| The Intermarket Report October 12, 2007 |
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| Written by Matt Caruso CMT | |
| Sunday, 14 October 2007 | |
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The Futures / Inter Market ReportTrading the World's MarketsOctober 12, 2007Matthew Caruso, CMTIf you have any questions, send them to: e-mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Oats Major Top FormingOats as most other grains have participated in a strong bull market that dates back to the 2004 lows. Although it mayseem only logical that all the new demand from China and India have forever changed the demand in the grain markets pushing prices ever higher, it is important to look back at previous price spikes in order to see if this recent rise in oats is unprecedented or not. It is important to step back from all of the quick paced action on the daily and intraday charts and look at a long term view. The data on oats which are trading at the CBOT most commonly goes back to the 1970s. Looking back over 30 years, figure 1 helps put the recent move in oats in perspective. Prices have recently exceeded $3.00 per bushel, however before the current demand from China, oat prices surpassed $4.00 per bushel in 1988. In fact if you look at figure 1, oat prices have reached a major resistance at $3.00 and as well touched support at about $2.40. What is most intriguing about figure 1 is that oat prices tend to make a major bottom about every 4 years (or 44 months) as well as a major top every 4 years. What we have now is the time frame for a cycle top in the oat market. Of course, given the long term view of these charts we need to check shorter term time-frames to see where a reasonable entry would be. It is important to note that if the 44 month cycles top is in place, the bottom in oat prices will only be seen in early to mid 2009, allowing for plenty of time for a large fall in prices.  Figure 1 Chart by Metastock Taking a look at the more recent price action in oats in figure 2, we can see that there is a potential head & shoulders pattern forming A major reversal pattern such as the H&S pattern would confirm that a top is in place. Of course, prices would need to fall below the neckline at about $2.35 in order for that to happen. As well, oats have a fairly consistent seasonal pattern of topping n January. Figure 2 shows some recent early year sell-offs. Therefore, the best setup would be for a break below the neckline sometime in late December or early January. Although this trade may not be ready right now, I thought I would bring it to your attention in case prices were to breakdown before the January top.  Figure 2 Chart by Genesisft.com What can we expect to see if the sell-off happens? Well, figure 3 shows the last 44 month cycle top that took place in January 03’. As you can see, once the topping formation completed, you had several entries that would have been profitable and allowed for a good risk-reward setups that would have allowed any trade to partake in the long-term top in oats. A similar breakdown of the current H&S pattern and subsequent retest of the breakdown point as in May 03’ would create an optimal entry. Of course all of this is dependant on the eventual breakdown below the H&S neckline. If prices manage to climb higher above the $3.00 resistance, we would have to reassess the situation.  Figure 3 Chart by Metastock ------------------------------------------------------------------------ Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; however, TradeSystemGuru.com. does not guarantee the accuracy of any of the information provided. TradeSystemGuru.com makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. We may or may not be invested in any investments cited above. In no event shall TradeSystemGuru.com. be liable for direct, indirect, or incidental damages resulting from the use of the information found on or distributed through this website. TradeSystemGuru.com shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. TradeSystemGuru.com does not make specific trading recommendations or provide individualized market advice. All information provided is only to be construed as opinions and to be used as an information service only. We encourage investors to contact a registered securities representative prior to making any investment or related decisions.
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| Last Updated ( Monday, 22 October 2007 ) |
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