In just over three weeks wheat futures have moved from oversold to overbought advancing 8% in the futures market. We have closed lower the last three consecutive sessions closing below the 9 day MA (green line) today. This was the confirmation I was looking for and have spoke to in the last few days. Use the Fibonacci levels on the chart below to guide you on bearish trade and to help when re-establishing bullish trades from lower levels. I remain longer term friendly but feel we could get 20-30 cents of depreciation before we see higher ground.
Wheat will likely have trouble gaining ground not only as technicals indicate futures may have gotten ahead of themselves but fundamentally competition on exports globally may also keep a lid on prices.
There will be no USDA supply/demand report tomorrow as the government is on vacation…literally. However the market has priced in the belief that ending stocks have tightened since the last report. If this is confirmed in the coming weeks that ending stocks are under 525 M bushels this would be the lowest stocks since 07/08. Coincidence or not wheat futures at that time traded north of $13/bushel …past performance is not indicative of future results.
The lack of momentum in recent sessions and waning volumes indicate to me we could get a routine correction. Weakness in the entire Ag complex in corn and soybeans also could spillover to wheat in my opinion. In order to see fresh highs I think the bull camp would need to see new developments. That could be provided by the USDA confirming a decline in ending stocks or for any strength returning to the Ag complex in corn and/or soybeans.
Until we see that happen let’s be contrarian and play a bearish trade…
- Back ratio spreads …sell (1) close to the money put and buy multiple (3,4) out of the money puts.
- Short futures and sell an out of the money put 1:1.
- Buy at the money puts. December $6.80 puts settled at 16’2 cents today or $812.50. There are 43 days until expiration and the current delta is 44%.
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As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: email@example.com or 312-870-1653
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.
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