Soybeans move in downward super-trend

Options play: January soybean futures trend changes quickly

Over the crazy holiday season, soybeans (CBOT:SF14) fell sharply as the trend drastically and swiftly changed.

Fundamentally, H5N1 or bird flu in China seemed to be the reason for the collapse in soybean futures on the Chicago Board of Trade over the last several trading days. This may not go away anytime soon, in fact according to Hightower Reports, "The Chinese Ministry of Agriculture announced Thursday (1/2/14) that the southwest province of Guizhou has reported an outbreak of H5N1 in poultry. This situation continues to "not" go away and could have longer term ramifications in their local meal and/or corn demand." So the story goes fundamentally, when it comes to demand all eyes should be on China I believe.

Technically, I have placed several indicators on this daily January SOYBEAN chart. They are the 9-, 20- and 50-day simple moving averages (SMA'S), the Bollinger Bands (BB's, light blue shaded area), volume, and candlesticks. The first item that I notice from placing these indicators on the chart is the cross of the 9-day SMA (red line) under the 20-day SMA (green line) back on about Dec. 31 as both the 9-day and the 20-day point downward on very sharp angles on the daily chart below. This is what I have coined a "SUPER-TREND" down. This change in trend happened very quickly and with lower than normal volume over the abbreviated holiday trading season. I expect this trend to continue.

I also noticed after applying my favorite technical indicators to this daily January SOYBEAN chart that this market is somewhat oversold for the following reasons:

1. The market is below the bottom line of the BB'S (Bollinger Bands, light blue shaded area), which I consider the last area of support.

2. The market is also trading well below the 9-day SMA (red line), which is now the first area of resistance in my view. The market is also well below the 20-day SMA (green line), which is now the second area of resistance. Typically, the market could move back up to these areas and hold, only to go on and make new lows, if they are real resistance.

3. Finally, the market is trading well below the longer term 50-day SMA (blue line), which could also be considered the first area of resistance.

However, I am of the belief that markets can remain oversold for long periods of time, particularly if the market has strong downside technical momentum. This is just my technical opinion based on my favorite trend identifying indicators on the daily chart below. Nothing works 100% of the time, but I like the trend to remain down for the foreseeable future.

DAILY JANUARY SOYBEAN CHART

OPTIONS PLAY

There are several ways to play this market with options. One would be to buy straight put options or bear put spreads in a 3-to-1 ratio with a call for a hedge or "insurance" in case the trend changes on a dime and the market rallies. Another potential play would be to sell naked options or option spreads again with protection maybe in the form of a futures contract or with other option plays. Remember, when you sell naked options you have unlimited risk and should have a "well funded" account of risk capital.

About the Author
Matt McKinney

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.

Futures and options trading involves substantial risk and is not for everyone.

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