February 24, 2020
On a day when the following relatively sharp sell offs took place:
Dow down 1031 points.
Crude Oil down $2.00
Soybeans down 15 cents.
Wheat down 15 cents
Cotton down 1.50 cents
Live Cattle down 3.00 cents (limit down)
Feeder Cattle down 4.50 cents (limit down)
Lean Hogs down 2.5 cents
With Coronavirus worries contributing to all that across the board weakness, with a number of those markets actually having been MUCH lower during the day, I find it potentially significant that July Soybean Meal only closed $2.10 lower.
When there was a basic freakout going on in the markets today (and Friday), I view the relative “strength” in Meal as a definite sign of either being “sold out”, or more specifically, and indication that this market has bottomed.…
I therefore continue to strongly recommend buying this market using the 1 & 1 (1 call & 1 put) approach…Especially considering the extreme volatility we are now seeing…which certainly opens up the possibility of either a further move down (potentially allowing us to reposition at better price levels and option prices)…or to see a dynamic move on the upside as the COVID19 “crisis” subsides (and probably before that…as these ARE the futures markets…and they DO often move AHEAD of events).
Here are a few charts…
And here’s what the Meal looked like today…
We are almost into March and still have not had a rally here…You may be tired of seeing it but…this stuff is much more about the numbers than anything I might want to offer you from a fundamental opinion standpoint:
Fact 1- There have been double digit percentage rallies in July Soybean Meal, between Feb 1 and the July expiration, in 19 of the past 20 years.
Fact 2 - 17 of those years were greater than 15% rallies, equating to $45, or $4500 per futures contract with today’s Soybean Meal prices.
Fact 3 - 15 of those years were greater than 20% rallies, equating to $60, or $6000 per futures contract with today’s Soybean Meal prices.
None of the above means that a rally will occur this year…In other words I might be dead, dead wrong, which could mean losing every dollar you invest…but that IS my bet…And I firmly believe that this is the best statistical recommendation I have ever made…And I AM looking for at least a 20% rally.
Here is the option I would recommend at today’s close.
As also noted previously, this market also has had a decided tendency to make definitive upturns “out of nowhere,” precisely when the whole world is leaning overwhelmingly bearish…as, I believe, is EXACTLY the case now.
Give me a call if you want to know more…Also, I would be very interested in hearing your take on Coronavirus.
All option prices in this newsletter include all fees and commissions.
All charts from Aspen Graphics.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Soybean Meal