Prior to oil breaking above the downward trend line from March of last year, I was preparing readers for another reversal lower as oil was near the timing band for a cycle low. Most oil cycles last an average of 50-70 days, and this cycle was almost there. Traders used an attack on a natural gas plant to justify a push higher. Now, 83 days later Oil has pulled back within a few cents of filling the gap at $92 that was left on the chart back on January second.
Sometimes the cycles are short, and sometimes they get stretched. At 83 days, It is safe to say that we are past due for a cycle low. A gap fill might be all the reason for traders to stop selling and to begin accumulating again. This would also coincide with a touch of the downward trend line, which would be right at 92. I had pointed out this possibility back on January 17.
So am I an oil bull? Not really. Though oil is probably going to make a higher low, it failed to make a higher high. I am inclined to believe oil will move even lower, but until I see clarity, I would suggest buying short term needs only.
Below is the chart I look at to find actionable places to make crucial marketing decisions for wheat. Keep in mind that this is just a tool and that there are a lot of things to consider. It is just that the behavior of the wheat market since September is nearly identical to the behavior of the wheat market from its bearish move that began in April of 2011.
I have referred to this chart a couple times. It is on the Tools page, and on the Preparation page from back in early January. The numbers correlate with marketing decisions you could make which I explained on the Tools page.
A couple days ago, I had made a colorful post on making sales in a waterfall decline market. The wheat chart was an attempt to show that the wheat pattern today was similar to that back in 2011. What I want to do on this post is to be more detailed with the explanation.
Right now, we are at #18 on the chart above. You would have to recognize that the price action today is eerily similar. Then, you had #3, 4, 5, 6 and 7 to the current pattern of 13, 14, 15, 16, 17 and 18. Prices then were able to rally modestly, but then they made a final plunge into #8. Wheat never exceeded that October 2011 level until June of 2012 when, carried by an intense drought, prices were lifted above those levels. Without that drought, we most likely would not have seen $8.00 wheat again.
If you look at the chart from the tools page, I said that #7 was " Useful. A buy signal on the CCI following a steep decline is a safer time to lift hedges. This signal would ultimately not work out." I wish I could find a tool that would give a sell signal between the 7 and 8 mark, but there is not one that I am aware of. Likewise, I wish we had something that would mark the next suitable place to sell.
You can see from the green and red rectangular boxes that the market usually sends multiple buy signals when it is in a bear market, and multiple sell signals in a bull market. Bear markets are much harder to sell grain in because the next signal to make a sale is lower than the previous signal. This is part of my reasoning to be an aggressive seller at the next modest bounce. I believe it could be a while before we receive the next sell signal. I will post some new targets keeping this in mind in the coming days.
Where does the expression "waterfall decline" come from? The chart below should quickly answer that question. These are the hardest markets to make meaningful sales in because the market never has a meaningful rally to sell into, and the next drop is looming.
The corn and wheat patterns are very similar. Elliot Wave (a method of charting) would point out that we are in a classic 5 wave decline. Notice how this worked out on the wheat chart below. Didn't this happen a year and a half ago?
I will be posting some corn targets this week on the Opportunity page.
There has not yet been the first kernel of corn planted, nor has there been a planting intentions report, nor has there been sufficient rain to ease the strain of extreme drought in the mid west, yet the corn market continues to bleed based on forecasts of an extreme buildup in the carryout. Could there be something else here at play?
I believe the shorter term bearishness is explained by the strong rally in the dollar, and as far as the dollar goes, it is in the timing band for a move back into its daily cycle low. I think this will provide the fuel the corn market will need to hit some minor objectives (I believe minor is all we are going to get) to finish selling old crop futures and to get substantial new crop corn sales made.
Some other tools in my tool box are also pointing to key support areas being lost with corn. Below are what are called point and figure charts. In a nut shell, they plot day to day price movements without the consideration of time. The X's show price increases, and the O's show price decreases. Only price movements of significance are plotted. Small daily scribbles are filtered out. This creates a chart which is a lot clearer with much of the clutter removed. What you wind up with are pure support and resistance levels. If you are interested, you can see how the price objectives are calculated here.
