Trade Ideas for 11/12/12

Published on: 08:37AM Nov 13, 2012

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This report was sent to subscribers on 11/9/12 6:30 p.m. Chicago time to be used for trading on 11/12/12.

December 2012 Corn

After the close recap on 11/12/12: My pivot acted as resistance and was 7.41 3/4, .01 3/4 from the actual high, and my support was 7.11 3/4, .00 3/4 from the actual low.

All charts and numbers for 11/13/12 have already been sent to subscribers at 3.30 pm .

December 2012 Corn

7.69 near Downtrend Line Resistance
7.63 ½
7.51 ½
-----------7.41 ¾ Pivot
7.32 ¼ XX
7.11 ¾
7.04 FG Use the same numbers as used on 11/ 7,8 & 9 /12
5 day chart.... Down from last week same day
Daily chart ... Down
Weekly chart ... Up
Monthly chart .... Up 6.50 is the 200 DMA
ATR 13 ¾ Oversold 19%

I continue to say "Downtrend line at $7.71 is major resistance, $7.32 ¼ is support, and the gap at $7.04 is key support, bracket line gap at $6.74 ¾ is major support".

In my daily December 2012 corn numbers on Friday my resistance was .03 ½ from the actual high; my support was .01 ¼ from the actual low.

For 1/12/12:

Grains: On Friday, corn made a new high for the week before sellers took over and pounded the market down to close slightly lower for the day, and $.00 ¾ lower for the week. Considering soybeans lost $.75 for the week, corn continues to show strength for whatever the reason. The reason was not the report, which came in as expected for corn, but for me it is $7.32 ¼ holding each of the last 5 weeks. If that goes I would expect another retest of the gap at $7.04. If something is truly bullish underlying in the corn market horizon, $7.32 ¼ is where they are buying whatever you are selling. If it were not for soybeans getting crushed this week, corn probably would have closed on the downtrend line threatening the bears.

Bearish report for soybeans immediately put pressure on soybeans and the high after the report was the first resistance at my support number of $14.85 ¾ (high was $14.86). Before the first 5 minutes ended soybeans were down $.30, this caused pressure on corn which sold off down to within $.01 ¼ of the crucial support of $7.32 ¼ and held once again. The next 2 ½ hours the corn market rallied $.03 ½ over my first resistance number and traded over it for almost an hour in spite of soybeans not being able to come too far off its low. The reason for the explanation of Friday's price action is to give you a feel of the strength of the corn market on a day that was not good for grains including wheat which was $.14 higher and ended the day $.16 lower.

Soybeans look to at least try and fill the gap at $14.38, which could put pressure on corn to at least get the sell stops below $7.32 and "see" what is down there. Further soybean pressure could send corn to test the gap at $7.04 once again. $7.32 ¼ is "Custer's Last Stand" for the bulls before they will regroup at $7.04 to defend their position. I would buy cheap upside at $7.04, looking for a rally before the January report.

Soybeans are now $3.37 off its high on 9/4/12, which once again proves that fundamentalists who predict prices based on soybean yields that are nothing more than guesses from people who cannot accurately predict a year like this until the combines rolled. I have said that since March. These are the same fields that they walked through and are "experts", but like I reported on every one of my producers who told me, they were all surprised getting a higher yield that they thought looking and testing their fields 24 hours before combining. Bulls can argue all they want, and if they have a plan that takes care of the risk if they are wrong, then no problem, but if they do not, they are becoming their own victim.

I have warned you time and again throughout every year of my service, about controlling risk, and not risking too much on any trade (or hedge) idea. Soybeans are at risk to more downside as time goes on, due to the fact there is 1 less day for a weather problem to develop in SA. If SA comes out with a good crop, soybeans will be trading well below $14, and by March if subsoil moisture is back to normal in the US, under $13 should be seen until yields look to be less at risk, and then $11 is more than likely. Adverse weather is the only way for higher prices than we are seeing now. I continue to urge 2013 crop to be hedged even though we are now at the lower end of the range at support of $13.20, I have been recommending to hedge and not wait to see if the flood gates open.

Economic uncertainty cannot be ruled out in the grain underlying fundamental picture. Post election selloff in the equities markets would spook me if I was a bull. I point out every year of the economic meltdown in 2008 taking the grains with it. I have always seen throughout my career, when the stock markets goes down greatly, commodities sell off because it is the first "risk" that people take off to free money to defend their leveraged stock position. It should not surprise you that people who speculate in commodities speculate with leveraged positions in stocks.

All you see, read, and hear out there mostly talk their trade ideas and what they will make if they are right, but most all shy away from talking about the risks, what they are doing to reduce them, and have a plan to not lose more than a reasonable amount on the trade or hedge idea if they are wrong. Risk is my number one priority and the main focus of any trade or hedge idea I have. My risk is the amount it costs to see if the chart level and number hold, and the strategy or price stop defends a loss from getting out of control. My reward is if the market can rally for whatever the reason, and then can make more money than the original hedge.

