06/11/10: Some calm has returned to the currency markets this week. Additionally, equity and bond markets are settling down too. New signals registered this week include a nice breakout in Coffee (where it came very close to trading at a new yearly high) and Sugar (where a long over due bounce seems likely and a 50% retracement could be quite profitable). Please refer to this weeks CTS Blog spotlight for more on a potential Sugar options trade. Additionally this week, Soybeans and Soymeal held their recent lows and Oats popped on an oversold bounce. Interestingly, the meats look toppy again as Live Cattle has joined Feeders in consolidating.
Sugar: This market has fallen by more than 50% over the course of 2010. While we rode a good portion of the move higher, CRI was pushed to the sidelines when the market showed initial weakness last fall. Indeed, I even posted a blog about how one can miss the last part of a move higher but feel ok if the market subsequently breaks down. This market broke down and just kept on going!
Now that prices have fallen in half one might want to consider playing a long call option position. While I have little expectations for the old highs of $30 to be tested any time soon, a 50% bounce of the sell off is realistic. Buying the futures outright is one way to play this kind of market but I prefer an option. Currently I can buy the October 2010, $20 Call for 35 points (at $11.20/pt) that comes to about $390US. Should the market move back to the target ($21.70) by the middle of October this option would have an intrinsic value of 1.70 points or about $1900US.
Not a bad risk reward ratio indeed...
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com
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