Overnight, March Corn was down 5 cents at $4.05 ¼. The included chart shows that March corn is well entrenched inside a broad trading range between $3.75 and $4.25. Everything in between is just noise. I am sure that the excuse for last night’s selloff is because of the strong dollar. The directional movement indicators are bullish, but that really is meaningless lately as those indicators have been switching back and forth from bullish to bearish many times over the past two months. The ADX line is still edging lower suggesting little trend strength. What is important when we get bullish or bearish crosses in the directional movement indicators is to compare that to what the other technical indicators are saying. If the lions share don’t agree then the trade should not be taken. If the risk to the reward is too high, then the trade should not be done. I look at things like the long term trend, short term trend, trend line breaks, chart patterns, Bollinger bands, MACD, moving averages, oscillators, divergence, volume among others along with directional movement indicators. Generally speaking, trading with the trend is usually good advice, and trading corrections against the trend is generally bad advice. I also take in account that the vast majority of the time, markets don’t trend very far, rather, they cycle back and forth. That is why I usually like to write options against my positions to help increase the profitability of the trade. Ratio spread trading is a good way to take advantage of normally cycling markets. When a super trend unfolds, which is rare, then I try to move away from ratio spread trading to covered writes, vertical spreads or any type of strategy that is more directional in nature. The goal is to take advantage of what the chart says with the smallest amount of risk. No easy task. It is an ongoing chess game. The hard part is doing this with all the “talking heads” giving emotional opinions all day long. You have to ignore the chatter and follow what the non-verbal, no emotion chart says. I am convinced that everyone that you hear and see on TV spouting comments and opinions all have their own agendas. Government officials don’t come on TV in my opinion just to blab, no, I think that they come on to say things to affect the way we think to fit their own agendas. Market analysts do the same thing. How many times do you see market analysts come on TV and recommend stocks to buy, and then they tell you that they and their firms don’t own any of the stock themselves. I say, what?? I would like to know what their agenda is. Are they recommending the stocks just to get viewers to open accounts so that their firms can make commissions? Seriously, anytime you hear people coming on TV giving opinions on anything, you always have to be cynical and wonder what their agenda is. Never take what anyone says for granted without checking it out yourself first before acting.
Followers of this letter should be long one March Corn ($4.30 strike) call option from 17 ¼ cents and short 2 March Corn ($4.90 strike) call options at 7 3/8 cents each. (As a result of the profit made on the short $3.20 puts, our cost basis of this ratio spread is now a 1 cent credit!)
There are 64 days left until March options expire.
With all the price tests above $4.00 recently, I would hope that the producers have already liquidated most if not all of their corn that needs to be sold.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
This newsletter is not intended for dissemination to the public without prior approval from David Hall.
