The picture I put forth today reveals a wide spread between the price of POT & BEANS. POT is Potash Corp of Saskatchewan and BEANS is the Nov 2012 Soybean contract.
A talented technician pointed out the chart of POT here at Tradingview and I couldn't help but notice that it had similar movements to soybeans but that lately they were different. Using Tradingview and plotting the overlay of these two markets allowed me to easily see the connection between the two. I have highlighted with BLUE BOXES many of the times when these two markets were in almost exact harmony. Many peaks and troughs line up almost exactly.
If you are a fundamental investor, you can delve into the competitive position of POT to find out why it has suffered so poorly lately. It could simply be that the drought just forced farmers to not even try to save their crops and instead farmers will wait around for their Government support checks to come in the mail after 6 months or more and at that time they will be ready to start planting for next year. Since markets are forward looking, it would make sense to start planning for the next planting cycle.
For the risk-averse, this trade is not for you. There are etf's to achieve this trade, notably the Teucrium Soybean Fund (SOYB) which is run from my hometown here in Easton, CT. I have no conflict of interest, however, in pointing out this fund. Soybean futures are $50/1 cent move, so 1 contract is nearly $50 x 1738 cents or $87,000 worth of soybeans. That is a big position for an average trader.
The other way to achieve this position is to simply buy POT. Then you can joke with your friends that you "bought some POT" today.
Here's a big thanks to Tradingview for a great website, great tools that are easy to use and constantly getting better!
Technical Tim September 6, 2012 8:51AM EST
Comments
charttrader
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Agreed.
Algokid
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very nice trade Tim !
timwest
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Thanks! It was a little different, wasn't it! Potash and Soybeans...
timwest
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This has been a monster trade so far with both side very profitable. I recommend banking this profit. There is a good chance to get a snap-back after such a strong advance. If you can't bank both sides, then at least take half the trade off and be ready to put it back on an a set-back (either a rally in Soybeans or a drop in POT). Happy to bank over 6% in soybeans (1738 to 1621) and 7% in POT (41 to 44) for a 13% return.
charttrader
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Very impressive Tim
timwest
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Thanks!
timwest
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adding a chart ... looks like a great pattern ...
mrd2015
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Hey Tim. Any idea on a price target here?
timwest
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I'm thinking 15%-20% is possible, just based on the extreme difference between these two markets. Also note that Soybeans didn't rally yesterday with the stock market (which it almost always does when the market has its biggest gains) which indicates that Beans are ready to fall. Potash has room to run to its 3-month high. That is a rough approximation for upside potential. Thanks for asking.