April 25, 2019
I came across an interesting article written by Terry Roggensack on April 18th for ADMIS’s Hightower report. I wanted to pass on the highlights.
Historically, when we see an oversold corn market between March and May, we see a high come sometime between May and August. This has happened 8 times in the last 10 years, even with bearish fundamentals. Here are the last 4 years of highs and lows:
- 2018: March 3rd low – May 24th high gain of 38 cents
- 2017: April 21st low – July 11th high gain of 38 cents
- 2016: April 1st low – June 17th high gain of 85 cents
- 2015: June 15th low – July 14th high gain of 92 cents
Our current market has us adding to our record short position every day we see it go lower. With funds now estimated short 367,000 contracts, it’s hard to imagine funds continuing to go short in an already oversold market. However, the big difference that we are fighting this marketing year compared to the years listed above – tariffs, which equal low demand. This was not a factor at this time last year.
Simply because we are fighting a big fundamental factor of tariffs, doesn’t mean we should ignore the past. It means we should re-own at these oversold levels, but consider going with options instead of futures. Give yourself a chance to profit if history would choose to repeat itself. If we trade against the norm, then you have given yourself margin protection by going with options. Consider this an opportunity to re-own bushels you’ve had to sell during this bearish market. July calls currently at-the-money are 11 cents. July is trading at $3.55, so your breakeven point is at $3.66. If we see a 38 cent gain, similar to the last two years, you could see a net profit of 27 cents on the trade.
Fundamentally there’s nothing to love with this market but 8 out of 10 historical odds… not too bad to consider dabbling with some longs.
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