My producers and subscribers should be well protected down to at least $6 in the December corn options, and at this stage of the game still waiting and want to see if the market can rally. If not, we would like nothing more than to see the market come down as much as it can while we are fully protected. That would also allow us to "bank" some of the hedge, and start over at a lower price level, and an easier place to rally from. $.60 put protection will be better at $6 than trying to protect $7.50. I want to hedge 2013 corn for the same reason as the soybeans, I do not want to wait to see if the flood gates open, and this is a profitable place to lock in prices as well as "input costs" which have also come down greatly as did corn prices.

I am still bearish, but cautious. I want to trade the numbers without bias and risk $.04 in corn and $.06 in soybeans using a stop to protect any idea.


Grains: With 2013 corn trading at $6.36, if you have not hedged some or all of your 2013 corn by now, I would not hesitate to get started. SA is getting it in slowly, but moisture is not a problem, in the US the eastern Corn Belt is getting out of drought conditions nicely, but the west is far from over their dry problems. With $6+ corn, it will surely attract acreage in the US, and we could easily double the carryout for 2013/2014. $4.50 corn will be in order then. So the risks are great not locking in such a high price and one that has never been seen in November.

If the corn numbers are within 50 MB of what the average guess is, will be a non event, and certainly not a market mover, but it is the January report, the one that should answer all the questions, that could be the big mover and shaker. Not just for a limit move, but $1.50 or more in corn and $3 in soybeans in one direction or the other. For that reason I would not expect this or next month's report will drive prices beyond my parameters before the January final report. You know I am bearish longer term, but I am not expecting more of a commitment than the charts allow at supports, for the bears at this time. In January with numbers that look like what have now, I can see another leg down going into planting intentions in March, but the cash basis firm reflecting the rationing process, and front month futures losing more ground to the back months. That will encourage producers to hold longer (basis will get stronger) and being paid for storage December to March will make even more reason to hold the corn.

I want to hedge 2013 corn and soybeans and feel like time might be running out. With everything going on in the world and with our own country in continued deadlock, the risks are one that I have abandoned any thoughts of thinking the rewards outweigh the risks at this time for "commodities" to perform well from the current price levels. If the US and world economies do not improve, how can you sustain demand at such a high price? Look at the gas pump and you clearly see what demand does at high prices, and how low prices can generate demand.

I will be at my desk at 7am, market opens at 7:20, and the report is out at 7:30. They should have at least a 20 minute close when the report comes out to level the playing field, in the past I have not been able to get the numbers for at least 5 minutes after they came out, they know there is a problem, and they are trying to fix the problem. They went to the moon and back, but they cannot fix the problem. I want to trade the numbers without bias and risk $.04 in corn and $.06 in soybeans using a stop to protect any idea. Unless you trade at an extreme number and also have a stop in when placing the order, I would not trade the first 5 minutes after the report comes out. I would also use a 5 minute bar and look at my numbers before I implement my trade idea. I will get the report out as soon as it is available.

11/8/12: Grains: For days the corn market has looked like it wants to go higher, as well as soybeans look like it wants to go lower, I still believe we will remain in my price parameters until in time we go much lower. If weather in SA or 2013 crops look threatened, I will be talking about how high we can go.

My first priority has always been the risk, which is my number one concern as a trader, and as an advisor to the farm manager who is responsible for marketing their farms grain. Not making more money is one thing I can live with, but losing what I got is another. Unhedged farmers do have the last trade price to lock in, so the risk is to the downside from here. Today's price is a windfall profit for an unhedged contract, so locking in today is locking in what the market gave you, if it goes down no harm is done, if it goes up you have the upside you allowed in my strategy. Being unhedged is gambling penny for penny and you have no control of the market, but the market does have control of you.

Whenever you did hedge, most in December 2011 at $5.50, everyone was locking in a very good income if they got an average trend yield for their farm. Turned out so far that $8 or more have been locked in by most of my producers, minus the cost to get you there, which depended on how bullish or bearish you were, and how you morphed. But even the biggest bear made at least $1.20 more including commissions than their original hedge. The average hedge has locked in at least $7.20 free and clear. They have been protected from day one, and have been in control of risk, have much less stress, which allowed pursuing more upside without the stress from that too knowing they have protection.

Now bulls are faced with deeper losses, and could be a victim of outside events such as the fiscal cliff. I really do not care the reason it goes down (or up), but being a bull (or a bear) without a plan is an accident waiting to happen, and it could be deadly. I could close my eyes and see the ghosts of aspiring traders at the CBOT. Yes, I want to scare you, because I have always known that losses are the only thing that kills you in this game, not because you did not make enough money for the move or the year.

Grain action looks like the market expects soybean numbers will be bearish, and corn numbers bullish, but the charts remain within my parameters. I still say "I prefer to take the sell signals but I want to trade the market without bias and risk only $.04 in corn and only $.06 in soybeans on any idea using a stop to protect".


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