Beans, Beans, the magical Grain. The more you buy....

CBOT:ZS1!   Soybean Futures
The greater your 2017 Gains !!

As discussed in our prior posts, Soybeans formed a perfect setup with extremely Bullish Commercial positioning and activity, Favorable seasonals, Massive Trend Following short positions ready to be squeezed, and numerous statistical studies evidencing the decline was near it's end.

We now have some further evidence and clues that this rally potentially has very long legs, and could end up being one of the top trades in 2017. In commodity trading, what you tend to see on the ledger of winning traders is a lot of chop back & forth , while being sandwiched between a handfull of very successful trades that effectively end up making your year. Beans is shaping up as one of those trades.

What started as a Massive rally in Minn Wheat spread to Hard Red Wheat , and now to Soybeans . The Breakaway gaps on the weekly chart are foretelling a sizeable rally, and in addition to this we have a Clear ABC correction of the 2016 advance marking a higher low on the weekly timeframe . If this wave count is correct, then Wave 3 should take us north of the 2016 highs over 1200.

The concern traders will have here is buying in after such a sharp rally - There is logical fear of being whipsawed. The thing is we can use options as well as a little patience to mitigate this risk, but first lets review another statistical piece to the puzzle.

Beans have rallied almost 14% over a 10 day trading period. Since 2005, rallies greater than 10% over a 10 trading day interval have occured 89 times. What we see is significant statistical out-performance during these periods, relative to all other periods. During this 12 year period Beans move at least 16cents higher over 20 trading days 80% of the time. After "10%+ rallies over 10dys" setup however, this number jumps to 24cents. So the 80% move increased by 50% !. Further the 80% drawdown level is only 12 cents, so we have 2-1 pot odds here to make further incremental bets.

Here is how to play it:

Our strategy is to position long for the potential Wave 3 rally. If we catch it, this one trade can make your year.

1) Buy 1 November Soybean Future currently trading @ 1033 1/4.
2) Buy 1 Nov Bean 1040 Put for 59cents
3) Sell 1 Nov Bean 940 Put for 13.25 Cents
4) Sell 1 Nov Bean 1200 Call for 18.125 Cents.

The Put spread net of the call you sold will cost you approx 27.5 Cents for 100cents downside protection. This covers us all the way down to the current lows of the wave 2 bottom.

Your upside is 1200-1033 or 167cents, minus the cost of protection of 27.5 cents = 139.5 cents. This gives us a 5-1 R/R setup and we have 109 days for this trade to work.

Good Trading to All


The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.