Hedging Soybeans and Trade Ideas for 4/2/14

Published on: 08:43AM Apr 03, 2014



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This report was sent to subscribers on 4/1/14 3:30 p.m. Chicago time to be used for trading on 4/2/14.

November Soybeans  

After the close recap on 4/2/14: My pivot acted as resistance and was .06 3/4 from the actual high, and my support was .00 3/4 from the actual low.

 All charts and numbers for 4/3/14 have already been sent to subscribers at 3:00 pm. 

Here were the numbers used on 4/2/14: 

 November Soybeans                                             
12.35                                      Major Resistance 
12.31 ½                                
-------------- 12.12 ¾ FG        Pivot 

5 day chart...         Up from last week same day                                                                           
Daily chart   ….    Up (turns Down below $11.87)
Weekly chart …   Sideways    
Monthly chart ….Sideways         11.74 is the 200 DMA
ATR 16 ¼                                      Ex. Overbought 94%    


For 4/2/14: November Chart: Bracket line above is resistance, bracket line at $11.87 and the daily numbers support. Note the blue line, to show where I got $11.98 from the low in April 2012.

I continue to say "Market turns into a bull chart above $12.13. Uptrend correction is still intact".              
In my daily November soybean numbers on Tuesday my pivot acted as resistance and was the EXACT actual high; my support was .08 ½ (only .03 ½ in open outcry) from the actual low.                                         


Grains: I replaced the soybean chart tonight with the front month continuation chart. This is a continuing chart quoting front month prices until it goes off the board, and then the next month becomes spot and the numbers continue on this chart. As you can see, the May contract is the spot month, and on this chart it shows we are at MAJOR resistance in old crop soybeans now. It is the 3rd time at the downtrend line and it has the most resistance, but since we closed so close to it, it is already at the bulls objective to take a profit, and becomes a key pivot. That line/number was $14.90 on Tuesday and closed just below it. This will be like a key pivot today, above it I want to buy, below it I want to sell. If it can get through $15, you can see the high of the day the contract changed hands in July 2013 at $15.25 which is the next resistance. Known risk strategies for a longer term trade idea looking for a retest of $14.25, day trade always uses a stop.

November soybeans $12.12 ¾ FG should be strong resistance in relation to the strong resistance level in old crop now. If old crop is above $15 then I can see a run towards major resistance at $12.35. $11.67 has proven to be the first line of good support that the bulls defended successfully the last 4 weeks each week. When trading, I consider old and new crops 2 separate markets, and should only look at the month you are trading. Trade what you watch and watch what you trade. Otherwise, you might be buying November thinking it will go higher because the old crop is, only to find the old crop keeps going higher (you were right) and the November you are long keeps going down. It does not matter what month I day trade, I just make sure it is at a number for me to risk little if it does not hold.

The bulls have been and still are in control of the market this year posting huge profits. Only they know their plans and resolve. The end users are real, the producers are real, the funds and speculators are real, and even the reasons for each is real, looking at the market as a "game" can do the same thing for you, makes it real. Why? Because games keep score, and in this game money is the score. The charts are the "past performance" in this game, and probabilities change with time. Betting the Cubs to win the World Series this year would be the same "what if" as $10 corn this year. And even if the Cubs are winning their division by 10 games in July, does not mean they can sustain that playing level at "harvest". Being in first place is one thing and capturing the division is another. Watching corn price go higher is one thing and capturing some of it is another. Who cares if you win the game because of errors, you won. I do not care why a market goes to a price level and holds, I just care it did, I win.

What I am saying, is I knew from day one this is gambling when you participate as a speculator, and you can think what you want, but when your account goes down you are losing the game, and when it goes up you made money. When you make so many trades in a day, it is not how many trades you make, or which ones made or lost money, it is the result at the end of the day that shows how you did no matter what you think. It is the end of the week, the end of the month, the end of the year, the year over year that determines how well you are doing. Each trade is like a new chance "at bat".

