In a recent OE, “Are Commodities in a New Bull Market?” we discussed the potential bottom we saw forming in grains and made a bullish recommendation in corn. We also said that we would be watching wheat and soybeans closely for low-cost buy opportunities in these markets as well. We believe we have one in wheat.
Like the US, Ukraine is a critical source of wheat to the world market. Fears that unrest in Ukraine combined with a continuation of bad weather in the American breadbasket could crimp supplies have given wheat a nice bid. While no one can predict the weather or accurately forecast what is going to happen next in the Ukraine, the chart shows a market beginning to find its footing.
The wavy grain tested its downtrend line on the close yesterday, closing on its low and setting up a potential downside washout. That did not happen. Wheat bounced instead, holding its old downtrend line as well as key 20 and 40 day moving averages. The 20-day moving average crossed over the 40-day moving average three days ago, confirming a potential change in trend.
How high can wheat go? It depends on what happens next. Our first target is the old swing high at $6.75 in the July contract. Solid closes above this level could send prices as high as $7.45 before all is said and done.
We are currently recommending July bull spreads with a maximum risk of roughly $650 plus transaction costs and gross potential of $2,500 should wheat rally into the summer. Two closes below the old low at $5.59 would indicate a resumption of the downtrend, making it our risk (exit) point on any bullish positions. RMB trading customers should contact their broker directly for specifics on this trade.
If you are not an RMB Trading Customer and want to know more about how we are playing gold and silver, give us a call at 800-345-7026 (toll free) or 312-373-4970 (direct) and we’d be happy to go over a fixed risk strategy with you. Contact us to learn more or can also e-mail email@example.com. Put the word “gold” in the subject line and we will contact you.