Posted on Jun 07, 2023, 10:55 by Dave Toth
In Mon’s Technical Blog we discussed the still-bearish prospect that the recovery attempt from 18-May’s 4.91 low is a correction within the new secular bear market and that the 5.40-to-5.50-area was a resistant candidate to beware this correction’s end or upper boundary. On the smallest of scales, today’s slip below yesterday’s 5.33 initial counter-trend low confirms a bearish divergence in very short-term momentum. This admittedly mini mo failure is insufficient to conclude the end of the nearly-three-week recovery from 18-May’s 4.91 low. Indeed, commensurately larger-degree weakness below at least last Fri’s 5.23 corrective low remains required to to threaten this recovery. However, and especially given the importance of the 5.40-to-5.50-area suspected resistance, today’s mini mo failure IS enough to identify Mon’s 5.48 high as one of developing importance and a mini parameter from which the risk of non-bullish decisions like long-covers, cautious bearish punts and producer bear hedges can be objectively based and managed.
On a broader scale, reiterating Mon’s analysis, the daily close-only (above) and weekly log (below) charts show:
- the magnitude of the major bear trend from even Oct’s 6.37 high, let alone Apr’22’s 6.79 high
- obvious former support-turned-resistance from the 5.40-to-5.50-area
- prospect that 18-May’s 4.91 low and 17-May’s 4.99 low close is the end of only a 3rd-Wave down from 29-Dec’s 6.12 high close (within an eventual 5-wave sequence down) that
- thus far has only been retraced by a Fibonacci minimum 38.2%.
Against this backdrop and heading into Fri’s key crop report, we believe that the 5.48-area serves as a key shorter-term area from which to reconsider a favorable risk/reward bearish policy and exposure. Commensurately larger-degree strength above the 5.72-to-5.76 larger-degree corrective highs from late-Mar remains required to negate the major bearish count pertinent to long-term commercial players.
These issues considered, a bearish policy and exposure remain advised for longer-term players with a clear break above the 5.52-area MINIMALLY required to threaten this count and warrant paring bearish exposure and subsequent strength above 5.76 to nullify a bearish policy altogether. Shorter-term traders whipsawed out of bearish exposure on 01-Jan’s recovery are advised to return to a cautious bearish stance with a recovery above 5.48 negating this specific call and warranting its cover. Below, we discuss a cautious but favorable risk/reward bear hedge for producers structured from this suspected 5.40-to-5.50-area resistance.
PRODUCER BEAR HEDGE: SHORT JUL SHORT-DATED 5.30 – 5.50 CALL SPREAD / LONG JUL SHORT-DATED 5.15 PUT COMBO
The bear hedge strategy below involves selling the Jul SD 5.30 – 5.50 Call Spread for about 7-1/4-cents and buying the Jul SD 5.15 Puts for around 7-cents for a net initial cost of about a 1/4-cent credit. This strategy provides:
- a current net delta of -52%
- fixed and maximum risk/cost of 20-cents on ANY rally above 5.50
- virtually unlimited dollar-for-dollar downside hedge protection below its 5.15 breakeven at expiration 16 days from now on 23-Jun.
Please contact your RJO representative for an updated bid/offer quote on this strategy and good luck on Fri’s numbers.
