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Lesson 36: Mrs. B Analyzes the Wheat Market

Those traders who own the "Choppy Market" trading method, know that on page 115 of this trading method the following is stated:  "Signal Check #2:  Before taking any long term position in December wheat futures in the month of March of any given year, compare the closing price of December Wheat Futures in Chicago as of your signal date with the cash price of Number 2 soft red wheat in the cash markets at St. Louis, Missouri.  If the December wheat futures contract is priced more than 45 cent above cash wheat in St. Louis then do not take the long term March buy signal."  If such is the case, Signal Check #2 also recommends that traders not take any long term buy signals in December wheat in the months of April or May of that same calendar year.  The reason for this is simple.  If a trader receives a buy signal in March, April or May of any given year and if the price of the December futures contract is more than 45 cents above the cash price as early as the March signal in that same year, then the trader would be paying a 45+ cent premium to buy the futures contract which is too much to pay, especially if the trader is looking for a significant profit in the December contract.  Mrs. B owns and has carefully read page 115 of the "Choppy Market" manual many times and knows this.  Everyone who owns the "Choppy Market" manual knows about Signal Check #2.

In March of 2001, Mrs. B compared the closing price of Chicago December wheat futures contract with the corresponding price of soft red wheat in St. Louis.  On the day she looked at these two markets, she noted that the December wheat futures contract closed at 315 ¼  (see closing prices, March 8, 2001).  On that same day, No. 2 soft red wheat at St. Louis was priced at 266 ½ (see Wall Street Journal cash prices, March 8, 2001).  Mrs. B calculated that on March 8th, 2001, the December wheat futures contract was priced 48 ¾ cents above soft red wheat in St. Louis, Missouri.  Whoever purchased a December wheat futures contract would be paying a premium greater than 45 cents for the opportunity to buy the futures contract.  Mrs. B knew this meant the same thing as if she went down to her local automobile dealer in March of any given year to buy a new car and the local automobile dealer told her she could buy a new car for $30,000 right then, but if she wanted to buy a futures contract to buy the same automobile in December she would have to pay a significant premium to do so.  To Mrs. B's question, "What happens if car prices don't rise between March and December and the price of a new car is still around $30,000 by winter?" The automobile dealer replied, "Then you would be out of luck".

"Out of luck" is something Mrs. B does not like to be.  In March of 2001, as soon as she received a buy signal, Mrs. B planned to buy December wheat futures and hold her contracts for the long-term.  Mrs. B happened to check wheat prices on March 8th.  Had she checked them on March 1st, she would have found the December wheat futures priced 46 ¾ cents above the St. Louis cash price.  If Mrs. B had checked wheat prices toward the end of March, she would have found Chicago December wheat futures priced more than 60 cents higher than St. Louis cash prices.  March 8th was not a significant day; it was just the day Mrs. B happened to check the December Chicago futures price versus the cash price for soft red wheat.  It didn't matter exactly what day in March the check was made just so long as Mr. B was sure that before she purchased any long term futures position in December wheat futures in the month of March of any given year, she compared the closing price of December Wheat Futures in Chicago with the cash price of Number 2 soft red wheat in the cash markets at St. Louis, Missouri.  If the December wheat futures contract is priced more than 45 cent above cash wheat in St. Louis then "Signal Check #2" says, do not take the long term March buy signal."  If such is the case, then Signal Check #2 also recommends that traders not take any long term buy signals in December wheat in the months of April or May of that same calendar year.

Mrs. B did not buy wheat this year because of Signal Check #2.  This signal check was made available to traders in 1989 and has been available continuously ever since 1989.  Many traders, like Mrs. B, have followed Signal Check #2 for many years.  For any trader who has been having difficulty trading the wheat market in 2001, it may have been because that trader was ignoring the fact that this year Chicago wheat futures were priced greater than 45 cents above cash prices in the month of March.  When this situation occurs, according to Signal Check #2, long traders should ignore any long term buy signals received during the months of March, April and May of such a year.  Signal Check #2 is being given to you free-of-charge.   Copy it, print it out, paste it on your bulletin board or in your notebook. Each year when the month of March comes around and you, like Mrs. B, are considering taking a long term position in wheat futures,  be sure to remember the warning of Signal Check #2.

I have written a 165-page manual on the best way for trading "Choppy Markets".  This method retails for a rather high price both because there is a lot of material in the Manual and also because there are twenty years of trading history behind the material.  I personally consider my "Choppy Market Manual" to be the second most valuable trading publication that I have ever written.  I would recommend it to anyone who seriously wants to learn a method for trading futures and options markets that are trading in "choppy" price patterns.  I am now offering my subscribers a reduction on the price of this Manual in order that my subscribers might be better able to understand the principles behind trading in markets that do not trend.& This manual should be extremely useful to those traders who want to closely follow Mrs. B's activities in the coming weeks.  To order this 165-page manual on-line at this reduced price, click here.   

      Bruce Gould

Proceed to lesson 37 by clicking here.

 

Always remember that stock, options, and futures trading may involve substantial risks and that past performance is no guarantee of future performance.