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This report was sent to subscribers on 11/28/12 3:30 p.m. Chicago time to be used for trading on 11/29/12.
December 2012 Corn
After the close recap on 11/29/12: My pivot acted as resistance and was 7.60 1/4, .02 3/4 (only .00 1/4 in open outcry) from the actual high, and my support was 7.51 1/2, .00 1/2 from the actual low.
All charts and numbers for 11/30/12 have already been sent to subscribers at 3.30 pm.
December 2012 Corn
7.73 ¼ FG
-----------7.60 ¼ Pivot
5 day chart.... Up from last week same day
Daily chart ... Sideways
Weekly chart ... Sideways
Monthly chart .... Up 6.60 is the 200 DMA
ATR 12 ½ Ex. Overbought 94%
Daily numbers support and resist, downtrend line at $7.60 is a key pivot now.
In my daily December 2012 corn numbers on Wednesday my pivot acted as resistance and was .03 from the actual high; my support was .03 ¼ from the actual low.
Grains: I made it clear I wanted to sell charts like these, taking the sell signals only and why. Soybeans overnight traded $.01 ¾ of its 200 DMA and failed to even "jab" above there to get some buy stops (including ours), and sold off from there. In open outcry in the morning soybeans went to $.00 ¼ from my pivot, sold off giving $.06 for a long time to take a profit. Later in the day it went exactly to my pivot and sold off from there providing another profitable opportunity. I have the same thoughts for today.
The corn market at the same time soybeans made the high in the morning made its high, and was tested and failed at the same time soybeans did late in the day. Unless the market can close above the gap at $7.82, the closer we get to $7.76 the more of a "sell" it is. Selling the downtrend line and not getting stopped out was one thing, now it's above the downtrend line even at the same price (because the downtrend line gets lower daily), and so the bulls are still in position to test $7.76. With my approach the downtrend line is the focus when in play, and now it acts as a pivot with $7.76 being the sideways resistance for months (the bigger picture resistance).
1/3 of my producers have moved some or all $7.20 puts to $7.50, and we did them for $.12 or less which means they "banked" $.18 or $900 per contract minus 1 commission, not concerned anymore about the $.12 or $600 remaining on the table. These are March puts, and much could happen but one thing is certain, they have $900 per contract in their pocket, and not friendly enough to think the market has better than a 50/50 chance to close above $7.50 ten weeks from now. They also know that this $.18 is not a spin your wheels hedge anymore; they got all the money down to $7.20, so anything more is now "new earned income". Most have.... Subscribe now
As I say every year, each producer should know his own cash market better than any other source, including farms just 50 miles away. It is something that only you should make decisions on.
I will say again, I would lock in inputs costs as well as an option strategy that locks in at least the first $.60 down. Look at 2013 corn and soybean prices, it depends on if you rent or own, or both, but with the rents I am hearing, locking in something is more compelling than any other year. Otherwise you will be begging the landowner to adjust your rent with prices at $5 corn and $11 or less soybeans. Look at the soybean price and corn price for 2013. I would plant pillar to post corn if I could. Night and day profitability, and with the loan support in place and not part of the farm bill, I would be profitable crop or no crop, just buy the maximum insurance. "IF" there is a dust bowl, crop insurance will give you the biggest payout on record prices that could produce record profits with no crop at all. And if you do have a crop when the rest do not, you win the lottery twice.
Depending on price, there could be 100 million acres planted, and with an average let alone above average yield, $4 corn here we come! Mother Nature is the only one who knows what the result will be. You would think soybeans will go higher to compete for acreage, but it did not really happen in 2012, they just planted enough to satisfy both markets. SA is on its way to a record crop and only, Mother Nature; tell me who wins the Super Bowl this year too? My strategy locks in $.60 "at the money" and allows for at least $.80 up unscathed, and then sold only $1 away of any price move higher than that.
I still say "I want to take the sell signals only today and use the support numbers to take profits but not go long. I want to risk $.04 in corn and $.06 in soybeans using a buy stop to protect".
Grains: Nobody knows when the chart level will not hold, in this case the resistance, but I would never "cheerlead" it to be this time, the odds as you have seen show that the amount of times it holds lets you profit greatly when it does, and risk a minimum amount when it does not. Even if it held just half the time, you should be well ahead on what you made when it did versus the stop loss when it did not.
Nobody can be certain in predicting where we will be 1 week from now, even just higher or lower than here, but in my 40 years I have seen the charts be able to greatly improve on the 50/50 chance of up or down from here, and project where the "run" will end. It is much better than being random using fundamentals.
So I look at the charts everyday and plan trade ideas before I make them, and am patient to wait for chart levels that improve my chance to be profitable, no matter long term or day trade. If I am in the middle of a sideways pattern I am not aggressive, but at the sideways range support I want to take the buy signals, and at the ranges resistance I want to take the sell signals. It does not matter the market.
Corn managed to kiss the downtrend line and closed there to make it pivotal today. It deserves taking a sell signal, and if stopped out the first resistance I would sell again. How many contracts to trade depends on what you think about the market, and if I was a bull my way of being short would be to exit my long. For producers though it means to lock in some of what the market gave you, if not you will be losing what the market has put in your hand. The March $7.50/$7.20 put spread settled at $.11 5/8 which means you can lock in $.18 3/8 minus 1 commission. That is what you are risking to get the last $.11 3/8. I take profits for a living, and take money off the table as I get to my objective. I am not concerned with the $.11 3/8 to be made, I am concerned with losing the $.18 3/8. If I am going to gamble, I would take a fresh trade idea that would risk $.11 3/8 to make $.18 5/8, not keep this risk/reward which is opposite. Think casino owner, end bets not in your favor, or when the risk is more than the reward the casino would close the "game", I exit trades.
