Walsh Trading's Rich Moran has identified a potential trading opportunity in the agricultural commodities market, specifically involving March Soybeans and March Corn futures. The spread in question, represented as ZSH27-(2 x ZCH27), involves one contract of March Soybeans against two contracts of March Corn. Moran notes that March Soybeans (ZSH27) settled at 1243½ today, which is less than a 40% retracement from its 52-week high of 1356. Meanwhile, March Corn (ZCH27) settled at 464¾, which is more than an 80% retracement from its 52-week high of 564.
The spread between these two commodities has settled at 314, just above its 14-day and 21-day moving averages. Moran suggests that if the spread trades and settles below these moving averages, it could present a favorable risk-reward opportunity for shorting the spread. He recommends risking 30 points per spread to potentially gain 100 points, plus fees and commissions. Moran advises moving the stop to the entry point once the spread moves 30 points in the trader's favor to lock in profits.
Moran emphasizes the importance of monitoring the spread's behavior relative to its moving averages, as it has been riding above them for the past couple of months but appears to be topping off. He cautions that futures and options trading involve substantial risk and are not suitable for all investors, and past performance is not necessarily indicative of future results.