There is no question that we are getting clobbered on our grain positions even after averaging down. It looks as if the rally in the grains is drawing to a close and the only reason I have stuck by Beans and Corn is their strong potential for a nasty bear market. If I had it to do over there is not a doubt in my mind that I would have exited the shorts a while ago, but we have stuck it out this long we will continue to hold the shorts.
That being said, instead of averaging down on the soybeans and corn, I am going to put on a large short line in Soybean Meal to help speed up the recovery process.
Notice the ascending wedge on the weekly stochastics as well as the bearish wall of fury on the price chart. You will recall that I discussed the value of chart patterns on momentum indicators and how they generate a more powerful signal than a pattern on just price alone. In the case of Soybean Meal we have both!
The smart money is also exceedingly bearish with their largest short position in over 15 years!
Now that alone sends a message.
The small investor is the most bullish they have been in over 12 years and the commodity funds are the most bullish they have been in over 15 years. Remember, the commodity funds are trend followers and momentum players and we can get a feel for how large a move to expect based upon the size of their position. The larger their position, the longer it takes them to unwind and the further price will go. In this case their position is extremely immense and could really lead to an all out collapse in prices.
For those of you that are not carrying the losses in corn and soybeans that I am then shorting meal offers and incredible long term play with a strong probability of 600% or more returns on investment.
Those that are bleeding a bit on the grain positions as I am, the meal trade offers a superb way of getting out from under the boulder.
Take a serious look at Soybean Meal as I sincerely believe it is one of those trades that come along no more than every 5 or 6 years.