Grains Finish July on a Roman Candle

Well, one word for today’s action. Bullish.
KWZ turned its nose up at the 675 target I wrote about yesterday, and instead blew to a new 12 month high at 695 1/2. I find it interesting that we couldn’t go for the likely stops above 7.00. Maybe Sunday Night?
All in all impressive, but remember the adage that markets climb up the stairs, only to fall down an elevator shaft when the buyers are exhausted.
This has been the largest single monthly percentage gain in wheat since 1973. Stepping in to try to pick a top in a market like this is similar to playing the 1980’s arcade game Frogger..All a matter of timing.
Can we open Sunday night and be another 30 cents higher? Yes its possible. Is it probable? after a 6-week 2.10 cent rally? I personally went home short some wheat. If only to fade the popular sentiment. A client of mine called in to tell me that one of the cable news show had an advisor or speculator advise his audience to go home long because wheat was definitely going higher next week. He may be right longer term but in the wake of a 3 day plus 50 cent push, I have to think we are ripe for a correction. Hence the very small (one put) short position over the weekend, at a cost of 1,000 dollars. A December 600 put which cost 21 cents.
Either we will be higher Sun/ Monday, at which point we blow out of that position, or hopefully, we have the beginning of a 50% pullback of the 2.10 cent up move. That would be a 1.10 down move from the 695 high, or a down side target at 5.80. Hence the 6.00 put.

From a risk management point of view, we will risk 10 cents, or 1/2 of the initial premium for the option.

Depending on how we settle Monday/Tuesday, we could always flip and get long with a well priced call spread. Again, the option call spread does one thing, it defines and limits our risk, up front.

Briefly, CZ, new crop corn rallied impressively, however it could not take out our most recent 4-month high last Thursday at 410. That’s an upside target, as is the 4.15 high tick from March 2010. Above 415, we have Resistance every nickel up to 4.50, which would be my guess of an intermediate term target, if we trade higher Monday and settle well.

Soy beans is an interesting contract as well. New crop has enjoyed a bump up 1.10 over the past 5 weeks. Fundamentally, I think there is more upside to go here with the Beans, based on where they are in the growing cycle. Beans are made in August. A lot depends on the weather in August, period. Certainly having 10.00 beans on the SX board price is a lot more encouraging to bulls. I like 1035, 1043, 1050 and 1055 as upside targets for SX to shoot towards.

Like a Roman Candle, the shot higher is spectacular. The explosion that follows is the pay off. Sunday night, who will be paid off with explosions? The bulls or the bears? I am leaning towards the bears, here this late Friday night.

Sunday night should be interesting.
Good Trading

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