| The Intermarket Report May 2, 2008 |
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| Written by Matt Caruso CMT | |
| Sunday, 04 May 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsMay 2, 2008 Soybean oil in bullish consolidation -- Update 1One market that we recently studied was Soybeans near its top several weeks ago. Since its anticipated fall which later occurred, soybeans have more or less been tracking sideways. Market action is now pointing to the fact that prices are only in a consolidation in an on going bull market. I would like to start off by studying not only the buying of the commercials but the lack of buying by small speculators. As you can see in figure 1, commercials have been aggressively buying soybean oil. In fact, they haven’t been this bullish in over a year and are close to as bullish as they where when this extraordinary soybean bull market took off about 2 years ago. That is incredible. If you stop and think, prices are at about twice the level they where 2 years ago and yet commercials are aggressively buying. They must be expecting much higher levels, or why would they be buying at levels that are twice as much as 2 years ago? If this was a short-term speculative frenzy you could be sure that commercials would be selling all they could to naïve speculators rather than accumulate a big position. There is some bad news about all this, but I hope to help fix the situation. Small speculators like you and me are most often wrong and buy mostly at highs and sell mostly at lows. Commodities are a 0 sum game and for every winner there is a loser. Small speculators seem to consistently be the losers. If you look at the small specs in figure 1, you will see what I’m talking about. Small specs are now the most bearish they’ve been in the whole up trend, and they don’t have good record for being right. However, with some study and hard work we can try to be some of the small specs who beet the crowd. Don’t do what other small players, do the opposite! This in reality is another sort of sentiment index since small speculators are typically driven more by emotion than commercial buyers. So, this looks to be a bullish set for soybean oil givethe current positions by commercials and small specs.
Figure 1 chart by genesisft.com Of course, the most important piece of the puzzle is the study of price action. This week I am studying the stochastic oscillator which provides us with over bought and over sold levels, as well as the adx which helps us to decipher the strength of the prevailing trend. Before we get to those indicators I want to look at the downward loping rectangle price is currently in. Unlike the fall that occurred after soybeans parabolic rise at the beginning of March, the current decline in April was done in a compact and constructive way. Price has stayed within a defined boundary and has done so with low volatility – very bullish if an upside breakout occurs. Not only is price action telling us that this April fall is constructive, but the adx has declined during the correction and therefore is indicating that the short term downtrend is not a strong trend and is likely to resume upwards. It important to note that the stochastic is now oversold and is at a level that typically leads to a market rally. Past instances are shown on the chart with a blue vertical line. Given our bullish commercial setup and oversold oscillator, if prices break out of the channel to the upside soybeans are likely to resume their long term uptrend.
Figure 2 chart by genesisft.com Update 1After reversing momentum and falling below last weeks low, rice virtually collapsed as soybeans had done several weeks earlier. Charts work because emotion and human nature never changes.
Figure 3 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Sunday, 11 May 2008 ) |
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