I use a lot of terminology that you may be unfamiliar with. If you look to the right sidebar of this page, you will see a link to a page which will help explain the terminology I use. To get the most use out of this service, I suggest you become familiar
I know I was a bit tepid on my confidence on the post I left Sunday, but we are getting more follow through today. I believe it is safe to say now that a new intermediate cycle began January 7. The break of the weekly trend line confirms this.
These intermediate cycles are the ones we want to be bullish with when they begin. Intermediate cycles usually last 32 to 44 weeks trough to trough (I mean over 69% of the time). There are 13 weeks from the beginning of this new IC until the March 28 planting intentions report. My guess is that the market will remain quite strong leading to that date.
It is always amazing to me how mathematically symmetrical the various charting patterns are. In the daily chart below, you can see the bull flag that has formed. Using the measuring distance of the base of the flag pole to the top of the flag pole, to complete as a bull flag, the price would need to move to 7.775, which happens to be at the small gap and resistance areas from back in September. That could be an actionable place.
Cycle wise, I hope this intermediate cycle chart makes a little clearer why you should not be so fearful at this time.
This is the same chart pulled in a bit closer with the last 4 intermediate cycles.
When I speak of cycles, I am sure it is difficult to follow their significance. To better explain the cycles, I have dedicated a page to following the cycle counts. If you can spend some time reading the charts and following the statistical analysis that follows, I think you can have more confidence in what I am speaking of. The link is here, but for future reference, I posted a link on the side bar. There are two stories....one for yearly cycles and the other for intermediate cycles. For how we use them, the intermediate cycles will be the most useful.
Now, just to refresh you on where we are in the current intermediate cycle, if you recall back on January 15, I posted a corn chart which explained that a breaking of the trendline would confirm the start of a new intermediate cycle. Technically speaking, we got the break last week, but we did not get the follow through I would like to see.
If we have started a new cycle, then the previous cycle lasted 30 weeks which is a tad on the short side. Cycles lasting 30 weeks or less has happened only 3 of the last 26 cycles, or 11.5% of the time. If we do not get follow through, I am going to say that the current cycle is now entering its 32nd week now. If that is the case, a new cycle begins 69.5% of the time when the cycle runs 32-44 weeks. I like our chances of a new cycle beginning soon, but we could see one more dip back below $6.78.
Three days ago, I had said that oil should be at a peak and should begin to drop. Oil is in the beginning of its timing band for a cycle low. Despite that, and that supplies of oil and gas being above average for this time of year, and crude inventories 9 percent higher than a year ago, and gas inventories 3 percent higher, and production of crude at the highest level in 20 years, oil popped. As you can see from the chart below, price action ruined my pretty chart.
As it turns out, Islamic terrorists took over a natural gas plant in Algeria and trade focused on that instead. Given the fact that the oil cycle is moving into the timing band for a cycle low (gray area), and that there is a fairly substantial gap left on the chart in the 92 area, I would expect to see this doji (circled in green) to become one of those abandoned baby events as traders re-focus on S&D. The cycle low may only be 92.
Essentially, if prices will move any higher, we have the start of a new intermediate cycle. You do not want to be selling grain this early in an intermediate cycle as they have the potential to provide the most powerful rallies. It will be interesting to see if this turns out to be one gigantic bull flag.
I feel confident that grain prices will move higher into a new intermediate cycle, even though we are yet to confirm it. I don't believe I am alone in this regard however. Friday was the third highest volume day in the past three years, and I mean buying volume on corn and for wheat. While not as stellar, bean volume was more than respectable. Apparently, the big boys agree.
I am not overly bearish on oil, but if you are contemplating a purchase of oil for this spring, I think it would do you some good to hold off a week or two. Oil is in the timing band for a low to occur over the next two to three weeks, and the Commodity Channel Index is confirming that.
The January WASDE report was favorable. We have a reduction on the corn and soybean balance sheet, and a modest bump in the wheat carryout.
Traders reacted by putting in a swing low on the weekly corn chart. If we can get a above the downward sloping trend line, I think we will have confirmation that a new intermediate corn cycle is beginning. When we get a break of that trend line, I will change my sentiment to bullish. This is a market that was waiting on something to trigger it to do what it wanted to do and the WASDE report should fit the bill. The market wants a new intermediate and yearly cycle.
Soybeans did manage a lower close, but they no trader wants to be short below 12.60 on the NOV it seems. I remain confident on the recommendation to sell puts on 11/16. A break of 12.55 would be very bearish, and would confirm a failed soybean cycle.
I am cautiously bullish with corn now. We have buy signals on the nearby corn chart, as well as Dec 2013 corn, but there is no denying now that the 200 sma has been pierced. Notice on the March corn contract, price has filled the gap left from July 5, and has completed a 50% retracement from the May low.
With corn basis levels running .27 above its 3 year average, it makes sense at least to be locking up basis contracts on any 2012 corn available.
The most depressing thing for me at this point is how new crop corn looks Technically speaking, new crop corn does not look very good. Prices have retraced 61.8% of the advances it had made since the June rally began, and are now .25 below the 200 SMA.
Near term, however, I am bullish. A buy signal will be given soon from the CCI.
We are going on week 15 for the current corn cycle. The average corn cycle lasts around 12.5 weeks. Corn is in the timing band to print an intermediate cycle low and a yearly low.
When will we know we are at the beginning of a new cycle? We can feel confident that the market has bottomed once a weekly swing low has occurred at the same time as we break the declining trend line which would be around $7.20 March.
This wheat sell off was a bit more extreme that I had anticipated. I thought prices would be supported around $8.00, but sure enough, July wheat fell to $7.56, which happens to be at a place of key horizontal technical support. If you are feeling a little freaked, I could understand. Keep in mind however that wheat is at an extreme now, and the market should be poised for a modest bounce.
In the chart below, I have highlighted the actionable places I see on the chart. I am saving this chart for further reference in the future to help explain the tools I use, and will explain further in a nearby future post. For now, know that we are at a useful place in the market to lift hedges or to sell some puts. The number on the chart is at 16. This would be in a similar place as the market was back on number 5.
The plan as I see it would be to lift hedges for now, or to sell some short dated puts. Price is .42 off the crop insurance floor if you carry an 85% crop insurance policy, so a sale now is not removing that much risk. The next actionable area would be once prices pushed back into the 200 day moving average around $8.00.