We have been slow to recommend ag commodities which has been a mistake for the most part but we are coming around. We believe the ags are in a bull market and the overall trend is higher. This should remain in place this year even if the US grows a large crop. This does not mean we are ready to buy grains today however as they are presently quite stretched.
Soymeal is a high-protein feed supplement for livestock and it is consumed most heavily by livestock in the cold of winter. In the spring, consumption begins to decline. With an eye toward harvests in South America, US meal producers sharply curtail production leaving end users competing for a smaller stream of production and from smaller supplies of old-crop soybeans which were drawn down by heavy use during winter.
The symbol for soybean meal is ZM. Despite making a 6 year high in early January, ZM has seriously lagged corn and soybeans. ZM had a good run last fall but has drifted lower so far in 2021. The price has dropped below -200 on the Commodity Channel Index (CCI) and has formed a hammer doji on the price chart. Once we have a swing low in place and the CCI comes back above -200 we will have a buy signal.
The 5 day RSI is deeply oversold.
The weekly charts are oversold as well. In bull markets, commodities can remain overbought for a long time but they tend not to be oversold very long. While the RSI made it quickly to oversold, the Stochastics probably are not going to. ZM has been in a terrible bear market now for many years but the 200 Week Moving Average has turned up signaling it is now in a new bull market. Oversold conditions need to be bought.
In additional to the technical reasons why now is a good time to buy ZM, Moore's Research also believes history is in your favor. ZM has appreciated in 13 of the past 15 years when bought March 16 and held through April 2. The 16th is on Tuesday. The average profit on winning trades has ben $863.
So most of the planets have come into alignment for this to be a profitable trade. The plan will be to buy the July ZM contract once it makes a swing low, so we will be trying to buy very near the bottom. We would expect this will come Sunday evening or Monday, which will be a day early.
The ZM margin requirement is $2310. We will buy the July ZM at 405.7 with a stop at 395 risking 10.7 points. The minimum target will be $458.2 giving us a potential profit of 52.5 points. This is a 4.9 to 1 risk to reward ratio. Each full ZM point is worth $100, so we are risking $1070 for the opportunity to make $5250.
The largest gain in this time frame was in 2014 when the trade made $3480. In the environment we are in, it is logical that we think bigger. All ag commodities are moving fast and moving big, so it is OK to think big with ZM as well. (I did not say go big)
Just to be clear, there will not be a buy recommendation on soybean meal until we have a swing low.
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.