In its afternoon summary of yesterday's soybean futures (CBT.S) trading, Reuters quoted traders as calling the rally a "technical bounce." Is it? From a fundamental perspective, farmers are virtually sold out of the crop they raised last year, and the new crop isn't quite ready yet. There is a near term supply shortage, so whether you are a domestic crusher or an exporter, cash soybeans are hard to come by, and you have to pay up if you actually want the physical quantity.
However, the cash may not matter at the moment. Wall Street has been pushing the bull market drum for commodities for a long time, and suddenly commodity prices are falling precipitously. The door may not be big enough for all this Wall Street money to get out of their long positions, and prices may have to decline further. What does history suggest will happen next?
Q: What has happened in the past when, during September, November Soybean futures climb more than 3% from their daily low and finish higher on the day? \
A: November Soybean futures and December Soy Meal futures have declined 60% to 73% of time, one to four weeks later. Soybean oil has moved lower 40% to 80% of the time, one to four weeks later.
According to the 14 previous occurrences of this event, EventEdge indicates that November beans futures contract has shown a weak bearish edge that peaks 12 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Tuesday, Sept. 9, 2008) is Thursday, Sept. 25 2008. November beans declines in 71% of the cases (10 of 14) by an average of 4.5% relative to the close on the event date. The average of the four rallies is 2.9%. The overall return of the 14 cases is -2.4%, which, based on the close on the event date ($12.01), provides a target price of $11.72-2.
December Soybean Meal futures have shown a somewhat bearish edge that peaks eight trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Tuesday, Sept. 9, 2008) is Friday, Sept. 19, 2008. Meal declines in 79% of the cases (11 of 14) by an average of 4.1% relative to the close on the event date. The average of the three rallies is 2.1%. The overall return of the 14 cases is -2.8%, which, based on the close on the event date ($334), provides a target price of $324.65.
December Bean oil futures have shown an insignificant 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 (Tuesday, Sept. 9, 2008) is Wednesday, Sept. 24, 2008. Bean oil declines in 79% of the cases (11 of 14) by an average of 4.5% relative to the close on the event date. The average of the three rallies is 7.3%. The overall return of the 14 cases is -2.0%, which, based on the close of bean oil on the event date (48.81), provides a target price of 47.83.
For more Market History go to www.markethistory.com
Robert J. O'Brien Jr. is President of County Cork, LLC, a Commodity Trading Advisor (CTA) based in Skokie, Illinois.
