While corn, soybeans, soybean oil and wheat have all been trading off their highs for four days now, soybean meal looks to have just given confirmation of a top. Soybean Meal (ZM) showed exhaustion yesterday and followed that up by producing a swing high today. In addition, ZM has given us a sell signal today on the CCI at a time when the price is stretched well above the 200 DMA.
On the weekly chart, ZM is showing extreme oversold levels for only the 4th time in the past 3 years.
Timing is usually the difficult thing when taking trades like this. Sometimes we don't hit the exact top such as on the corn and soybean trades a couple weeks ago. Look at the weekly chart above from March of 2018. Prices then reached overbought levels, backed off and then reached the highs a second time before finally dropping. We cannot trade with that expectation however. We need to be quick to take advantage should an event such as we had earlier this year when prices quickly reversed. The fact that the dollar is rallying and the major grains we trade are already dropping should work in favor of this trade working.
Soybean meal trades in 100 ton contracts and the margin is $1210. Every dollar that soybean meal moves is worth $100.
The trading plan is this. We short ZM at 336 or better with a stop at 344 risking 8 points, or $800. We would expect ZM to drop to the 50% retracement level at a minimum which would be a 19 point drop for a $1900 gain. This would be a 2.4 to 1 RR ratio. The 200 DMA would probably be around $310 at that time would would be another 7 point drop. If that happens, it would be a $2600 gain on the trade for a 3.25 to 2 RR.
We are on the cusp of a failed daily cycle now which means gold is moving into an ICL. The gold cycle is very stretched at week 27. A normal intermediate cycle will last 18-25 weeks, so this is due. This is why we have avoided metals trades the past month.
As the dollar is increasing, this will put more pressure on the metals. Gold could drop to 1750 or lower, probably ending in a blood bath fashion.
We also have a failed daily cycle with silver. I think we could also see silver back down to 21.....perhaps as low as 19.
So I would recommend shorting gold at 1900 or better with a stop at 1920 risking 25 points. If we get a 150 point drop you have a 6-1 RR. Each point is worth $100 so you would be risking $5000. The margin required is $10,230. If your account is less than $100K you should stick with a micro gold which is 10% the size, 10% the risk, 10% the margin.
I would also recommend shorting a silver at 23.50 or better with a stop at 24.50. If we get a drop to 20 the trade would have a 3-1 RR. Each penny is worth $50, so a $3.50 point move would be worth $17,500. The margin required is $14,575. Again, you should stick with micro silver contracts if your account is less thatn 100K. A Micro silver contract is 20% the size, 20% the risk and 20% the margin.
The last 2 times we have traded cocoa we have come out on top with a decent gain. It has treated us well to this point and so has most of these softs. They appear to be the one bright spot in the market we are in, doing what they should do when we want them to do it. Cocoa has given us a sell signal this morning forming a swing high.
The weekly chart is also showing overbought conditions as you would normally see at intermediate cycle tops. Betting the long side on cocoa at this juncture would be risky business.
The timing couldn't be better, Moore's has shorting cocoa as one of there September trades they recommend with an entry date today. This trade over the last 15 years has earned money 80% of the time, 12 out of 15 years.
According to seasonal data we are heading into one of the few bad time of the year for cocoa. Cocoa is harvested in two crops October-August. The main crop is harvested October-March and accounts for about 80% of total production. Thus, prices tend to decline from mid/late September into mid November, when deliveries against the first new-crop contract, December, begin. You can see how this harvest period coincides with prices seasonally on the bar graph above, prices begin to drop heading into November.
The margin for cocoa is $2,090 and a 1 point movement is worth $10. Price is extended well over the 200 DMA right now and just fell under the 10 DMA today giving me more reason to support this trade. A fall from the current price near 2590 to the 200 DMA near 2420 would be worth, 2,590 - 2,420 = 170 x $10 a point = $1,700, $1,700 per contract. I am placing stops well above the previous high at 2725. We are risking about $1,300 on this trade.
If you would like in this trade contact us via WhatsApp.
The Euro needs to recover quickly or it will have a large decline out of this large rounded top.
By virtually any measure the dollar has bottomed. There are no more confirmations that I can dream up that will prove that a final low is in. This should be an intermediate cycle bottom. This should rally at least 3 more weeks before it tops.
So the euro is now dropping from all support. There The next level that could possibly catch the euro would be the 38% Fibonacci level around 1.155. I think it is more likely that we see the drop to the 50% retracement level which is near where the 200 DMA will be in a few weeks around the 1.14 level. This would be a 3 cent drop. Every cent the euro drops is worth $1250. Place a stop at 1.18 and you would have a Risk reward ratio of 3-1.
Corn and soybeans have made swing highs this morning. I am recommending we take a small short position in corn and soybeans here.
Soybeans have given a sell signal on the Commodity Channel Index.
Beans are overbought on the longer term weekly charts as well.
The last time soybean optimism was this high was 2012.
