The nearby delivery Corn futures contract (CBT.C) dropped a 'big' 5.2% on Monday to close the day at $5.34-4 per bu., just slightly higher than the intra-day low. The decline came on a 'gap down' pattern, where the day's high was lower than the previous day's low price. During the session, corn crossed below its 13-week lowest low.
History suggests that more bearishness is on its way. Let's turn to the MIM and look specifically at the December contract (CZ).
Q: How has December corn performed in the past, omitting repeat occurrences within 10 trading days, when it gaps down to record a 'big' decline and crosses below its 13-week low during the third quarter of the year?
A: According to the 22 previous occurrences of this event, EventEdge indicates that December corn has shown a strong bearish edge that peaks 11 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Monday, August 4, 2008) is Tuesday, August 19, 2008.
December corn declines in 95% of the cases (21 of 22) by an average of 3.4% relative to the close on the event date. The average of the one rally is 1.0%. The overall return of the 22 cases is -3.2%, which, based on the close on the event date ($5.55-4), provides a target price of $5.38.
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Ronish Patel is an analyst with MarketHistory.com.
