Buy Wheat!

You can hardly get a simpler and less ambiguous recommendation than that.

Buy Wheat

After a 7 year bear market I think the time may have come for wheat to rise again. You can see a small monthly RSI divergence which has formed over the past 6 months and a larger hidden divergence which has formed over the past 5 years. Commercial buying is at historic levels and the seasonals are favorable for the second part of the year. In the media there’s plenty of news about oil and energy markets but wheat and agriculture in general at the moment are all but completely neglected. By reading various blogs I find also that most of the traders are bearish on agricultural commodities. The confluence of all of these factors suggests a strong buy for wheat.

Does that mean mortgage your house and put all of your money in wheat? No, never bet the farm on any investment or trade no matter how convinced you are.

I recommend using the following strategy (which you may modify to reflect your own strategy, risk tolerance and account capitalization):

I suggest dividing the money allocated to wheat in 3 parts:

1. Investment

Allocate approx. 1.5% of your trading account to wheat. For example if you have a 100,000$ account you would allocate 1,500$ to this position. The stop is 0, essentially this is an investment and there is no stop. The target is all time highs. I don’t have a more precise target, you would just have to wait for the pattern to unfold and when the mass psychology is “right” sell. For example if you see in your local newspapers front page articles about how high the price of wheat is and how high it’s gonna go, you should sell, but that is years away, it may be even decades away. It took wheat more than 20 years to break the 1974 high. To not have to wait that long we have the other 2 types of trades.

2. Long term trade

Place a trade and assign a stop below 400 on a monthly closing basis. For the long term rising trend in wheat started in the year 2000 to remain intact, wheat shouldn’t close below the ascending trend line or approx. below 400. I suggest risking about 0.5%-1.0% of your total trading capital on this stop. If wheat goes to around a 1000 sell 1/3 of your position. Sell the second 1/3 around the 1,100-1,300 level. The last 1/3 sell at your discretion if wheat breaks above all time highs.

3. Speculative position

Place a trade and assign a stop below 460 on a daily closing basis. Sell 1/3 at the 640-680 level, 1/3 at the 800-850 level (retest of the upper trend line channel) and 1/3 at 1000-1100 level. Risk no more then 0.5% of your trading capital on this trade.

This is not investment advice and you are solely responsible for your actions. For a full disclaimer see here: Disclaimer

For a full list of instruments traded in the lifetime of the portfolio and for performance go to the Performance section.