August 3, 2010
Been Wrong for Too Long
While some of you participated in our success in being long the Treasury Bonds and the US Dollar Index a short time back, the overwhelming majority of my clients have been bleeding to death in Soybean Oil going all the way back to January of last year. Throughout these last 20 odd months I have repeatedly predicted a major sell off in the soybean complex, only to see it go to the cliff’s edge over and over…and over, then climb back up into what has become almost a 2 year sideways trading range. With our owning options, this has been murderously costly for all of you…and for me as well, both financially and psychologically. Believe me, losing money for yourself and a whole bunch of other people for going on 2 years is NO fun at all.
Earlier this year, when the sideways range had reached over a year in duration, I began calling this trade the “best 2 and 1 and have ever seen”, simply because I believed (and still do) Soybean Oil was LONG overdue to break out in one direction or the other…and go a long, long way…DOWN as I was predicting, in which case we would make a lot of money, or UP, in which case we should be able to recoup 100% of what we had invested. In reality however, the “never ending” consolidation meant the recouping part of the strategy only worked some of the time, and as the market never did break down as I anticipated, there was never any profit to be taken, the bottom line being, you have all been losing money…for seemingly forever.
A month ago, Soybean Oil hit new nine month lows and looked like it was FINALLY going to go our way…but it did not and has now actually made its way back, fairly quickly, to being dead on its highs for the past two years…By this past weekend, the recent strength in the Soybean complex (Wheat and Corn as well) had begun to throw up red flags for me as this rally just wasn’t at all what I expected to see (one more time), especially as we are now heading toward the harvest of what is a monster crop…Besides that, with this past Friday’s close I could not help but look at the chart, and think, “Sure doesn’t look down…In fact, it looks more like a potential rocket”.
This very bullish “look” led me to spend the weekend and last two days digging up all the market opinion I could find, both in print and in conversations with various individuals involved in the agricultural futures business (elevator operators, Chicago floor brokers, Soybean processors, other brokers, etc.)…And I wasn’t researching fundamental supply and demand type information. I know all that stuff backwards and forwards…as does everybody I talked to. What I was asking was, “Who do you know that is bullish?”, and the answer that came back 100% of the time was, “Nobody I know. Everybody knows there’s a big crop out there, the weather’s generally fantastic, and nobody wants to be a buyer. Nobody.”
Obviously, there are some bulls out there but the point is, when a market is going up, and “nobody” likes it, my experience has been, you are supposed to get on the train. I also have learned, many times, no matter how strongly I believe something is going to happen in the markets (like Soybean Oil MUST be going down), it doesn’t mean I will be right…and the object of this business is not to be right, it’s to make money.
SO…I am reversing course and going with this trade on the upside…absolutely using the “2 and 1” as, and you can see this quite clearly on the following charts, it IS the perfect 2 & 1…With it perched up here on its two year highs, to me, the odds that something big is about to happen, one way or the other (how many times have I written that in the last 2 years?), are extremely high.
Yup…Buy Soybean Oil
Here are the charts and one possible option combination…
And for the 100th time (at least) I’ll say this thing is about to go SOMEWHERE…We’re not going to just hang around this old 42 cent high…
One last note…
When you put your opinion frequently and forcefully in print, it is not easy changing horses like this. The first fear one naturally has is, “Boy, if it goes down now, I will REALLY look stupid”, but the honest truth is, whatever “trader ego” I had was pretty much eradicated several decades ago. As one of my self-made wall reminders clearly states, “YOU WILL BE WRONG. YOU WILL BE RIGHT”, which is why, after two years of market hell, I know that the best, and only thing, I can ever do in this stuff is call it the way I see it…And the worst thing I can do is let the fear of looking foolish, and losing more money, keep me from recommending what I perceive as a great trade when it appears on my screen. After all, one of my other wall reminders is, “ONE GOOD TRADE IS ALL IT TAKES”, meaning, with the leverage we have in this insane game, it’s amazing how quickly, and how dynamically, you can go from losing big to winning big.
Tomorrow, I’ll be talking to those of you who have positions. Otherwise, give me a call if this interests you…
P.S. If there are any of you who think, “He’s giving up. Now is the time to get short.”, you will NOT hurt my feelings if you call up and say that is what you want to do.