Today's Idea

Some traders who are looking for the recent rally in Soybean futures to falter may perhaps wish to explore buying just-out-of-the-money puts in Soybean futures options. For example, with the March futures trading at 1225.25 as of this writing, the March 1200 puts could be bought for 20 cents, or $1,000 per option, not including commissions. The total investment in the option would be the maximum risk on the trade, with a potential price objective on the futures of the recent low of 1150.00.

Fundamentals

Soybean futures have rallied over $1 per bushel the past 4 weeks, as dry weather in Argentina and Brazil sparked concerns over the size of the South American harvest. With only a brief lapse due to a "bearish" USDA crop production report, it appeared that bean bulls were regaining the upper hand. However, there now appears to be some signs that the recent price gains may be in jeopardy. First, we are starting to see some signs of improved crop conditions in South America, as much needed rains reached the parched growing regions this past weekend. Additionally, weather forecasts are now calling for another rain event in early February. US Soybean export demand is expected to be light this week, as Chinese buyers are on holiday for the Lunar New Year. US export demand was already in question, as a relatively strong US Dollar made US Soybeans more expensive -- especially when compared to Brazilian and Argentinean competitors. Should the South American Soybean harvest turn out better than anticipated, we could see Soybean futures prices turn weak as concerns of tight global supplies are diminished.

Technical Notes

Looking at the daily chart for March Soybeans, we notice prices holding above the 20-day moving average (MA), but still remaining well below the longer-term 200-day MA. Trading volume has started to decline as the rally has progressed, leading some to believe that the up-move is starting to lose some strength. The 14-day RSI is still relatively strong, with a current reading of 57.91. Resistance in March Soybeans is seen at the January 3rd high of 1244.75, with support seen at the 20-day moving average, which is currently near the 1205.50 area.


Mike Zarembski, Senior Commodity Analyst

Support / Resistance & Oscillators
	S2	S1	Pivot	R1	R2
Mar Soybeans Pivot	1204.75	1213.75	1222.50	1231.50	1240.25
Mar Soybeans Chart		1205.50		1244.75

Today's Highlights and Economic Data
Economic Report	8:30 AM ET: GDP (Q4 '11) 3:00 PM ET: Cattle on Feed
FND / LTD	LTD: Jan Metals & Feb Natural Gas LTO: Feb Grains and Treasuries

This article appears as part of a content sharing arrangement with optionsXpress.

Free Practice Trading at optionsXpress