Be advised that all my comments are my OPINION and that OPINION is based on my long term in-house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday. BTW, trading commodities is risky and not meant for those that faint at the sight of blood.
October 6, 2020
SOYBEANS PART DEUX
On September 21 using the LAWG647 Model I made the following comments regarding November Soybeans, “IMO buying at these levels is pretty risky. That does not mean that November Soybeans cannot go higher, it means the odds are suggesting they are getting pretty top heavy and may be due for a short term price correction. I am looking to counter trend sell……”.
From September 22nd to September 29th November Soybeans broke over fifty two cents.
I continued in that article to say, “I do not think Soybeans are going to change the long term bullish trend only in the short term I will be looking for an overbought price correction.”
As I write this we see that since September 29, November Soybeans have rallied over fifty-five cents.
So what does the Model tell us now?
We know that November Soybeans are in an uptrend. We know that it will take a close at or below $8.92 ½ on Friday, October 9 to reverse the trend to bearish. We know that as of last Friday October 2 the Positive Indicator was above the First Standard Deviation of the long term average. As I write this November Soybeans are trading at $10.44 and are fractionally above the Second Standard Deviation of the long term average. We know that the following dates and prices are critical in determining a negative trend turn.
October 9, at or below $8.92 ½
October 16, at or below $8.67 ½
October 23, at or below $8.98 ¾
October 30, at or below $9.04 ¾
So what do these prices tell us? IMO they tell me that over the dates and prices provided it will take a major break in prices to turn November Soybeans lower. Is it possible that November Soybeans break to those levels? Yes, it is possible but to me it is all about likelihood and IMO these prices levels over the dates provided are not likely. So what to do?
For those traders that like to buy on weakness I suggest considering getting long November Soybeans in the $10.15/$10.20 areas. Now this brings up another point to consider if one is a more aggressive trader.
I am guessing it was fifteen years ago or longer there was an article in the publication Stock and Commodities. The article discussed how one might want to use the Relative Strength Index (RSI) when it reached the 70 level. The author concluded that his research suggested that when a commodity reached 70 one may find it more beneficial not to sell but to buy at 70. As an aside his research did not suggest one might want to sell when a commodity reached 30.
While I do not use the RSI in my major work I have worked with the RSI for decades and understood exactly how the author reached that conclusion. When a commodity reaches 70 I am reminded of that article in Stocks and Commodities and as of this writing the November Soybeans RSI is at 72.
Given all the above information it is my opinion that for today only Tuesday, October 6 a more aggressive trader may want to consider buying November Soybeans at $10.34/$10.40.
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Lee Gaus is a founding partner of EFG Group founded in 1992 which specializes in servicing Introducing Brokers. Prior to founding EFG Group Lee Gaus, Tom Fritz and Steve Erdman all began their Commodity Futures careers with ADM. Collectively Lee, Tom and Steve have over one hundred years of experience in the industry.
International Futures Group (IFG) founded in 1994 is a sister company to EFG Group specializes in serving institutions, professional traders and individual investors.
We believe our experience and the development of the Model provide our clients, Introducing Brokers and individual clients a unique perspective. If commodity trading is what you do drop me a line atLee@efggrp.comor give me a call at 312-384-1166, or 1-877-304-1369. We will be glad you called and are confident so will you.