As I said before, you can always try to buy the spread let's say $.04 cheaper, but if it goes the other way you will pay $.01 ½ more but do it anyway. I can justify that, risk $.01 ½ to make $.04, but sitting on your hands to get it cheaper and watching it get to $.20 and prohibited then going after $.10.
The January $7.60 call settled at $.16 ¼, $.04 is intrinsic value now (worth at expiration at Tuesday's settlement price of $7.64), $.12 ¼ is premium. If that was the last day, producers (and speculators using a long futures contract) would save the $.11 5/8 not spent on the $7.50/7.20 put spread. $900 on a 20 contract hedge is putting $18,000 in your pocket now; I am not concerned with risking that to get $12,000 more. Mindset, risk/reward, and my approach of having chart criteria to enter and exit my ideas have not changed in decades.
All what ifs are the same, and nobody on the floor had a clue as to why we rallied, and just took old talking points that pinned the tail on the story. Soybeans made a new high for the run tonight and filled the gap, but the market failed just $.01 ¾ from getting to the 200 day moving average, a number I would sell without hesitation, and the risk of $.06 I would gladly lose going after the reward from here. If the bulls can get through there, another opportunity to sell will be at the bracket line resistance of $14.74 ¾ but above there the bulls are back in command.
Bottom line if producers do nothing, if corn is here or higher most will make at least $.20 or $1,000 more per contract than if they would have sold cash instead of rolling to March. Soybeans $.20 to $.50 more than selling cash instead. Lastly, you can always sell cash on a rally and exit your hedge; you should make at least $.10 by doing so now rather than when rolled. In a week or 2 if still at this level, the calls will be worth much less and you could add that to what you would make selling cash now. I want to take the sell signals only today and use the support numbers to take profits but not go long. I want to risk $.04 in corn and $.06 in soybeans using a buy stop to protect.
Grains: This morning grains were in a buying mood with nice gains when open outcry began, but with willing sellers at first resistances. Not exactly a bull market, but one that "grinds" higher if for no other reason than the market is breathing in (going up). It went down and tested the gap at $7.04 five trading days ago and failed twice that week, and so it was time to crawl back up. This is not your bull market that ended just 2 months ago. Now we are seeing the "bottom pickers". This is what is allowing the market to attempt to rally to a resistance level that I would be willing to sell, and for producers an ideal time to lock in more profits. For weeks I have said we will remain in the same parameters, and we have. I say "things do what they do until they do not do it anymore" so I continue to think the parameters will hold, until they do not anymore.
Producers or speculative shorts "covered" somewhere near $7.20-7.30 for the most part, and are long once again even if it is just for $.20 to start with. My producers only left a few cents on the table when they rolled their hedges from $7.90+ to March put spreads, so they got that money in their pocket now, and get to start over putting themselves in a position that if the market can rally, they will make more money. This is a hedge, not really gambling on it rallying, the gamble is NOT having enough put protection. We will make more money if it does rally, or at least give us a chance to sell a Feb call and then a March call to add income and more than pay for the March put spread we have on, and even collect more premium than that if we can capture some of the rally by extending up the put to an "at the money" put. How else can you sell or hedge and not be obligated other than using options, and there is no better strategy I know in markets that are volatile than the one we are using.
Since you are long again now that the market has rallied above your put spread, you are back on stage of the game show called "Deal or no deal". The put spreads are for March expiration and have 3 months remaining, so they move slowly relative to the underlying futures contract, unlike the January options that expire 3 weeks from this Friday which move relatively quickly. All corn put and call options near the money closed down for the day, taking out the weekend time decay, and a sign the market is not expected to do much either way up or down. The March $7.50/$7.20 put spread closed at $.13 ¾, so it is almost a 50/50 payout collected now, instead of going after 100% and maybe getting zero, deal or no deal?? This is up to you entirely, the gamble for not rolling is if the market is below $7.20 on expiration you lost $.15, and if it is above $7.50 on expiration you made $.15 (by not spending to extend up from $7.20 to $7.50). At 50/50 it is easy to reflect your bias of the market in the next 5 weeks, if bullish do not extend the put, if bearish you should do so.
As a trader it would depend on how many I have on and money that is at risk as well as locking in my reward because the market rallied. If I had only a few and was bullish, I would try and see if the market could rally where I can buy the put spread for $.10, thereby locking in $.20 and leaving the $.10 that was left to gain. No matter what I thought I would only keep a few because now I would be risking the $.20 in hand to make the last $.10, NOT what a casino or I would do! But if I had 20 contracts, I would do 10 even if bullish, because I want to "lock in" $7,500 (by extending the $7.20 put to $7.50) because I do not want to risk $15,000, so by doing half (10 contracts) I am putting $7,500 in my pocket and risking only $7,500. Everyone has their own threshold of pain (or becoming emotional), I know mine, and you know yours. Bottom line, never risk more than you are willing to make. One way of reflecting that would be to risk $.01 ½ to try and buy that spread $.04 cheaper. I would still do half at 50/50% ($.15 for $.30) and risk the other half no matter risking a little to buy it cheaper, or if I had a conviction look for even more or not need to extend at all due to a better than expected rally. These thoughts I apply to my futures trading as well, I just applied it to options after they were introduced and traded in Chicago on the trading floor.
Keep a journal and keep in touch with your true thoughts, and reality. I prefer to take the sell signals at resistance rather than buying supports. I continue to say "I want to day trade the market without bias and risk $.04 in corn and $.06 in soybeans using a stop to protect any idea".
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