For an end user or producer it is or should be the exact opposite, they use the market to reduce risk, and that risk is shifted to the speculator. Now through my eyes you see what you are up against, and you are or have already learned the tools you need to improve the way you participate in hedging. When you do gamble it is "inside" your hedge reflected in the strikes you select and then every time you morph it. The risk is clear and known, and we try to keep the gamble as cheap as possible. Not all days of the year you want to take a gamble, but whenever you do feel you have an opportunity you like, that is the time to allocate money.  

Nothing can be better than going higher, and I will be glad to be amazed if it does. The funds resolve, momentum, sentiment, charts, and the "cold" temps, are providing the bulls with ammunition to have gotten them here, and the bears have production yet to be seen like the Calvary over the mountain, but if it comes they will blow the bulls away. Until the crops can be seen, the bulls are putting the pressure on the bears.

There will always be speculators like me who come in daily without position and try to take out of the market what it has to offer that day. I can play the sell side by taking the sell signals only and get stopped out many times over days, because the day it holds the rewards is great.

If I sold the market in open outcry Tuesday (high was $12.09) against the gap resistance of $12.12 ¾, it took only a little while before it went down $.15 to $.03 ½ above the pivot (where you could have taken the buy). If that was the only trade I made, I risked $.06 and could have made $.09 or more, and can make money selling a market that is going higher by day trading. Know what you are doing and why. Only then, will you be able to participate successfully. Reducing stress, reducing risk, slowing down the market and gaining control is a successful start that a hedge provides, wherever the price is at the time of the decision to reduce risk.

My producers are far from day traders, but all use the daily numbers on the days when they need to do something. If on the day they need to reduce call spread lets say, and we are below the pivot, they might try a price an order at a lower price. If they want to sell let’s say buying more protection that day and we are above the pivot, they might look for a higher price to make it cheaper.

"I would day trade the numbers without bias today and risk $.03 in corn and $.06 in soybeans using a stop to protect any idea".


Grains: Numbers were spot on before and after the report. Before the report all market were at supports, after the report we tested resistances. Corn stocks were below the average guess, and corn acres were lowered greatly. Average corn yield would produce the second biggest corn crop ever, and stocks are plentiful but not what you would call burdensome. My take/spin (yours is as good as any) is the funds did not see anything in the report that concerns them, and will try and push it higher until the crop gets in the ground and the bears have something to take away from those who look for a production shortfall. Like every year, the next few months make or break a crop, and since 2012 the logic seems to be we will have a production shortfall instead of an average yield until proven otherwise. With the cold weather, it probably feels like wind in their sail.    

The funds are the elephant in the room, and nobody knows what their plans are. Nobody can prove them right or wrong at this time of the growing season, only Mother Nature and she is not saying anything you can use against the funds right now. The funds will shiver whenever decent weather appears. That leaves me where I always am, looking at the charts for clues to discover what resistance will hold, and we have not found the answer since the Jan Final report. I thought these levels would hold, we shall see.

I keep in mind that this market could see profit taking within 4 days from now, and if we do I would be looking to reduce my upside exposure. Hard to get long here, but easy if I can sell resistance numbers especially for a day trade. 

With the report showing less corn again, and the June stocks report could do it again, the odds increase for the low of the year of $4.35 in December corn to be solid support until the summer and production is proving to be coming along nicely. Resistance has not yet been confirmed, and you can see from the past where I get my numbers for support and resistance levels. This level, or if we can get to the next level, execute your plan to "capture" what the market is giving you, and the higher the better when you do. Nobody needs to do anything; market is basically the same place as before the report.

May soybeans posted a new contract high. If November soybeans is like playing poker, the May contract is "high stakes" poker. Day trading with good numbers is one thing, position trading is another. May November spread is widening, and that could continue. November soybeans held up well with the bearish acreage numbers, but it probably was in sympathy to the strong gains in the May contract. Improving protection at these levels makes sense to me, and from the report and reaction I would say the contract low at $10.88 ¼ will hold until production looks like it will be a good one.

