Bean Oil suffered a nasty selloff from Jan 2011 through Nov 2015. What we have seen since, is a slow but steady cycle of Higher Highs and higher lows on the weekly chart.
The most recent sell-off from Sep 8 17 thru today has been sharp & nasty - Dropping 4cents in 20 trading days. However, there is mounting evidence that the drop is over, and that a new advance will be commencing shortly. Lets take a look.
Price and Volume Action
Lets take a look at the weekly chart for clues.
1 - First I want to draw your attention to the weekly bar from 2 weeks ago. We see a very bearish candle accompanied by huge volume - As a matter of fact, the largest weekly volume seen during a down week since the Top was put in at 60cents back in April 2011. If simply taking at face value, you might think rising volume on a selloff is bearish, but this is not necessarily true. The fact that this is occurring now, after prices were cut in half, and after a sharp 4 wk 10% drop, indicates that buyers are stepping to the forefront. This type of volume action after a decline is indicative of a bottom being put in - Technical trend following traders are piling on shorts into the negative trends and technicals, but someone is stepping in to buy - But whom? We'll answer this shortly.
2 - After the washout we see this followed by a Long legged Doji candle. This candle indicates indecision and stalemate. Stalemate after a sharp decline indicates a potential reversal.
3 - Our Proprietary Oscillator is flashing a buy signal.
OK, now that we have identified some technical clues, lets get back to analyzing the Huge Volume Selloff from 2 weeks back.
Take a look here:
This shows Alchymist's proprietary scoring system for the Commitment of Traders report.
You can see the answer to who bought during the wipe-out last week, it's the Producer Merchants - to the tune of over 45k contracts in 1 week!
This 1 week activity scored a incredible 100% on both a 18m + 5yr basis. This COT setup shows a significant statistical edge.
Since 2006 the Average movement for Bean Oil from any random close over a 20 Trading Day Interval is $2.13 up + (1.99) down. As averages can be skewed by a few outliers we look at the 70th percentile which shows 90 cents up + 74 cents down.
When Producer Merchant 18month weekly delta scores above 95%, we see the Averages move to 1.94 to (1.51) or improve from 1-1 bull/bear odds to now 4-3. The 70th percentile moves to 1.11 by (.62) - Improving from 9-7.5 odds to now almost 2-1!
Lastly, lets take a look at seasonals in Bean Oil going back to 1995.
Bean Oil in the months of Oct-Nov sports a impressive 67% winning %.
We have a clear statistical edge here. When trading Bean Oil, we see who is smart money, & we want to follow their lead. Let's put some money to work and make a long bet here.
As it is Noon Sunday as of the time of the post we can't provide Trade economics. But you'll want to do something as follows:
1) Go Long 1 bean oil future at 33 cents.
2) Buy a Long dated put at the money.
3) Once the trade moves 1 cent in your favor, sell a OTM call - Offsetting some of your insurance cost, while still providing some upside potential.
This should get you at least 2-1 R/R, probably much better. The key here is that the ATM put is your insurance & locks in your maximum downside on the bet. Never Trade futures without hedges in place, as the inherent Leverage can destroy your capital in a adverse outcome.
Christian Badurina, Founder and CEO