Probabilities Favor Higher Commodity Market Prices in Soybean Oil

* Please comment on the video at the bottom of the page *

We had a coiling price formation at the bottom most similar to 1976 in that the probabilities favor that we are in a runaway leg to the upside.

This is a market that we initially established long call options positions. For subscribers, the July of 38 call options we purchased at 60 points, as of today’s trade they are trading between 180 and 200. So we all ready have a 200% return on our money, but the prospect is that this market is going to continue higher.

The December 5th 2009 low was projected as a final low. The first leg up in a bull market continued into the January 7th high. Then a secondary correction, the first correction in an overall bull market took prices down into the low of 29.66. And now, if this is a second leg in the bull market, it should exceed the January 7th high, which is just a stone’s throw away.  I’ll say the next stop is a rally over the January 7th high in Soybean oil of 37.81.

Upcoming Trade Entry Point Using Futures and Options

Given the velocity of the advance so far, it’s overbought even for an extremely bullish market. The probabilities are greatly in favor of a minor correction of approximately 200 points.

We saw a very minor correction, a six percent decline. Since the crop report came out the market has been surging higher. Undoubtedly there are buy stops building above the 37.81 level basis the all-session chart. I believe the pit session is approx 37.73.

I would expect that this market is going to run above those buy stops and at that point we could get a very minor sell-off of as much as 200 points before the resumption of the advance.

The probabilities continue to increase for our being in the midst of a classic runaway advance. If so, we would expect only minor corrections on the order of the previous sell-off of 204 points.

We have long call options positions. We have long futures positions. We’ve been adding to positions on the way up. I don’t rule out the possibility of adding for a third time in a pyramid type situation if we rally above that January 7th high and then retrace beneath it. I’ll have more to say on that but this market is potentially in a very strong position.

The soybeans are in a very similar position as the soybean oil. We’re not too far off the January 12th electronic session high of 1069.

We are a stone’s throw from the January 12th highs in both the soybeans and the soybean oil. This is a very favorable position in that there will be a significant number of buy stops accumulating above these highs.

In addition, in both markets an advance to new highs would indicate a high probability we’re in the midst of a second leg up in an overall bull market. By definition, the classic bull market is a market that makes higher highs and higher lows.

We had a low December 5th, the first rally high, a higher low, and if we can push through and make a higher high that would confirm a bull market.

We don’t buy breakouts into new highs. Generally there are retracements after those breakouts occur. There is a lower risk opportunity standard in long positions so we’re definitely looking at that as a possibility to add to profitable positions or pyramid in this particular market because our projections are showing that we’re only about halfway to our overall objectives to the upside.

* Please comment on the video at the bottom of the page *

Soybean Complex  Analysis

Current trade action in the Soybean Oil is tracking the angle of ascent of the aggressive 1976 precedent. Hopefully that’s how things continue to play out. Of course we don’t know that but that would be a home run situation for subscribers..

If we were to replicate this advance, the 38 July call options would advance from our average entry price at 60 points to at least 800 points, which would be a 12:1 risk/reward. The 34′s would probably be in the neighborhood of 9:1 risk/reward. The 36′s, I think 11:1, and the 38′s would be the greatest risk/reward but obviously there is a long way to go, but so far so good.

Currently the value of the options is approximately a 135% advance from where we entered.

As far as the May futures contract, I’m watching the relative strength in the soybean oil relative to the soybeans and the soybean meal. After lagging both the soybeans and the soybean meal, soybean oil is actually up 18% off the 2966 low, soybeans 17% off the low, and soybean meal 15%.

I view this as a favorable development. One of the reasons I’m more bullish on the Soybean Oil  is that it was more over sold than either soybean meal or the soybeans.

Soybeans topped out in March of last year, as compared to the Soybean Meal and Bean oil which topped out in June or July.

Actually, into this December 5, 2009 low, that was the completion of a second leg down in a bear market. We’ve spent more time on the bear side of the equation on the soybean oil than we have in either the meal or the soybeans. By virtue of that, that is one of the factors that I felt would, as a result of the law of action and reaction, favor the soybean oil over the other two markets.

On a short term basis though, Soybean oil pushed above a recent minor high and is showing relative strength to the other markets is very favorable.