Trade view /
22 August 2017 at 12:04 GMT
Amid record Russian wheat production and with dwindling time left to upset the crop prospects in the US, December CBOT wheat prices have dropped 25% during the past months. Funds have chased the market lower, while potential buyers have stepped aside, waiting for the washout to run its course. Wheat is now oversold, and we look for a rebound through a spread to December corn.
Management and risk description
Wheat's premium over corn (both December) has collapsed by more than $1 during the recent selloff, and this contraction has primarily been driven by weakness in wheat, as the chart shows. Having reached a spread of $0.75/bushel — a previous level of support — and with the 9-day and 14-day relative strength index (RSI) on wheat both oversold, we initiate a long wheat versus short corn spread. We look for a target of $1.15/bu, with a stop below $0.60/bu.
Buy ZWZ7-ZCZ7 at the current market price around $0.75/bu, with a target of $1.15/bu and a stop loss at $0.60/bu
Trade ticket example:
Long-term chart using first month cont.
— Edited by John Acher
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