Soybeans Mean Reversion Has Bullish Traders Looking Up

The presence of flat 200 day moving averages throughout many of the US Stock Market Indices and sectors, combined with a few other factors, is causing me to maintain a neutral stance toward equities for the time being. Luckily, as a technician I can take advantage of opportunities in other non-correlated liquid asset classes when I don’t have much conviction long or short the equity markets.

A Closer Look At Soybeans…

 That being said, Soybeans look interesting on the long side for a number of reasons.

1.  Soybeans has no correlation to the S&P 500, which is great given my view on equities at the moment.

2.  Commercial hedgers are net long and getting longer, with their position slowly creeping its way back toward multi-year highs.

3.  In terms of public sentiment, pessimism may not be at the extreme levels it reached earlier this year, but is still at levels not seen since late 2006.

4.  Seasonality is pretty neutral into year end. While not a major tailwind, it’s good to be aware that history would suggest it shouldn’t be a headwind for higher prices going forward.

5.  Soybeans are oversold and reached downside targets, whereby the price action may be calling for Soybeans mean reversion.

Overall, this backdrop for prices looks like it has the potential to support a short squeeze, but let’s take a look at what prices are indicating.

From a structural perspective, Soybeans prices have been in a downtrend since breaking the uptrend support line from the 2007 lows, reaching multiple downside targets around $900. Unfortunately, prices failed to gain much traction and broke below that long-term support level in August of this year.

In terms of positives, prices have recently reached the 161.8% extension of the May-July rally as momentum put in a bullish divergence. If the other timeframes agree, we could see a bit of a mean reversion start from current levels. A break above $900 would be extremely constructive from a structural perspective, but it’s important to set the tone for this setup as nothing more than a counter-trend trade with Soybeans mean reversion taking place. Until (and unless) we get back above that broken support & downtrend line, it’s nothing more, nothing less.

Soybeans Weekly Chart

soybeans prices 10 year chart breakdown downtrend 2015 Continue reading

Long SQQQ Trade Review (+7.63%)

Thesis: The major indices had a huge run up toward ATHs with breadth and momentum diverging from price (as compared to old highs). The Nasdaq 100 had been the strongest of the major indices, but had failed to hold above the July highs, providing a nice short opportunity against those highs of 114.40 on the QQQs. Additionally, the Nasdaq 100 futures had held above the 200 hour sma since early October and broke below on 11/9/15. Prices had since consolidated below it and allowed it to begin downward sloping with RSI in a bearish range, suggesting that momentum was turning in favor of the sellers.The price target was a gap fill toward 109.70 and a test of the 200 day at 108.


Original Plan: Buy 1/2 a position on Wednesday’s close and add on Thursday’s close if we got downside follow through. Take profits on 1/2 once the gap filled and leave the other 1/2 for a test of the 200 day.

Entry 18.7
Stop 18.1
Target 22
Shares 1
Profit 3.3
Loss 0.6
Risk/Reward 5.50

Actual Entry: Bought 1/2 a position on Wednesday’s close at 18.73, but did not add on Thursday.

End Result: chart

Symbol Date Entered Entry Price Date Exited Exit Price Profit (Loss)
SQQQ 11/11/2015 18.73 11/13/2015 20.16 7.63%

Trading Notes: First off, I did not fully capitalize on this opportunity because I did not stick to my original plan. Had I put on an additional 1/2 a position on Wednesday’s close I would have had the opportunity to close half on the gap fill at Friday’s close and leave the rest on as a trailer in case we tag the 200 day like I suspected originally. Additionally, on the exit on Friday’s close, I took profits earlier than I would have wanted to because I began looking at intraday charts (5 minute, 1 minute), that cause me to lose all perspective of the bigger picture and my original plan.

Lessons: Follow your original plan so that I can fully capitalize on the opportunities that the market presents to me. Stop looking at intraday charts, they’re not part of my process and lead to nothing but overthinking and poor execution.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

The Power of Social

For better or for worse, social media has become an integral part of our personal and professional lives. Whether you’re applying to college, searching for a job, or just trying to find the “perfect” significant other, you can rest assured that your counterparty will be combing through your online presence at some point. In fact, in the “Recruiters Nation 2015 Survey”, 92% of recruiters said they used social media in at least part of their process of recruiting candidates. Roughly 86% of respondents reported using LinkedIn, followed by Facebook and Twitter at 55% and 47% respectively.

