Macro markets flat lined in April, closing the month not far from where they began it. But not all markets followed this script. Both corn and wheat continued to march higher in April, helped mostly by Mother Nature. Dangerously dry conditions in the wheat-producing high plains fueled a nice rally. Wetter and colder-than-normal conditions delayed planting in corn and prices rose in response.
A significant portion of the American winter wheat crop is already lost. Since it competes with corn as a feed grain, stubbornly high-priced wheat could help keep a bid under corn even if spring corn planting does manage to catch up. We suggested taking some cash off the table in our long corn and wheat positions back in early March (Alert #7) and exited the rest of our bullish wheat position when the wavy grain hit our upside target just a few days later (Alert #9).
July corn came close to our $5.30 per bushel target last week but failed to reach it. Friday’s negative crop report and subsequent close below its well-established trend line means it’s time to move our risk point on our remaining bullish option positions up to $4.97 in the July contract. Consider exiting all remaining positions should the market close lower twice consecutively below this level.
The Australian dollar is also holding up well despite sideways financial markets. Australia is a big exporter to China so the better-than-expected performance of the Chinese economy has been helpful to the bullish Aussie dollar position we suggested paying $640 for in Alert #13. An early May correction tested both the 40-day moving average and the Aussie’s uptrend line and held both. We are trading comfortably higher now.
Let’s move our risk point up from .8820 to .9175 – the low of the last week’s correction. Consider exiting all positions should the front month Australian dollar contract manage two consecutively lower closes before this level. Our upside target remains .9700.
Disappointing Gold and Silver Still Sideways
Talk about disappointing… Precious metals spent the entire month of April moving sideways. Silver is trading close to support at $19 per ounce. Gold is stuck right in the center of its 5 month trading range. Today’s rallies in both metals today are encouraging but our bullish June gold option positions (Alert #1) are running out of time. With our risk limited, we’ll wait to see if gold can improve on today’s performance before pulling the plug.
We’ve got a lot more time left on our bullish July positions in silver – they don’t expire until June 25 – but we still need to monitor this market closely. We will continue to use two consecutively lower closes below old lows at $18.87 per ounce as our risk point. If you took our suggestion to buy put options to hedge your physical silver, continue to hold them for now.
Yen Sideways But Still Poised for Downside Breakout
The trend in the yen remains down despite this extended sideways period. As the chart below suggests, current price action is starting to look familiar. Japan must actively buy its bonds to avoid a catastrophic collapse. This means it must print money and devalue the yen. If it fails, JGBs will likely collapse and take the yen with it as money scrambles to get out of the country.
This is the fundamental reason we believe the yen has a lot further to fall. We’ll continue to use two consecutively higher closes over old swing highs of .09927 as our risk point for our open bearish positions.
If you currently do not have a bearish position in the yen, we are recommending an updated bearish put option strategy with a total cost and risk of roughly $1,250 plus transaction costs and the potential to be worth as much as $6,000 should the Japanese currency hit our .09000 objective prior to option expiration in early December.
Prices can and do change so RMB trading customers should contact their broker directly for further specifics on this trade. Your broker can also help you custom design a strategy based on your risk level and/or differing price targets.
If you are not an RMB Trading Customer and want to know more about how we are playing this or any other market, contact us or give us a call at 800-345-7026 (toll free) or 312-373-4970 (direct) and we’d be happy to go over some of our fixed- risk, “Big Move” strategies with you. You can also e-mail email@example.com. Put “Yen” in the subject line.