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September 9, 2009
After spending the afternoon putting together a newsletter, I just had the unpleasant experience of my computer deleting everything I'd done (VISTA is the worst computer product ever made) so I now sit here feeling like I need to get this out but not wanting to recreate all my thoughts for the second time today...So this will be very abbreviated.
The Soybean complex has been dead sideways for almost a year now. I think the odds have recently skyrocketed that this consolidation is about to come to an end and firmly believe we are about to see the complex go completely in the tank. Large consolidations have a way of being followed by large one directional, semi-vertical moves and I think this is what is imminent in Soybean Oil. I may have it completely backwards but I expect to this market drop at least 10 to 15 cents ($6000 to $9000 per futures contract) between now and year end, and am therefore still aggressively establishing new & additional short positions in the January contract shown below.
My reasons are really unimportant but here are a few....
1. Corn is at $3.00. With Soybeans trading at $9.40, or TRIPLE the price of corn, I think it is safe to say farmers worldwide are going go be switching acreage (from corn and many crops) to Soybeans. Whatever ideas of a shortage in soybeans there may be today...will not be there tomorrow...and the futures market is about tomorrow, not today...and I look for the Soybean market to effectively collapse between now and next spring.
2. FOR THE PAST 35 YEARS, EVERY TIME THERE HAS BEEN A DYNAMIC BULLISH SPIKE IN SOYBEAN PRICES, WITHIN 15 MONTHS OF THEIR HIGH TICK THEY HAVE BEEN BACK DOWN UNDER $6.00 A BUSHEL. Again, with Beans at $9.40. that leaves a lot of potential downside between here and $6.00.
3. Gold has just made new highs this week while the dollar has just made new lows, both of which are generally considered to be bullish for all the commodity markets...but the Soybean Oil has barely budged off its lows for the week, and, in fact, with all the ongoing media talk about the bullish/inflationary environment for commodities, this market is currently hovering just above its lows for the year...which I interpret as a potential sign of inherent weakness.
4. There is NO shortage of Soybean Oil nor will there likely be in the foreseeable future.
5. The Soybean harvest is just cranking up in the Northern Hemisphere. There has recently been all sorts of talk about the possibility of "early frost" killing the crop (even though we haven't had a "killing frost" since 1974 and it seems like somebody revs up frost talk about this time every year) which ran the market up a bit during the past few weeks, and just served, I think, to sucker a whole bunch of speculators in on the long side...And the next thing we could easily see is all of those people having to get out (selling) become part of what contributes to the soybean market falling off a cliff...that and the fact that HARVEST is when there is more of a commodity than any other time of the year.
There is a major USDA Crop Report due out Friday morning before the markets open. I have no idea what anyone is expecting nor do I have any idea what the numbers will be...but I do know that in my 29 stupid years in this business, many more than a few times have I seen a bullish market get its legs ripped off by "surprising" numbers in a USDA report...and I therefore recommend, if you are interested in participating in (or adding to) this idea, you do so tomorrow (Thursday) ahead of the report.
Give me a call if you're interested...Apologies if this newsletter is a bit disjointed or makes no sense...
The charts...
Aside from the fact the past 8-9 months have seen the formation of a relatively clear head and shoulders top, there is a old market adage that "markets tend to leave consolidations in the same way they enter them"...If this holds true with this contract, it would mean a relatively straight down move is immediately in front of us...And it would not surprise me at all to see this market under 30 cents before we get to the end of September...

In the end, whatever I think as to direction, this is all just math to me...Here at 35 cents, if I am wrong, it would basically take just a little over a 5 cent rally (which is NOTHING over the next 4 months) to put me in a position to sell the call, recoup 100% of my investment, and then position again on the short side using something like the 40 puts...Or, if I am right, and this thing starts dropping, I do think it will do so very sharply, and at least a double or triple would then be a very real possibility...It goes without saying that if the market goes off between 34 and 35 cents, all the options would be worthless...At any rate, this IS the letter perfect set up for the 2 and 1 strategy.

Here is an excellent (and very recent) example of a market consolidating...and then dropping relatively straight down out of that consolidation.

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