Stock market traders have seen a strong bull market push prices up by more than 20% since the start of the year. Grain markets have delivered even bigger gains, with soybeans up more than 45% and corn up about 33% in a little more than nine months. One of the worst droughts in history is behind the move in grain prices, but those markets appear to have topped and the news has turned more optimistic.

As farmers started harvesting their crops, many seem to be surprised that the yield is better than expected. Reports also indicate that farmers are harvesting the crop quicker than usual, and that could lead to supply building up in the short term and driving prices lower.

In addition to the fundamentals, there is a bearish technical picture building in corn. Commercials, the insiders of the futures markets, have been bearish while speculators have been buying while the price has formed a topping pattern.

Corn’s early summer gains are consistent with a bubble. If supply turns out to be higher than expected, a post-bubble crash might be seen. The question for traders is how to take advantage of a possible decline in corn and other grain prices. There is a trade to do that, but it is important to understand how to make this trade.

PowerShares DB Agriculture Short ETN (NYSE: ADZ) is an exchange-traded note (ETN) that provides short exposure to corn, soybeans, sugar and wheat. ETNs own derivatives while ETFs own individual stocks. Unlike most ETNs, the number of shares issued for ADZ is fixed, so it will trade much like a closed-end fund and there is a possibility that it could trade for more than its underlying value.

While corn has formed a topping pattern, as we would expect to see, ADZ has formed a bottoming pattern. The weekly chart shows that the stochastics indicator has formed a bullish divergence as prices traded at support. The upper Bollinger Band provides a reasonable price target and a possible gain of almost 40%.

Here’s the problem for traders: ADZ is thinly traded with an average trading volume of less than 1,000 shares a day. Trading should be done only with limit or stop orders. For example, ADZ was recently trading at $19.44 while the underlying value of the ETN was $19.95. There were 800 shares available at the bid price of $19.32 while 500 shares were offered at the ask price of $20.79. To enter the trade, buyers should use a limit order near the bid price, maybe $19.40 in this example. Exiting a trade with a limit order near the ask price, something like $20.60 in this example, should maximize gains.#-ad_banner-#

Some traders will be tempted to trade PowerShares DB Agriculture Double Short ETN (NYSE: AGA) because it moves twice as much as the underlying index. I would not recommend this. The ETN was recently trading at a large premium, meaning the price was well above the value of the underlying assets. There are a number of reasons that this can happen, but no matter what the reasons are, it is best not to trade the ETN.

If AGA is trading 30% above the value of the underlying assets as it recently was, it seems almost impossible to make money since you will be paying $1.30 for $1 worth of assets. Shorting it could be profitable, but this ETN may be difficult to short and will probably only be available with a high borrowing cost.

Corn looks like it will fall. Soybeans and sugar charts are also bearish. While wheat could be bullish, it represents only about 22% of the index that determines the value of ADZ. This index should decline as the corn and soybeans are harvested and traders can benefit from that with ADZ.

Action to Take –> Buy ADZ at $19.95 or less. Set stop-loss at $17.07. Set initial price target at $27.32 for a potential 37% gain

This article originally appeared on TradingAuthority.com:

Big Gains Ahead for Traders Who Get in Before This Bubble Pops