Option play: Soybeans at critical price point

June 1, 2015 09:04 AM

I strongly believe the next few trading days in the soybean market are very important in terms of where we go during the long-term.

Fundamentally, according to the last USDA crop progress report for the week ending May 24, the soybeans were 61% planted vs. 55% a year ago and vs. the five-year average of 55%. That seems like a very bearish number to me. Another important part of the report, "soybeans emerged" for the selected states, has the crop 32% emerged vs. 23% a year ago and against the five-year average of 25%. Again these numbers are bearish fundamentally, in my view as well.

Technically, I have added my favorite technical indicators to the chart belows. They are the10- (red line), 20- (green line) and the 50- (black line) day simple moving averages (SMA). I have also added Bollinger Bands (BB) (light blue shaded area) and Candlesticks (red and green bars with the candle stick wicks and on this daily chart each bar represents one day of trading). These few technical indicators can tell me 8 to 10 different characteristics about the market at a quick glance so I have them saved on my charts in MARKETHEAD, so they can populate on any chart I choose at the click of a mouse.

These indicators on the daily chart below show that prior to Friday the market was in a very oversold condition, however, the market was still in a "PRINCIPAL-TREND" down and that didn't stop me from recommending put option strategies with a call for a hedge or selling naked calls with the possibility of using long futures as a hedge.

Currently as I look at the chart below it shows me that we are not oversold any longer and still in a very strong "PRICIPAL-TREND" down. What has to take place in order the market to be in the strongest technical downward trend possible in my opinion? Well, first we need the 10-day SMA (red line) to start pointing lower to the point when it crosses down and under the 20-day SMA (green line). Then we need the 20-day SMA to start pointing lower along with the 10-day SMA while the market itself is trading below the 10-day SMA using it as its first area of resistance on the upside.

That is the case now. The reason the next few trading days are so important is because, as you can see on the daily chart, we are bumping right up against the 10-day. If we hold here and go on to make new lows that would indicate to me that we are in a very strong and healthy bear market. On the other hand, if the market pushes up and through the 10-day SMA we will have a change in trend and will no longer be in a "PRICIPAL-TREND" down. I believe the 10-day SMA will hold and the soybeans will go on to make new lows from here and will remain in a healthy bear market.

July Soybeans, daily

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About the Author

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/.