Before I get into today’s blog, a short detour to comment on Ana’s contribution:
The SEC has passed an emergency rule to limit short selling in certain types of institutions. Hmm, the thin edge of the wedge? Steve Briese recently placed a warning on his site that I posted on “S&P 06-30-2008“. Speculators are being blamed for the short-sighted policies of the Bernanke FED and the Bush administration. What’s frightening is this could be the first step in this direction. The next targets could well be the evil-doers who have pushed up Crude Oil prices! It would not surprise me to see some move in that area. Be warned!
Off my soap box and onto the Soybeans. In this blog. the data used for my charts is CSI’s Perpetual Contract. The ideas expressed here are contained in the Nature of Trends except for the references to Seasonal Patterns and COT data.
Figure 1 shows the 12-month swing (12-M; yearly trend).
Figure 1 12-M Soybeans CSI Perpetual
Notice that the current increase of 225% is second only to that of the 1974 increase. In addition,the stats from Gann Global data confirm the view derived from Figure 1: we are at an extreme price (i.e. mean + 3 stdev) where theoretically, there is less than a 1% chance of the 12-M swing line continuing up.
Figure 2 shows the 13-week swing (13-W; quarterly trend).
Figure 2 13-W Soybeans CSI Perpetual
Notice that we have a potential Upthrust Change in Trend pattern. We need to see a weekly close below 1486 that exhibits selling conviction to confirm the13-W Change in Trend.
The ancillary tools I use are also supportive of a short. Seasonal highs occur at this time and bottom end September. In addition the COT studies show noticeably reduced trader interest than that shown at the March high, making a continuation of the up move unlikely. These indicators increase the probability of a short moving to at least Figure 2’s Primary Buy Zone (1086 to 1143, basis Perpetual Contract).
Figure 3 shows the bars that I entered the trade. I was happy to enter on the basis of a potential 3-d Head & Shoulders Pattern and more importantly because:
- A DOJI formed on Friday July 11 2008
- The market on July 14 formed an ‘Open-Gap’ down that was not filled on the 1st hour. (Bearish sign)
- The bear bar of July 14 prompted the entry on July 15 when the market accepted prices below the low of July 12.
Stops are above the July highs. My reward to risk ratio is 6:1. (Yes I did pre-empt the 13-W Change in Trend signal. I’ll do this where the short-term patterns support early entry, as in this case).
Figure 3 18-d Soybeans CSI Perpetual