| The Intermarket Report April 11, 2008 |
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| Written by Matt Caruso CMT | |
| Monday, 21 April 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsApril 11, 2008 Corn’s due for correction in ongoing bull marketAs far as bull markets go we haven’t seen one as powerful as in the grain market for some time. Since last summer/fall corn prices have almost doubled, and this is a phenomenon that can be seen in every grain product including soybeans, oats and wheat. However, as we have seen several weeks ago, when these markets correct, it happens fast and furious. That is not always the case for corrections, but when markets rise in a parabolic manner as in the case for soybeans early this year, it is likely for corrections to take place that way. This week I want to explain to you why I believe corn prices have become over extended at these levels and are due for a correction. One indicator that I like to follow is the adx. What this indicator does not measures whether the market is over bought or over sold, but whether or not there is integrity to a trend. That is, it tells us if this trend is the real deal or not. I am drawing many similarities between now and last April. If you look at figure 1 you will see last spring that as prices climbed (marked with blue arrow) the adx began to decline (also indicated by the blue arrow). The indicator told us that the trend that had started in mid 06’ was no longer climbing with the same integrity in early 07’. If you look at the current period you will also notice that despite higher prices in corn, the adx has not yet turned up since the recent pullback. I read from this that the recent up-move is suspect. The problem with this is that it is occurring at a bearish time. Corn typically tops this time of year and declines into fall as indicated by the seasonal chart in the lower panel of figure 1. A loss of trend integrity near the time of a seasonal top has an extra level of bearishness. If that wasn’t enough, the fact that commercials are holding a rather large short position confirms to me that this recent up-move in the past coupe of weeks is due to speculation rather than sound commercial buying which is essential for an uptrend to continue.
Figure 1 chart by genesisft.com A longer term cycle is also topping and appears ready for a move lower. Figure 2 displays all of the last important cycles tops and you can see 3 common elements. The indicator in the top of the chart which is a derivative of John Bollinger’s %b is very over extended and is indicating a very strong possibility for a fall in corn. As well, momentum as indicated in the lower panel is turning lower which means that prices are no longer climbing with the same ferocity as in late 07’ and early 08’. It is clear to me that prices although in an uptrend, we have limited time and price left to climb before a more serious correction develops.
Figure 2 chart by metastock However, as you all know, I put a lot of belief into the strength of a trend and its likelihood to continue once started. Therefore despite all of these very bearish factors, we need the market to tell us we are right. I placed last year’s spring top along side the current market in figure 3. As you can see, prices did not start their serious correction until the uptrend was broken and supports started to be violated. For the moment corn is in a strong up trend, but the down move will begin in earnest if the recent lows are breached and if uptrend line are as well. Stay vigilant for such action because I think it will occur and if it does, it will be serious.
Figure 3 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Monday, 21 April 2008 ) |
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