RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

As discussed in Fri’s Technical Blog, the extent and impulsiveness of last week’s break reaffirms this year’s major downtrend with the key by-product being the market’s definition of new and key bear risk parameters at 3.40 and 3.49.  Recovery attempts like today’s are advised to first be approached as corrective selling/hedging opportunities ahead of an expected resumption of the major downtrend to new lows below at least Thur’s 3.22 low and perhaps a run at 21-Apr’s 3.09 low in the then-prompt Jul contract or below.  A recovery above 10-Jun’s 3.40 suspected 1st-Wave low will jeopardize the impulsive integrity of a 5-wave Elliott sequence down from 08-Jun’s 3.49 larger-degree corrective high and key risk parameter.

In the daily chart above and as a direct result of last week’s relapse, it’s easy to see Apr-Jun’s recovery attempt as a 3-wave and thus (probable 4th-Wave) correction within the still-unfolding major downtrend.  CLEARLY, 08-Jun’s 3.49 larger-degree corrective high is now THE KEY corrective high, risk parameter and gateway to a base/reversal count that we believe could be major in scope.  Until and unless such strength is shown, further and possibly accelerated losses should not surprise.

From an even longer-term perspective shown in the weekly chart below however, and as we’ve discussed often over the past 3-1/2 years, every market flirtation with the extreme lower recesses of the 3.18 – 4.60-range that has constrained this market for the past SIX YEARS has been repelled in a major correction or reversal higher.  Especially with currently historically bearish sentiment/contrary opinion levels typical of major base/reversal environments, all market participants are urged to keep a keen eye on MOMENTUM and, quite simply, the market’s ability to sustain trendy, impulsive behavior down below levels like 3.49 and even 3.40.  Its failure to do so will mitigate any bearish policy and exposure “down here” and resurrect another base/correction/reversal threat.  Until and unless such strength is proven, further lateral-to-lower prices are expected.

In sum and in general, a bearish policy and exposure from the 3.30-to-3.33-area recommended in Fri’s Trading Strategies Blog remain advised with a recovery above 3.40 required for shorter-term traders to step aside and for longer-term players to pare exposure to more conservative levels.  Subsequent strength above 3.49 will negate the trader altogether and warrant the cover of the balance of the position.  IN lieu of such strength, further lateral-to-lower prices are expected.  For producers needing/wanting to hedge exposure heading into tomorrow’s key crop report, please see the option strategy below.

PRODUCER BEAR HEDGE:  SHORT AUG SHORT-DATED 3.40 – 3.50 CALL SPREAD / LONG AUG SHORT-DATED 3.20 PUT COMBO

This strategy is structure around the market’s rejection and identification of the 3.40-to-3.50-area as key resistance and involves selling the Aug Short-Dated 3.40 – 3.50 Call Spread for about 2-3/4-cents and buying the Aug Short-Dated 3.20 Puts around 4-1/2-cents for a net cost of 1-1/2-cents.  This strategy provides:

  • a current net delta of -42%
  • favorable margins
  • fixed, maximum risk of 1-1/2-cents if the underlying Dec contract settles anywhere between 3.20 and 3.40 at expiration 24 days from now on 24-Jul
  • fixed, maximum risk/cost of 11-1/2-cents on ANY rally above 3.50, allowing the producers cash position to profit
  • virtually unlimited, dollar-for-dollar downside protection below its 3.18-1/2 breakeven point at expiration.

These risks and benefits are shown in the P&L graph below.  Please contact your RJO representative for an updated bid/offer quote.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.