RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

As with most other commodities that have yet to provide the evidence necessary to threaten their secular bull trends, the hourly (above) and daily (below) charts of soybeans show that this market has yet to confirm a bearish divergence in even short-term momentum, let alone on a scale sufficient to threaten the massive bull trend.  The market has yet to break 24-Feb’s 17.12 Globex day-session high needed to reaffirm the secular bull, but by virtue of yesterday afternoon and this morning’s recovery above 01-Mar’s 16.97 high, the odds of such a 17.12+ breakout have increased and the market has identified Fri’s 16.34 low as the latest smaller-degree corrective low and new short-term risk parameter this market is now required to fail below to break even the short-term uptrend from 25-Feb’s 15.79 larger-degree corrective low, let alone threaten the secular bull.  Per such, we’re defining 16.34 and 15.79 as our new short- and longer-term risk parameters this market is now required to fail below to even defer, let alone threaten the secular bull market.  Until and unless such weakness is shown, the trend remains up on all scales and should not surprise by its continuance or acceleration.

Against this backdrop, bull hedges remain urged for end-users while it remains premature for producers to consider bear hedges, which would be akin to top-picking into the teeth of one of this market’s most extraordinary bull markets and outside the bounds of technical discipline.

The weekly (above) and monthly (below) log scale charts show the dominance of the secular bull trend, the continuation of which, perhaps above 2012’s 17.89 all-time high, should hardly come as a surprise.  We’ve no doubt whatsoever that understandably historically frothy sentiment/contrary opinion levels will eventually contribute to a peak/reversal environment that we believe will be as epic as 2012’s massive top and reversal.  But traders are reminded that sentiment is not an applicable technical tool in the absence of an accompanying confirmed bearish divergence in momentum needed to stem the clear and present and major uptrend and reject/define a more reliable high and resistance from which non-bullish decisions can only then be objectively based and managed.  Herein lies the importance of larger-degree corrective lows and risk parameters like 15.79.

These issues considered, a full and aggressive bullish policy and exposure remain advised with a failure below 16.34 required for shorter-term traders to move to the sidelines and commensurately larger-degree weakness below 15.79 for longer-term commercial players to follow suit.  In lieu of such weakness, further and possibly accelerated gains remain expected.  We discuss below another bull hedge strategy for end-users.

END-USER BEAR HEDGE:  SHORT APR 16.90 – 16.40 PUT SPREAD / LONG APR 17.50 CALL COMBO

As the name suggests, this strategy involves selling the Apr 16.90 – 16.40 Put Spread for around 19-cents and buying the Apr 17.50 Calls around 20-cents for a net cost of a penny.  This strategy provides:

  • a current net delta of +50%
  • favorable margins
  • risk/cost of 1-cent if the underlying May contract settles anywhere between 16.90 and 17.50 at expiration 16 days from now on 25-Mar
  • maximum risk/cost of 51-cents on ANY collapse below 16.40
  • unlimited, dollar-for-dollar upside hedge protection above its 17.51 breakeven point at expiration.

Please contact your RJO representative for an update bid/offer quote on this strategy and good luck on this morning’s 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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