Shorting Wheat Feels Like A Trap
- There are many factors depressing the price of wheat including the general commodity bear market, wheat's global supply glut, a strong dollar, and good weather.
- But with overwhelmingly bearish expectations for wheat, is there any room left to the downside?
- We believe expectations are too bearish and that El Niño is a strong candidate to surprise overly short investors and cause prices to rebound hard.
Every once in awhile you run across an irresistible chart pattern. A pattern that tempts you like no other. Even as a practitioner of , your trigger finger still itches at the sight of it. You can't wait to jump in and ride that beautiful trend.That's the sensation we get when looking at wheat futures (/ZW) to the short side.
Wheat is pushing up against a huge support line. The horizontal extends all the way back to 2007. Break that level and look out below….
We recently tried our hand at hitting this pattern. We alerted our premium members to our short entry on January 4th on a break of a weekly pattern. Unfortunately, as soon as we entered, wheat rebounded. It hit our risk point a few days later on January 8th and we alerted our members to our exit.
What happened here? Was it a bad entry? A bad trade?
Not necessarily. The risk/reward was in our favor and the pattern was legitimate. Getting knocked out is just a part of the game. That's why we have strict risk control.
But now after being forced out, we feel the need to reevaluate wheat's fundamental picture. Does wheat's back story actually support this trade? Or is this chart pattern just a trap? Let's take a look. (Keep reading....)
