December Corn Futures had a strong day and closed above the 50sma as well as the 3ema, 8ema, 20ema, and 34ema. Stochastics not yet over bought. Here's what else I saw:
- Broke through final MA resistance (50sma).
- Higher lows.
- Last dip couldn't close below 8ema.
- Doji sandwich.
- BB/KC Breakout is imminent.
This setup looks ripe for an entry. Of course, anything can happen. Preferably we'll get a small retracement to test the 50sma, then rocket upward. If we get the Bollinger Band/Keltner Channel Breakout, we can expect 5-7 more candles to the upside.
Normally, I'd pick the 50% Fib at 365 1/4 as the target. But because we're coming out of a consolidation period, and may get the BB/KC tailwind, and the down sloping 200sma should be near the 61.8% Fib by the time we reach it, let's set the initial target to the 61.8% Fib at 374 1/2. We'll actually use 374 to allow 2 ticks for the Bid/Ask spread. We can always exit at the 50% Fib if conditions warrant it.
So we got a Dec 3.50 Call for 15 points (15*50=$750 at risk).
Why did we use an option instead of the futures? One reason is this upward angled consolidation could be just a Bear Flag and we get the rug pulled out from under us. Another reason is the headline risk of China saying forget your Yankee corn, we're shopping at the Brazilian market. Also, if this consolidation is a channel, then we're close to the top of the channel.
Why did we choose the December contract instead of July? I got that idea from Larry Pesavento (you can Google him, he's famous), who said there's usually at least 1 crop scare during the growing season. If you want to catch it, then you'll want the Dec contract since it could happen after the July contract expiration. (Actually, I did get a July 3.30 Call option as well for 6 points but since I'd expect the price action should be the same as the Dec contract I didn't want to blog about it.)
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