Saturday, August 2, 2014

Sir, Would You Like Some Magic Beans?

Soybeans, that's what we're talking about here. Here's the chart of the cash price of soy beans now.

Now, that looks like a pretty fugly chart, doesnt it? Let's look at it from a more longer term perspective, shall we?

Still, a pretty ugly chart, and this goes back til mid 2010. I spy an area of strong possible support at the lows that occurred at the end of 2011, which indicates a probable downside of 8% from where we are now. However, the 1st target looks to be at an area of strong resistance at 1,400, which signals about at 20% upside from this level we are at now. Risk reward is at very nice 1:2.5 ratio.

Just because something is cheap, that doesn't mean we shouldn't buy it. Things can always get cheaper! So, let us turn to history and look at some seasonal charts.

In the long term period of 30 years, the end of July usually marked a strong period of rally through the month of August, followed by the year end low that should clock in around early October.

Seasonal charts of shorter time periods also confirm this strong seasonal pattern as well.

The final icing on the cake?

A ridiculous rate of 72% for holding this position long by my CFD provider.

Let me summarize this trade:
1) Sentiment - The El Nino that never came saw food prices come tumbling down sharply the entire month of July.
2) Historical - Prices for Soybeans are at 2 year lows
3) Seasonality - Strong seasonality favouring upside from current time period
4) Risk:Reward - A decent 1:2.5 risk-reward ratio is present
5) Interest - Getting paid an annualized rate of 72% to hold this position long

The technicals are also pointing to deeply oversold conditions.

I'm sure this is probably one of the few times you heard anyone saying that soybeans looks like a good trade, but here you go. I'm taking this short term trade and hopefully the end of the month we can see some small tidy gains!

No comments:

Post a Comment

Observe the house rules.