RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

MAY SOYBEANS

In 29-Mar’s Technical Blog we discussed that day’s bearish divergence in short-term momentum below 15-Mar’s 16.39 corrective low as perhaps an early warning signal of further downside vulnerability given a prospectively complete 5-wave Elliott sequence and stratospheric bullish sentiment levels.  Subsequent weakness following Thur’s crop report below 29-Mar’s 16.22 initial counter-trend low reinforces at least short-to-intermediate-term weakness and leaves 30-Mar’s 16.84 high in its wake as the latest smaller-degree corrective low this market is now minimally required to recoup to arrest the slide, render the sell-off attempt from 23-Mar’s 17.37 high a 3-wave and thus corrective affair and re-expose the secular bull.  Until and unless this market can recoup 16.84, there’s no way to know this market isn’t in the early stages of a more protracted and eventual 5-wave sequence down below 25-Feb’s key 15.79 low that would satisfy the first two of our three key reversal requirements.  Per such, 30-Mar’s 16.84 high serves as our new short-term risk parameter from which traders can objectively rebase and manage the risk of non-bullish decisions like long-covers and new bearish punts.

On a broader scale and while last week’s setback sufficed in confirming a bearish divergence in daily momentum (above), 25-Feb’s 15.79 larger-degree corrective low and key long-term bull risk parameter remains intact, so it would be premature to ignore the possibility that the past couple weeks’ sell-off attempt isn’t just a slightly larger-degree bull market correction.  The key difference now from our last update is that the market has identified TWO highs and resistance at 16.84 and 17.37 that, until and unless recouped, serve as viable, levels from which non-bullish decisions can be objectively based and managed.

Given the backdrop and magnitude of the secular bull trend and the forces that have driven it, we don’t think this market’s just going to fall apart quickly.  Indeed, peak/reversal processes to such major trends can be extensive in terms of both price and time.  But with respect to the market still being NEAR bear risk parameters like 16.84 and certainly 17.37, we believe this is a good time and condition for end-users to at least pare bull hedges.

These issues considered, traders in May beans are advised to move to a neutral/sideline position with a recovery above at least 16.84 and preferably 17.37 required to threaten and then negate this call and reinstate the secular bull.  In lieu of such strength, further lateral-to-lower, and possibly much lower prices should not surprise.

NOV SOYBEANS

Nov beans, on the other hand, have confirmed bearish divergences on both short- and long-term scales, initially below 16-Mar’s 14.50 smaller-degree corrective low and subsequently, last Thur, below 25-Feb’s 14.03 larger-degree corrective low and key long-term risk parameter.  The extent of the past week’s slide leaves smaller- and larger-degree highs in its wake at 14.82 and certainly 15.20 that this market is now required to recover above to render the decline from 15.20 a 3-wave and thus corrective structure that would re-expose the secular bull market.  Until such strength is shown and, again, given stratospheric bullish sentiment, the extent to which this market might now be vulnerable to further and possibly steep losses should not be underestimated.

Contributing to this peak/reversal threat are:

  • the prospect that the rally from 01-Dec’s 12.05 low to 23-Mar’s 15.20 high is a complete 5-wave Elliott sequence as labeled above and
  • historically bullishly-skewed sentiment/contrary opinion levels shown in the weekly log chart below.

Might the past week-and-half or the past month’s price action be that of a 4th-Wave BULL market correction ahead of a (5th-Wave) resumption of the secular bull?  Sure.  BUT IF this is the case, it’s incumbent on the bull to at least recover above Thur’s 14.82 high and short-term risk parameter.  Until such specific strength is shown, there’s no way to know the decline from that point isn’t the accelerated 3rd-Wave of an eventual 5-wave sequence down and the initial phase of a major peak/reversal environment.

These issues considered, a cautiously bearish policy remains advised for shorter-term traders with a recovery above 14.82 required to threaten this call and warrant its cover.  All previously recommended bullish policy and exposure for longer-term commercial players have been nullified and neutralized.  Furthermore, commercial players are advised to initiate early-stage bear hedges with a recovery above 14.82 required to pare exposure and subsequent strength above 15.20 to cover the balance.  In lieu of strength above at least 14.82 and preferably 15.20, further lateral-to-lower, and possibly much lower prices are anticipated.  Below we discuss a new bear hedge strategy for producers now that the market has identified specific, objective resistance and risk levels from which to structure such.

PRODUCER BEAR HEDGE:  SHORT MAY SHORT-DATED 14,50 – 14.80 CALL SPREAD / LONG MAY SHORT-DATED 14.00 PUT “COMBO”

This strategy is structured from the market’s identification of resistance over the past week-and-a-half around the 14.80-to-15.20-area and involves selling the May Short-Dated 14.50 – 14.80 Call Spread for around 8-1/4-cents and buying the May Short-Dated 14.00 Puts around 10-3/4-cents for a net cost of around 2-1/4-cents.  This strategy provides:

  • a current net delta of -45%
  • favorable margins
  • fixed, maximum risk of 2-1/4-cents if the underlying Nov contract settles anywhere between 14.50 and 14.00 at expiration 18 days from now on 22-Apr
  • fixed, maximum risk/cost of 33-cents on ANY rally above 14.80 (although loss can be reduced if covered on a recovery above our 14.82 and/or 15.20 technical risk levels)
  • virtually unlimited, dollar-for-dollar downside hedge protection below its 13.97 breakeven point at expiration.

Please contact your RJO representative for an updated bid/offer quote on this strategy and good luck on Fri’s crop report numbers.

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.
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