Moore's Research shows that soybeans shorted September 17 through October 2 is profitable 13 out of 15 years. From the heights soybeans are on now I really like the chances this could work out. On average, this position would drop 54 cents, or $2700 per contract. I think we should get at least that much drop here.
Margin on a soybean contract is $1,650. I would still keep a stop above the contract high at $10.10. If you can buy soybeans at $9.95 you would be risking 15 cents per contract. a 54 cent drop would give you a 3.6 to one risk reward ratio on the trade.
Likewise, corn has also made a swing high and the 5 day RSI is rolling over. This is indicating we likely have a daily cycle top in place. There is a gap to fill at $3.45 which would be the target.
The weekly chart also shows conditions which could indicate corn is at an intermediate cycle top.
Margin on a 5000 bu corn contract is $935. I suggest shorting corn at $3.65 or better with a stop at $3.72. You would be risking 7 cents. I expect we will see corn fill the gap at $3.45 or a 20 cent drop. This would give you a 3-1 risk reward ratio on the trade.
Another soft has caught our eye. Sugar made a swing low today giving us buy signal. The US sugar crop comprises of both beets and sugar cane. Harvest begins in Autumn, but beets must be in the bin before the first hard freeze in northern states. With physical stocks at their annual low when harvest begins, prices rise as commercial consumers lock in prices and protect against an early frost. With winter coming up companies should begin hedging their beet crop soon, it has already snowed in Denver.
Moore's has this trade as a buy with an 80% success rate over the last 15 years; 12/15 years this trade has profited. We would be entering about a week early but we are getting a buy signal now.
Seasonally this is one of the best times of the year to buy sugar, likely related to the fact that commercial companies are hedging their product against an early frost.
We have received a buy signal on the RSI on both the weekly and daily charts.
The margin for one sugar contract is $1,047 and each penny the contract moves is worth $11.20. Using technical analysis of the most recent 3 price rallies out of oversold conditions in the RSI, without as much seasonal data to support those positions, we can expect a rally to 1420. If we enter at 1280 near the swing low the price increase would be 140 points. 140 x $11.20 = $1,568 per contract. We would place stops just below the low on 9/11 at 1240 meaning we would be risking $448 per contract. That is more than a 3:1 risk reward ratio.
This is a great trade if you are concerned about your current margin levels. Margin on this contract is small compared to most other things we trade. We will be trading the March futures contract as it has the most volume and is what Moore's recommends.
If interested please contract us via WhatsApp.
We were quick today to by into the NASDAQ, but as fast as stocks move any more, if you are going to trade them you have to be willing to jump on board. Today was day 60 of the daily cycle and I am marking this as the daily cycle low. Tomorrow will be the first day of the new daily cycle.
This next daily cycle will be the 4th daily cycle of the intermediate cycle. This is a rare event and we should not expect an enormous ride like we have had the previous 3 daily cycles. Looking at the weekly chart you can see the weekly oscillators are overbought and will need to move back to the bottom of the range before we can establish a new intermediate cycle.
Optimism on stocks quickly reached oversold levels. The short term optimism index reached oversold levels and is quickly moving out of those levels.
So for now I think we can make some money over the next week or two but I am not expecting this to be a long term trend to ride. This late in the intermediate cycle, once the short term indicators reach overbought levels we should not plan to stick in the trade very long.
We are trading the NASDAQ but we still use the ES for cycle counts and is a better tool to measure what real sentiment levels probably are.
I know we just had a great long trade in coffee this week but every good thing must come to an end so we can have another great trade in coffee potentially. A few people have reached out to me asking “wasn’t price supposed to get to 133?”, it nearly did trading up to 132.70 but guessing the peak is impossible and that is about as accurate as you can get. We were stopped out of our coffee positions at 128.95. We placed stops there because a drop in price near 129 would be a swing high, indicating that it is time for the price to reverse and begin trending down. This creates an opportunity for us to short and stay with this coffee that has treated us well so far.
The price of coffee has been trending up since mid July creating extreme bullish sentiment levels. As we can see from the chart below we are nearing time for a price reversal. When sentiment reaches a level near 65 in coffee price meets resistance and is pushed back down, sentiment on coffee is currently 64 and had reached 65 yesterday.
Seasonally speaking coffee does not do well in September and does well most any other time of year.
Coffee has reached overbought levels on our weekly RSI indicator and today has been moving back and forth over the sell indicator on the RSI at 70.
The current price on coffee is extended well over all moving averages with the 10 DMA near 125 and the 50 DMA near 110. A great sell indicator would be the price crossing the 10 DMA but if we wait for the price to fall we could miss out on over $1,000 worth of profit. We will be entering this trade early which allows us to catch as much of the price drop as possible.
Using technical analysis from the last time sentiment reached these levels and price was forced back down we can assume we will be looking at a 10 point drop from the top at 132 down to 122. If we enter near 130 we can profit off an 8 point drop in price. At $375 a point we would be looking at a $3,000 gain per contract. We will place stops just above our high at 133 risking $1,125 per contract. That is nearly a 3:1 risk reward ratio.
If you are interested in this trade reach out to me on WhatsApp.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.