. My recommendation was to buy oil at $45.40 using the December crude contract.
Oil peaked early this morning at $48.25 but has been on a deep pullback every since and is presently trading just off the low which was $46.30.
Could this be the beginning move down to new contract lows? Perhaps, but already I have stops in with my customers at $44.20 so that risk is pretty slim. What I expect is happening now is a natural cycle event where oil is moving into a half cycle low. On the chart, this simply becomes the second point where by a trend line can be created. For anybody who would like to "hop on the oil train", this would be the place to do so. If you already have taken this position but would like to add to it, this is the place to do it. I still expect oil to reach the 200 day moving average which is at 52. There is still a lot of profit left in this trade.