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….)

 

 

Shorting Wheat Feels Like A Trap

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

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He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

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Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

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Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

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