On 3/1/16 I wrote this article suggesting the possibility of a buying opportunity in soybeans. Hey, guess what, if you write enough of these types of articles, every once in awhile you get one right! Figure 1 displays the action for May soybeans since the initial article.
Figure 1 – May Soybeans bounce off a of multiple bottom (Courtesy: www.Barchart.com)
(See also An Update on Crude Oil Volatility Play)
So in theory had a trader bought May soybean futures at 861 with a stop-loss at 852.5, the initial risk (barring a gap as detailed in the original article) would have been -$425.
Since that time May beans have rallied from 861 to 888. At $50 a point that equates to an open profit of +$1,350. The obvious question of course is “What Now?”
As always, there are various possibilities:
As you can see in Figure 2 there is some meaningful resistance between 890 and 891. If price stalls there I would consider taking some profits.
If holding a 1-lot: I would probably take the money and run if price hits 890 and fails to break through to the upside.
If holding more than a 1-lot: I would probably sell half of my position if price hits 890 and fails to break through to the upside. For the other half, I would consider a trailing stop (initially just below 875). This approach allows a trader to:
A) Take a decent profit (roughly $1,400 per contract) on half of his or her position
B) Lock in a profit on the remaining position (roughly $675 per contract if the position is sold at 874.5 trailing stop)
C) Hold on to half of the position just in case soybeans breakout above 890 and keep going.
Figure 2 – May Soybeans position management price points (Courtesy: www.Barchart.com)
Boy, this “picking a bottom” thing sure is fun, er, well, when it works.
Jay Kaeppel
