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The Two Elements of a Great Trade

By Dr. Steve Sjuggerud
Thursday, June 9, 2016

"Picture this for a moment..." I wrote in the latest issue of my True Wealth newsletter...
 
Picture me at a cocktail party, trying to tell people... "I'm so excited! I'm buying grains! You know – soybeans, wheat, and corn? They're SOOO cheap! The timing is great!"
 
Sounds ridiculous to say that, right? It's all true about the opportunity in grains... but nobody cares.

Yes, it sounds silly to talk about buying grains as an investment at a cocktail party these days...
 
But that is the point...
 
For the biggest gains, you MUST consider buying what nobody else is interested in. But that's not all you need. Today, I'll show you the two elements you want to see as the perfect setup for a great trade...
 
My issue of True Wealth published on May 20. Grains are up more than 10% in the 12 trading days since that issue came out.
 
My True Wealth subscribers are up much more than that...
 
I actually recommended buying the iPath Bloomberg Grains Total Return Fund (JJG) in February. JJG is basically a fund that holds three grains: wheat, soybeans, and corn.
 
We timed the bottom pretty darn well... JJG fell from more than $60 in late 2012 to less than $30 this past March. Take a look:
 

JJG was in free fall... So what did we see back then to make us buy?
 
What I wrote in the February issue summarized it...
 
Prices for agricultural crops have been falling fast. The price of wheat, for example, is down roughly 50% since 2012. The other big "grains" – corn and soybeans – have fallen even farther.
 
Speculators have been piling on this downtrend... The bets against the price of wheat have hit all-time record levels among commodity traders.
 
U.S. farmers are so paralyzed by these lower prices, they are afraid to plant. Why plant something that you will lose money on when you harvest it?
 
We have record fear in wheat – with no supply coming from U.S. farmers, and record bets against the price of wheat. Corn and soybeans are in similar positions, though not as extreme.
 
Ah, but what's this? We are starting to see a divergence between sentiment and price action.
 
Even though fear is high in the "grains," prices are actually up since the start of this year – in a world where everything else is down.
 
The outlook is bad... and yet prices are up this year. This is exactly what we want to see.

There you have it: The outlook was bad, yet prices were up.
 
That's what you want to see.
 
When the divergence between sentiment and price action appears... bingo! You have the two elements together that you want to see in a perfect trade setup.
 
Our grains trade is just one example...
 
We bought JJG at around $30 in True Wealth. And we'll sell at around $40. We've only been in the trade a couple of months, but JJG is already up to $37... So it has been a great trade.
 
The grains trade is just one example of using this simple little "system." In short, you want to buy what's uncomfortable to buy. You want to buy when the outlook is bad, and everyone is ignoring it... but meanwhile, the price has quietly started to go up.
 
When you find that setup... take advantage of it!
 
Good investing,
 
Steve




Further Reading:

Steve is bullish on another investment opportunity: Florida real estate. Find out why he says "there is plenty more upside ahead" right here.
 
Last month, Steve shared a simple but powerful investing system that has returned a compound annual rate of nearly 17% when in buy mode. Learn more here.

Market Notes


IT'S A BULL MARKET IN MILITARY DRONES

The message in today's chart is simple: The U.S. defense sector is going wild for drones...
 
Earlier this week, we recapped our stance on defense stocks. The U.S. spent around $600 billion on its military and defense budget in 2015 – more than the next nine highest-spending countries in the world combined. Lately, the U.S. has been investing heavily in unmanned aerial vehicles, commonly known as drones.
 
We can see this trend in action by looking at shares of AeroVironment (AVAV). AeroVironment is the Pentagon's top supplier for small drones. This makes the company a great gauge of the country's demand for drones.
 
And as you can see below, drone sales to the U.S. defense sector are soaring. Shares of AVAV are up nearly 60% since last September – and just set a new 52-week high. Like it or not, it's a bull market in military drones...
 

premium teaser

A much bigger opportunity than grains today – in commodities...
 
Investment ideas that can consistently deliver triple-digit gains aren't easy to find... But we have one today in commodities.
 

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