Additional studies have suggested that recruiters and other third parties will even Google your name as part of their process, likely giving them full access to your whole online presence: everything from your blog to that selfie you posted on Instagram a few years back. This can be a huge positive, or negative, depending on how strategically you curate what information you post on the interwebs. While you might think that selfie might not make you appear to be a more attractive candidate, industry data suggests that simply posting to a personal website on occasion can give you a big leg up. In a study conducted by Workfolio in 2013, 56% of all hiring managers stated that they were more impressed by a candidate’s personal website than any other personal branding tool; however, only 7% of job seekers actually have a personal website. Moreover, it wouldn’t surprise me if both the numbers discussed above have increased in the two years since the survey was conducted, but either way, it’s clear that candidates with a personal website have a quantifiable edge over their peers.

google trends
Continue reading

Weekend Thoughts 11/1/15

First off, excuse the sloppiness of my thoughts below. I have a busy week ahead and likely won’t make any trades, therefore my plan for the week ahead is a lot less detailed than it normally is. Instead I just want to list a few things I noticed while going through my analysis this weekend.

  1. Only the stronger of the major indices are just barely hitting overbought conditions (NDX, DJIA), whereas the micro-cap, small-cap, mid-cap indices continue to lag on an absolute basis and have yet to decisively clear the multi-week range they’ve formed down below.
  2. There are a number of themes present within individual sectors. Retail names, such as M, BBBY, URBN, GPS, KSS, DG, DLTR, which have been beat up as of late are hitting downside price targets with momentum diverging. This combined with specific names being very extended from their 200 day moving averages make the sector ripe for a bit of a mean reversion to the upside. Energy also looks interesting on the long side, as many names I’ve looked at are flagging for continuation, but upside looks limited with flat / downward sloping 200 day moving averages just overhead in the case of the sector ETFs and many individual names. On the short side, there seem to be a ton of short opportunities in the consumer staples space as false breakouts paired with negatives momentum diverges were found in many of the popular names including, MRK, PEP, PM, MO, KMB. Also, there seem to be some interesting setups on the short side in healthcare and biotech as well.
  3. On an individual stock basis I’m seeing a lot of flat 200 day moving averages which make for a choppy trading environment. Additionally, stocks that are hitting new marginal highs, or are back at overhead supply, are doing so with momentum diverging. The same goes for marginal lows, which sets up a lot of potential false breakouts / breakdowns that could lead to some mean reversion back to the flat 200 days. These types of setups are good because false moves allow you to define your risk / reward very clearly.
  4. Foreign equity markets don’t really look all that great. I expect that the mean reversion in many of the countries around the world is largely complete, meaning that we’ll either consolidate at these upper levels or continue lower. Within this type of environment I think it’ll be difficult for the major US indices to hold up well and continue to grind higher, hence the reason the amount of short setups I found outweigh long setups in the US equity markets. For now it’s just a divergence, but I guess we’ll see soon enough if it’s as important / significant as I think it is.
  5. In the commodities space I continue to like Sugar, Lumber, Platinum, and Palladium on the short side against the recent highs. Rough rice looks interesting on the long side here after retracing back toward support and continuing higher late last week.
  6. Not much going on the in currency space, though I think this pullback in GBP/NZD is likely a good opportunity to get involved on the long side of a monster structural uptrend in this currency pair. The yen remains a mess, as the flat 200 day continues to wreak havoc on that market. The negative correlation between the yen and the US indices has slightly decreased over the past month or so, but is still extremely strong over the longer timeframes.

That’s about it. Check my stocktwits or twitter stream for info about the setups I highlighted over there. I will have a more comprehensive weekend review next week, when I hopefully intend on trading again (if there are opportunities of course).

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

Analyst vs. Market Participant

On the surface, being an analyst and being a market paricipant seem almost identical in nature. Both parties are analyzing various asset classes from around the world to identify potentially skewed risk/reward opportunities to profit from. The steps following that analysis are what really separate the two parties.

An analyst is paid for his/her research / expertise in an area and never actually commits any capital his/her self. Their job is to provide information for other people to make decisions, essentially making their goal to be right, or at least convince people that they’re right, as often as possible.

Market participants however, take the process a step further in actually putting capital to work based on their analysis. In this sense, market participants are concerned only with making money, not with being right, making risk management their number one priority at all times.

This is a distinction that I see reiterated over and over again in my own trading, with these last few weeks providing me with a number of frustrating, but prime examples. (See tweets & outcomes below)

Continue reading