| The Intermarket Report February 1, 2008 |
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| Written by Matt Caruso CMT | |
| Monday, 04 February 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsFebruary 1, 2008 Oats Major Top Forming Part IIOats, like most of the grains, has experienced a major increase in price. This widely used commodity has doubled in the past 2 years. Ok perhaps these days it seems normal for commodities to climb that much, but when compared to almost any other time in history it is very impressive and of course unsustainable without large bouts of inflation affecting the country. But to what extent could a move of this magnitude be predicted? I have found through my research that the magnitude of a move is much harder to predict that when a move is likely to occur. There were many signs that grains were set for a large rally 3 to 4 years ago but who honestly could have accurately predicted a move of this extent? I find that time targets are much more reliable than price targets and for that reason I went out on a limb several months ago and predicted a major top for oats that would occur in January of this year (http://tradesystemguru.com/content/view/95/58/) . Well, 3 months have passed and here we are at the end of January. Oats hit a high of $3.43 on January 14th and are now trading at $3.23. A fall of $0.20 is a nice a start to a pullback on prices, but the top I was calling for would lead to a decline much bigger than that – and I believe it is now set to start. Firstly let’s take a look back at the long term cycle present in oats and then we will take a look at how we can confirm the top. I am looking at Oats from 4 different angles in figure 1; 1) momentum, 2) statistical over extension, 3) price resistance, 4) time. As you can see by the red line in the bottom part of the chart, momentum has turned lower and is showing the lack of upside momentum in the last several weeks. Secondly, the %b oscillator in the top part of the chart shows that prices have now exceeded the upper Bollinger band and are reverting to the mean. Bollinger bands typically encompass 9%5 of the data, therefore being above the upper band means we are in the small 2.5% of the data that usually does this. Price is unsustainable above the upper Bollinger band. Thirdly, we have now tagged upside resistance as shown by the upward leaning trend line. Lastly and most importantly, we are more than 2/3 into our 44 month cycle. It is very likely that price now turn lower towards a cycle bottom especially since we have now passed the annual seasonal top in oats which is in January.
Figure 1 chart by Metastock In order to enter Oats on the short side we need actual confirmation of the hypothesis that the top has occurred. Looking at figure 2 we see that Oats scored a large range reversal on Friday and closed at the low of the day. As well, the recent climb in prices has not been accompanied by the rise in the MACD which tells us that momentum has stalled and that the trend may be turning lower. A break below the recent swing low shown by the horizontal line, will likely confirm that the lower top has occurred. If you would like to see more on how to enter this market please refer back to the examples shown in October (http://tradesystemguru.com/content/view/95/58/) .
Figure 2 chart by Metastock --------------------------------------------------------------------------------------------------------------------------------- DisclaimerTradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Sunday, 10 February 2008 ) |
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