Beans like most of the Commodity complex has had a miserable H1 performance thus far - But it's during these extreme moves, that we can set up great R/R trades if we are paying attention. Many pieces are in place for a rally, except price action... So we will want price to put us into the trade. Let's review the setup.
1 - The COT report shows commercials with a very high score on their Net position. I score the position and activity factoring in a volatility component over 18m & 5yr time frames. For the past 11 weeks as price has declined from 970 we have seen commercials not only buying longs but also taking off their hedges. Their net score average over this period is a whopping 96%. The interesting part of the setup though is that both their Long Position and Short position have a score of 90%+. This is extremely rare and has only happened 6 times since 2009. In this instances we see a significant statistical out-performance as the 70% percentile high move over a 20 day interval is 39 cents. The 70th perecentile high move on all other days is only 25 cents, so this is a increase of almost 50% vs the baseline move.
2 - Technically speaking we see price attempting to break the downtrend line, and in doing so is putting in higher highs and lows on the hourly chart.
The last missing ingredient is constructive price action. All trends are down at the moment,so we don't want to step in here. Wait for your favorite short term indicators to turn neutral or up from where they currently are which is Down. My custom 4 channel High is at 920.5 so I will want to see multiple hourly closes above this before entering the trade. Once you get the signal play as follows:
1) Buy Nov Soybeans at 923ish (we'll confirm trade economics later)
2) Sell OCT Soybean 950 Calls for approx 20cents.
Your upside is .27 on the future and .20 on the call = 47cents.
Exit the Future on a multiple hourly close below your short term trend indicator that put you in the trade initially. This should cost you around 12cents for a 4-1 R/R.
We'll update the trade economics once this thing gets moving.
Good trading to all.
1 - The COT report shows commercials with a very high score on their Net position. I score the position and activity factoring in a volatility component over 18m & 5yr time frames. For the past 11 weeks as price has declined from 970 we have seen commercials not only buying longs but also taking off their hedges. Their net score average over this period is a whopping 96%. The interesting part of the setup though is that both their Long Position and Short position have a score of 90%+. This is extremely rare and has only happened 6 times since 2009. In this instances we see a significant statistical out-performance as the 70% percentile high move over a 20 day interval is 39 cents. The 70th perecentile high move on all other days is only 25 cents, so this is a increase of almost 50% vs the baseline move.
2 - Technically speaking we see price attempting to break the downtrend line, and in doing so is putting in higher highs and lows on the hourly chart.
The last missing ingredient is constructive price action. All trends are down at the moment,so we don't want to step in here. Wait for your favorite short term indicators to turn neutral or up from where they currently are which is Down. My custom 4 channel High is at 920.5 so I will want to see multiple hourly closes above this before entering the trade. Once you get the signal play as follows:
1) Buy Nov Soybeans at 923ish (we'll confirm trade economics later)
2) Sell OCT Soybean 950 Calls for approx 20cents.
Your upside is .27 on the future and .20 on the call = 47cents.
Exit the Future on a multiple hourly close below your short term trend indicator that put you in the trade initially. This should cost you around 12cents for a 4-1 R/R.
We'll update the trade economics once this thing gets moving.
Good trading to all.
Comment:
Soybeans are bid this morning with traders buying with dollar weakness. Our buy has been triggered with multiple hourly closes above 920.