~~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.
Grain markets are sharply higher to start the week causing many traders and analysts to wonder if the harvest low is now in. For soybeans not much has changed from a fundamental perspective, but outside market influence and weather/harvest delay concerns have been the spark needed to trigger a short covering rally. The question is - Is this a bottom or a false bottom.
The rally in soybeans so far this week is the product of uncertainty creeping into the markets. There are now a whole lot of questions surrounding the soybean market that did not seem to exist a week or two ago. Are we going to get the crop out? Will a frost/freeze event have a large impact on national average yield? Is the IDX topping out and potentially making soybeans cheaper for the rest of the world on the exchange rate? How will the USDA handle the old crop balance sheet, new crop beginning stocks and demand and acreage? How will the South American crop look? These questions breed uncertainty and uncertainty breeds nervousness. This nervousness has translated into a fairly healthy amount of short covering and some positive technical divergences on a chart. But, can it last?
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There always is a chance that the low is in any market as things can change quickly. Overall we do not seem much as having changed this week for the soybean market yet, but short covering reflects the possibility of changes coming. If there were any major and ongoing issues with harvest or South American planting it could be a game changer for the soybeans. We are not at a point yet where this is a reality. For now these are only possible threats. If we can get this huge soybean crop harvested and South America can get their record acreage planted we could still see new lows in soybeans. However, the start of this week is a good example of how things could turn on a dime if there were a major change in fundamentals.
At this point we feel that soybeans are likely putting in a false bottom. Looking at the two week forecast there will be harvest delays but there should also be good progress made at times. It is also too early to predict what will happen with the South American crop but there is a good chance they will get the intended record acreage planted. As long as there are no major issues and the USDA does not have a shockingly bullish October 10th WASDE report on tap soybeans could still make new lows.
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Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit. Also, follow me on twitter @thetedspread if that is your thing.
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 protected]
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.