Mr Price Action/ January 8, 2017/ Trade Idea/ 0 comments

We are ahead of
Commodity Index rebalancing next week. During this
process Commodity Index funds adjust their portfolios to those indices they follow which
often results in buying the worse performing commodities and selling the high
performers. Corn and Wheat as they were among the worst performers last year could
probably benefit short term from this reweighting exercise despite the gloomy
outlook for the coming year. So let’s look at the technical picture.
 
 
 
Corn
 
After the
correction in the uptrend Corn created a higher low last month with an inverse
head and shoulder pattern. Breaking above the last high would also mean
completing the bullish flag pattern. So how to trade this? I usually trade 2
units of everything, the reason is simple. I like to take partial profits and
move my stop loss to my entry minimising risk of loss.
 
ENTRY
Stop Limit Buy
March contract above last high: stop at 363 and stop limit at 363.25
 
PROTECTIVE
STOP
Both units
at 352
 
TIME
STOP
1st unit: end
of week
2nd unit: 3
weeks
 
PROFIT
TARGETS
1st PT at
383 and moving the second stop to entry
2nd PT at
398  
 
 
 
 
 
 
 
Wheat
 
After a really
bad year it seems that the prices of wheat bottomed out. But high ending stocks and high yields are indicating that will have the wait for the return of
bulls and rather a sideway trend is expected for this year. However short
term bounce is still possible and as the double bottom on the chart below shows
we have a pretty good chance to catch a part of it.
 
 
ENTRY
The entry would
be rather conservative and I will wait with the buy until the price retest
the neckline of the pattern with 2 units Limit to Buy at 420.75
 
PROTECTIVE STOP
Initial stop
loss will be at 414
 
TIME STOP
1st unit 1
week
2nd unit 3
weeks
 
PROFIT
TARGET
1st unit 445
(October high and Double bottom distance from neck line) moving stop to entry
2nd unit 455
(Summer consolidation)
 
 
Summary:
In both cases
the main short term drivers are the Index rebalancing and Technical patterns,
both pointing to the same direction. After the first week we close 1 unit from
each moving our stop to entry. 



I didn't mention in the article the WASDE report scheduled to be released by USDA on Thursday, 12th January. While this could be a market mover, the expected buying by the index funds will not be affected much by the report as the rebalancing was decided already. Still, keep an eye on it and if you are close to target before the release, you may consider closing position to avoid any bad surprise.


Keep in mind that however nice a set up
looks like, you should always watch your risk. You should never forget to check your money management rules before placing a trade and
adjust position size to your maximum acceptable risk. If futures are too big, try to trade CFDs with smaler notional to trade fraction of the futures. Your loss could be
higher if the market gaps below your stop, so be careful if you decide to trade
these ideas.
 
 
Good luck and remember
to watch your risk and be consistent

Mr. Tech Man
 
DISCLAIMER:
This material was created for informational purposes only and represents the
Land of Trading team’s view of the past and current economic and capital market
environment. It is not an investment advice and should not be viewed that way
at all, and the creators of this material cannot be held liable for any
potential losses resulting from trading, where despite this disclaimer someone
would consider this material as an investment advice. All rights reserved
©2016. 
 
Contact:
landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com
 
 
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