How To Manage A Winning Long Wheat Entry

click images to enlarge

The wheat market has maintained its bullish price focus with another push into new highs since the October 5 low at 439.25. Today’s high reached 548.50. The last time we talked about December wheat in our blog on October 12 we mentioned that if long (particularly if from our Trade Focus recommendation) that participants might consider reducing the number of positions after it had reached 529.00 in order to not only book some profit but also for the purpose of capital preservation.

We had determined that level off of one of the possible Fibonacci retracement levels we illustrated. Other targets to consider near term are the Fibonacci extensions at 550.00 and 561.75. The first of the extension targets in this series just happened to coincide with a .382 Fib retracement at 548.25. That is determined from the down leg starting June 1 2009 at 725.25 and ending with the October 5 low.

Stop protection for original longs which occurred with the suggestion to initiate long entries with the intraday penetration of 48550 should at least raise it to intraday penetration of 49200.

The next Fibonacci resistance levels we feel are of importance are approximately 582.25 and 616. These would be levels to consider quantity and risk reduction also.

One last point of interest is that Wheat has been able to make this advance even after the latest USDA Crop Production report which was considered negative toward future price levels. We are hearing now, though, of smaller Wheat crops than originally expected out of some of the Eastern European producers.

Good trading to all

Jeff and Diego

CB&S Division
MF Global Inc.

312 261-7380
800 321-5810

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Trading a Long Entry in Wheat

click to enlarge

Trade Focus added long December Wheat entries to its suggested trade positions with today’s action. Here’s what we said in our last edition:

WHEAT (DEC) - We will stick with last week's suggestion: “We believe long entries can be initiated with intraday penetration of 48550 or with a close at or above 48250. Stop protection if elected we believe should be intraday penetration of 44500 or a close at or below 44900.” Retracement levels of resistance are approx.: 49450; 51170; 52910.

This suggestion has been in the past two issues actually, and due to certain circumstances we were unable to publish this past Thursday as usual. But, the point is Wheat has been on our radar for a while now and may provide a very tradable retracement or correction. There are two sets of Fibonacci retracement levels that the December Wheat may seek. The first set is approx.: 494.50; 511.75; 529.00. The next set above is approx.: 547.50; 581.50; 615.25.

The latest USDA crop production report did not paint a very bullish picture for wheat prices but we certainly have seen markets behave opposite to such reports in the past.

As always, a trade is only a trade and needs to be approached and treated with a planned strategy and discipline. It’s wise to know not only where a position should be entered but where it goes wrong and therefore where stop protection needs to be placed. Along with these, a profit objective or plan of how to liquidate a position when right should be part of the plan.

In the case of this December Wheat example, there was an entry method that was satisfied triggering the trade suggestion. Notice that the September high was cleared and also that the 50 day moving average was cleared on a closing basis. There has also been a stage 1 breakout above the steep trend line which acted as a first alert. We have also identified what we believe to be valid stop protection. The last piece of the puzzle now is exiting a winner.

Exiting a winner is not as easy as most people and traders might expect. It is our belief that this is the time to take all the emotion out of the equation. When trading in multiple units, for example, we believe it very beneficial to choose a target level where a portion of the entire position is liquidated while simultaneously moving the stop protection in a favorable manner. The idea is to reduce risk exposure while still maintaining a piece of the position in case it continues in the desired direction and particularly if something special develops.

Using this example, or any example for that matter, it is up to the individual trader to determine exit strategies based on his/her own set of variables. We might suggest here, as a general strategy, to begin moving stops at the 511.75 Fib level and with partial profits coming off at the next 529.00 level. If the price of December Wheat continues to gain there may be points along the way where adding positions would become warranted. We will be watching for these opportunities.

These types of strategies are something that we discuss with our clients on an individual basis taking into consideration their personal viewpoints. We find that there is benefit in working together on a strategy. If that is something you are interested in or would like to know more about let us know.


Good trading to all

Jeff and Diego
CB&S Division of MF Global Inc.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Wheat: Patience required

click charts to enlarge

We thought that this was an opportune time to look at the wheat market. This has been a market where price has been steadily eroding since its all time high made in February 2008 when it reached over $13.00 per bushel. It is currently trading at a price of $4.60 per bushel for the December CBT contract (Chicago).

Our interest in discussing it now is to attempt to get ahead of the game and to be prepared for a potential change in direction. We have seen so many times over the years that substantial moves can begin very subtly. If not prepared ahead of time they may be missed or not more fully taken advantage of.

Clearly as of right now it appears that the price of Wheat remains headed downward. But we have noticed what may be divergence in some of the momentum indicators. That being where the indicator has not made a new low even though the price has.

As we said above, sometimes price moves begin very subtly. They may also take time to develop and to develop in a series of stages. We note that on the weekly chart that one major downtrend line has been broken. Even though the price of Wheat did not immediately respond by rising rapidly the trend line has never been reviolated by the market retreating back below it. We also see that the price did make a new low after the initial trend line break but that it remains above that trend line.

Many may not consider this significant. We do however. It is significant for what may be coming and is significant to alert us to remain aware of what this price trend is doing. Wheat is known for relentless trends and particularly when they are down trends. But our experience has shown that it may only take the upward break above the next trend line to ignite a price move of some significance that could present a valuable reward to risk situation. Even if it turns out to simply be a price correction of consequence.

Two of the greatest keys to success, particularly in trading markets, are discipline and patience. We have seen other market situations develop over a period of time much like what could be happening with Wheat. We refer to the breakout above that first trend line as a stage 1 breakout. It does not require market action be taken at this time, in our opinion, but patience should allow for being ready to do so when that opportunity arises.

How can we help you to be more alert to situations like the one discussed here?

jmajer@mfglobal.com
dpilar@mfglobal.com

Jeff Majer
Diego Pilar

CB&S Division
MF Global Inc.

312 261-7380
800 321-5810

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Fibonacci ratio retracements

These monthly charts provide a demonstration of why we include Fibonacci ratios for retracements in our market analysis.


The Dow Jones Industrials retraced .618 from the 1987 crash low of 1706.9 to the Oct. 2007 high of 14,198.1 with the March 2009 low of 6,470.0



The S&P 500 had a Great Depression low in June 1932 of 44.0. From that low it then peaked in March 2000 at 1552.87. The Oct. 2002 low was an almost perfect 50 pct. retracement at 768.63.


Soybeans had an Oct. 1969 low of 236 1/8 and an all time high of 1660 in July 2008. The December 2008 low was just a few pennies through the .618 retracement at 777.

These are just a few examples of what makes this such a valuable tool in our opinion. Hopefully you would agree. If you think using these powerful ratios can improve your results wouldn’t it be worth contacting us to see how we might help put them into action for you?

Jeff Majer
Diego Pilar

jmajer@mfglobal.com
dpilar@mfglobal.com

312 261-7380
800321-5810

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.