The December Corn chart shows a bearish price objective. of $5.10 and the March shows a bearish price objective of $6.30. Keep in mind, we will most likely run out of time on the March for this objective to be met.
There will not be a great opportunity to sell, only a minor opportunity when the dollar stalls. I suggest you get your plan ready.
Bear markets are trickier for people to trade than bull markets. Higher prices from riding a bull market can make up for miss-timed sells, as you might even get a better opportunity to sell later. If you miss a selling opportunity in a bear market, it just involves more pain. We need to be ready to pull the trigger, and fast in a bear market as there simply may not be another opportunity.
The degree to which prices are falling so early point to the belief and comfort the market has that we have plenty of grain. Not only are exports sliding, but we could possibly grow the largest crop of corn that we ever have this year.
The 2013 balance sheet below shows increasing inventories of grain on the corn side, but some smaller decreases on the soybean and wheat side. To get the real scope of what the trade is looking at however, look at the 2014 numbers at the bottom of the work sheet. The numbers used are conservative estimates, but there is simply no way to make the corn or soybean numbers look frighting.
Going forward, I think it is prudent to sell grain as you are in a bear market. I have updated targets on the opportunities page, and have also updated the corn and soybean charts on the crop insurance page.
That was quite the sell off. The market was due for a drop off, but the magnitude to which the new crop sold was surprising. While targets were met on the bean side, corn never could get any kind of pop to it.
I think the bottom of this daily cycle is in, and we should rally through the end of the month. Corn is certainly showing signs of buyers stepping in. These hammer doji's (which are circled) on the corn chart indicate buyers stepping in. This is Dec Corn.
Because price fell below the January 7 low, we have a failed daily cycle on new crop corn.....an overall bearish sign. Any bounce that occurs here should be met with selling.
Old crop corn, however, did not fall below its January 7 low, and should have a stronger rally. The higher low is bullish. Again, price is putting in a hammer today as of this writing.
Old crop soybeans likewise have room for a pretty nice rally.
November soybeans hit the $13.50 sell target and immediately retreated southward nearly triggering a buy signal on the CCI. Prices now are at a support level which was first established back in April of 2011, and is still significant today. I would expect this level to hold through the end of the month.
Wheat sales should not be made at this time, as we are very close now to floors set by crop insurance guarantees.
Now that a bottom appears to have been made, I have some ideas on new targets for future sales. I will post those ideas over the weekend on the opportunities page.
An update on the crop insurance page of where revenue prices are getting set.
Soybean targets were met late last week, and we sold old crop soybeans at $13.90 and new crop beans at $13.50. Corn never reached the targets. I am taking more defensive positions moving forward.
The purpose of this post is to set the stage for the specific recommendations I am outlining on the Opportunity tab for upcoming marketing recommendations. Opportunities will be upon us shortly to make some significant grain sales to finish up 2012 and make a big dent in 2013 sales.
Let me first re-trace some developments that have set the stage for this opportunity.
1. Corn began its rally out of its intermediate and yearly cycle low. Big money follows these cycles, as traders move money from over-valued assets (stocks) into undervalued assets (commodities). That in a nutshell is what creates the cycles. If you have not seen the stock market lately, it has been on a tremendous climb since November 15, but it seems to have leveled off this week while commodities are beginning to take off. The three month charts below show tremendous gains in stocks since the November 15 low, but not so much in commodities. In the last week, commodities are up nearly 3 percent! It is simply a transfer of money from overvalued assets to undervalued assets.
2. Another driver into this situation is the plunge of the dollar. The scary tying is that we are still a week away before the dollar is due to reach the bottom of its daily cycle (the shaded area on the chart below). The current dollar cycle peaked on day 5 which means it is left translated cycle and the intermediate cycle peaked on week 2, so it is also left translated as described on the terminology page. As funds leave the dollar, they will pour into other asset classes and right now, commodities look more enticing than stocks. The dollar could bottom early, but still, we are looking at a failed daily and intermediate cycle. This is a big event that can move other assets. .
3. When you combine this with the fact that corn is rallying out of its yearly and intermediate low (as outlined on the previous post), and that volume on the grains have been incredible, I am reasonably sure this will be the fuel for the fire to push grain prices higher. I have outlined targets to make sales on the opportunities page.