With that being said, if I had the November $11.60/$10.40 put spread on now, I would think about getting the $12/$11 put spread instead. At settlement it would cost $.06 7/8 to capture $12. It is a cheap way to capture $.40, but it is giving away $.20 in the spread protection. It is a friendly stance thinking you will be able to "One in the hand or two in the bush", and the one in the hand we do now is for expiration only.

Bulls have control but at lofty levels, bears appear vulnerable. The way the market ends the week should set the tone for next week. I am skeptical the market can survive without a correction by Friday, but no surprise to keep the bears feeling the pressure of higher prices.

Hedges are doing its job, and the rally provides a reprieve from new lows of the year instead. Hedgers should wait for prices to get high enough to capture what they can cheaply and also improve their protection down to $4.30 or $4.40. If markets come down they should look to reduce their call spreads. As long as you are comfortable you need do nothing.

We know the pre-report lows at support were solid; resistance is yet to be found or confirmed, so I would day trade the numbers without bias today and risk $.03 in corn and $.06 in soybeans using a stop to protect any idea.


Grains: If there was no report today I could use the same corn and soybean numbers as used on Friday. I will zoom out on the charts in part 2 to show the bigger picture where the past prices held, and this is what I do for discovery of what price could be possible to hold once again.

No matter what the report says, and no matter which way the price swings, I have a plan on what I want to do and I already know the reason why. Subscribe now....................... Each time the pendulum swings, is another chance "at bat". 

Look at the May corn chart on page 17, this is the same chart as the above "close up" look at the chart. The low of the last 3 weeks which is just below the uptrend line is support, and if that goes we are looking at support ...................................

December corn...........

November soybeans made its corrective high in August 2013 at $12.35, and I would think we would need to be in a weather market to hurdle it. If support of $11.67 goes, the floodgates open for lower prices to be tested.

This May 2014 contract never traded this price level even in 2012, this is this contracts high at $14.60. I now look at the front month continuation chart, and in September 2013 the corrective rally produced a high of $14.70, hence why we stopped at $14.60 for now. After that it would be the psychological high at $15 (the Buck). I have no problem day trading this contract, but I would not want to be hedging and protecting such a lofty price level if I did not need to. All my producers sold old crop soybeans weeks ago and lifted their hedges. Basis levels were much better than now. Plan was to market soybeans as quickly off the combine as possible in your own situation. Support is found at the bracket line at $13.50.

I do not want to be right the report and wrong the market, I would rather be right the market for all the wrong reasons. As a trader, I could care less what the report says, I only care about how the market reacts to it. This reports estimate you could drive a truck through them, so you never know how the market will react to it. If bullish the bulls could sell the rally because it would be profit taking, and the bears will sell betting the price level will need to pull back from there and regroup at a lower price for another attempt to rally. Bears could look at a bearish report for a chance to take profits and the bulls who missed buying the last rally will buy this time. So you never know, you can spin it any way, but this is how I have always looked at these reports since I started trading. If nothing else, it makes me not complacent thinking that things will not change quickly. It allows me to always be on guard that price, momentum, and sentiment can be fleeting. That is the premise of my strategy, that price day or longer term price levels will hold risking little to see if it does and pullbacks from those support or resistance levels no matter how temporary will provide a nice return.

I would say that anyone who comes close to the numbers is lucky, and I never want to be lucky in order to make money. Stocks report is here and now and will be the main focus of this report, acreage and such can still be adjusted and are guesses for now.

Since I cannot use the fundamentals now because estimates are so extreme, but I do know the funds have a big position that could get bigger, but could also get smaller, for the reason of chart location only I prefer to take the sell signals if it rallies, but I have no problem to buy if it gets down to a good support level.

Producers and position traders should improve their positions cheaply when possible, and that is easy to execute no matter what you think, or how the market looks at that moment, because it is cheap to do so. It will get easier in time when you get used to the fact that you are buying when everyone is selling, and selling when everyone is buying. That is much easier to do than risk $.20 or more and need to manage the position and risk having an opinion that could be very wrong in the short term before being right if ever.

I prefer to trade extreme numbers after the report comes out, and will risk $.04 in corn and $.06 in soybeans using a stop to protect any idea.                                            

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