Medium term
Trade view / 08 June 2016 at 8:21 GMT

Why soybeans need to break higher

Managing Partner / Spotlight Group
United Kingdom
Instrument: ZSN6
Price target:
Market price:

I know many investors do not like to read trade ideas that suggest one waits for a new technical signal, but I feel soybeans may be just such a case.

One can argue that soybean futures look undervalued, but do we actually have to look at deeper contracts for the value as after last week's move has the market pushed too far in the short term?

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Source: Spotlight Ideas                                                                                                           
The chart above illustrates my thinking. The two red circles mark November 11, 2014 at 128.85 and June 30, 2015 at 125.26. There was no new break higher and the spot price collapsed.  

Now consider the two orange circles. These represent June 2, 2016 at 175.40 and June 8 at 160.92.

Even though the time technicals across the board read as a strong buy I am hesitant as so much ground has been covered last week (hence my protections in note form earlier today).

I do like the prospects for soybean prices heading into next year and would anticipate prices have potential to average US cents 1,300/bushel in Q1 2017. However, I do not want to be drawn in without an extra layer of upward momentum. For me that has to be when Spot minus 50-day moving average can break the old June 2 high.
Soybeans (five-year chart):
soybean Source: Spotlight Ideas 

Parameters (Soybean July 16 ZSN6, US cents/bushel)

Entry: buy when spot minus 50dma breaks 175.40.

Target: 1,300.

Stop: 1,050.

Time horizon: medium term.

— Edited by Michael McKenna

For more on commodities click here.

Non-independent investment research disclaimer applies. Read more
SierraPt. SierraPt.
Thanks, Steve!


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