July 30, 2013
Still see Wheat poised to roll off a cliff…
I am starting this late in the afternoon. This is going to be very quick…but I think it needs to go out today.
I have been spending the last few days trying to get as many people Short Wheat as I possibly can. A big problem, however, is that virtually ALL the supposed fundamental/expert “analysis” out there is predicting an imminent bottom in Wheat, while I am calling for exactly the opposite…that is, something of a crash in prices. So it’s hard selling an idea that goes directly against seemingly ALL the conventional “wisdom”.
In the course of a client conversation today, I brought up one of my wall reminders, which states: ONE GOOD TRADE IS ALL IT TAKES…the point being, with the leverage we deal with in futures options, one decent, fast developing move in a market CAN turn into some pretty big numbers (obviously, one big move against you can turn into big losses)…and just about anybody who has traded with me has most likely experienced what I’m talking about (both ways)…And as I recalled during that conversation, one great example of just such a move occurred earlier this year with our short positions in the Gold market.
The next thing that went through my head was…what Gold looked and felt like prior to when it busted wide open back in April…and what Wheat looks and feels like now…And, in my mind, the situations are basically identical.
Decide for yourself…
Here are the two markets…Gold then. Wheat now…They are pretty much the same chart (which I always have to note, is absolutely my favorite technical set up) and I also feel relatively comfortable in saying, 98% of analytical opinion is pretty much the same…Back in April, ahead of the collapse, the whole brokerage world was still hot on the idea of, “You gotta own gold!”, and even though Wheat is certainly a different class of asset (nobody’s “gotta own it”), today’s fairly universal brokerage house analysis says, “Oh. You have to be a buyer. It’s bottoming!”.
Here’s Gold earlier this year…
And here is Wheat today…cluttered up a bit with the strategy I would recommend at current levels…but nevertheless, you should not find it difficult to see the similarities between the two markets.
Obviously, just because these two charts look similar, it does NOT automatically follow that Wheat is definitely going to collapse the way Gold did…it fact, I could easily be dead wrong and Wheat COULD be ready to take off on the upside (which is why I swear by the both sides strategy)…Buy I can say that THIS set up is one in which you will generally find me recommending the short side 100 times in a row. This is a bet I will make over and over and over again.
I am already short and looking to put more on…
Here is a reprint of the long term chart from my last newsletter…I continue to think $5.00 is a very definite possibility…It’s just the way this stuff works.
And if you are a farmer, I strongly recommend you consider using this idea, or some strategy using December puts, to hedge whatever unsold current Wheat you own, or Wheat you expect to harvest soon…OR even Wheat you plan to plant this fall and harvest next spring.
Give me a call if you’re interested…
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Wheat