Last week we highlighted the bullish setup on Beans, and today we are seeing validation of that signal. While not all trades work out this beautifully, it's important to note that all massive rallies do begin with the setup we highlighted. (please read prior post for full breakdown)
The key here is that with a massive short position in beans, hedge funds are scrambling to cover in light of the bullish crop report, and now to be reflected bullish technicals. Just as the algos have been pounding Beans lower due to negative technicals and trend indicators over the past 12months, so now they will be hitting the buy button as those technicals reverse. This is why it's so important to monitor trader positioning across commodity markets.
Unfortunately for the short funds, they will be competing with plenty of longs as they get drawn in by the bullish technical reaction.
From a statistical perspective I looked at all instances where Soybeans have had a 2.5% or greater rally in one day going back to 2006. The 8Oth percentile move up from that days close over a 20day period is 20.3 cents, while the 80th percentile move lower was only 9cents. So you are getting pot odds of 2-1 to make another incremental bet here and this is exactly what we are going to do.
Go Long 1 Soybean Future @ 954 1/4.
Buy the Aug 950 put for 29cents.
Sell the Aug 1000 cal for 19cents.
This setup gives you 45cents of upside minus max downside of 10cents on the hedge + 5 cents on the future = 15cents risk. This is a 3/1 R/R setup and you have 56 days for this trade to work.
Good Trading to All
The key here is that with a massive short position in beans, hedge funds are scrambling to cover in light of the bullish crop report, and now to be reflected bullish technicals. Just as the algos have been pounding Beans lower due to negative technicals and trend indicators over the past 12months, so now they will be hitting the buy button as those technicals reverse. This is why it's so important to monitor trader positioning across commodity markets.
Unfortunately for the short funds, they will be competing with plenty of longs as they get drawn in by the bullish technical reaction.
From a statistical perspective I looked at all instances where Soybeans have had a 2.5% or greater rally in one day going back to 2006. The 8Oth percentile move up from that days close over a 20day period is 20.3 cents, while the 80th percentile move lower was only 9cents. So you are getting pot odds of 2-1 to make another incremental bet here and this is exactly what we are going to do.
Go Long 1 Soybean Future @ 954 1/4.
Buy the Aug 950 put for 29cents.
Sell the Aug 1000 cal for 19cents.
This setup gives you 45cents of upside minus max downside of 10cents on the hedge + 5 cents on the future = 15cents risk. This is a 3/1 R/R setup and you have 56 days for this trade to work.
Good Trading to All