The Ted Spread
Ted is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group and specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations. He believes it is paramount to be able to use different strategies to adapt to market conditions. Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.
What does a Key Reversal in Dec Corn mean?
Aug 05, 2014
TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
Sunday night December corn pushed down to new contract lows and by the close on Monday corn was trading above Friday's high. By definition this is a key reversal for December corn. Key reversals are not always indicators of highs or lows but they are something that most every technical trader takes notice of. So, what could this key reversal in December corn mean?
First of all it is important to note that September corn did not have a key reversal. Many technicians will argue that if a key reversal does not happen in the front month it does not have as much meaning. However, even though September corn is technically the front month December corn actually has more volume. As of Tuesday morning September corn had an open interest of a little over 455k contracts while December corn had open interest just shy of 630k. So from my perspective this key reversal in December should not just be written off.
Another argument in favor of dismissing this key reversal will be the fact that we are in a weather market and weather markets can be volatile. While this is certainly true it is probably not a good reason to ignore the chart. You could also say that a summer Sunday night trade does not mean much. However, volume was pretty good in the first 15 minutes of Sunday night trading. The fact is this key reversal in December corn is on a chart to stay so what does that mean for corn going forward?
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Key reversals are certainly not a silver bullet. Like everything, sometimes they are a anomaly and end up meaning nothing. However, more often then not they do end up meaning something. Sometimes, but rarely, they can mark a high or a low. More commonly they are a red flag for a change coming. In the case of December corn this key reversal could be an early sign that corn could be getting close to lows or that a change in trend is coming.
From a fundamental perspective the corn outlook may be changing as well. As crop conditions have started to come down a little in the last two weeks so have the huge yield projections. With less rain in most areas we may be taking a little off of the top end potential of this corn crop. There is no doubt that this is going to be a great corn crop and likely a record setting national average yield, but maybe it is not going to be as big as the numbers that had been flying around the market in the last few weeks.
While this key reversal in December corn may not mean the low is now in for corn it could be a sign of things to come. In the short term this could be a technical buy signal until the low is taken out. In the long term it could be suggesting that at this point corn may be in the beginning stages of trying to find a bottom and maybe even try higher prices. However, with the size of the corn crop and the size of the projected ending stocks I still wouldn't be looking for a huge rally in corn.
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December Corn Daily chart:
November Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or email@example.com
Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie
Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.
FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.