It is hard to be bullish when Wall Street is selling! Earlier this year, it didn't seem to matter that there was a credit crisis, for the soy complex was making astounding new highs. For example, the high for the newly harvested crop in the November Soybean contract (SX) was made on July 3 at $16.36 per bushel. Today that market rallied close to 3%, yet its price ($8.84) is almost half the level of the summer high.
The story, of course, has been the desperate, sell-at-any-price activity of the over-leveraged Wall street crowd, who have driven pricing relentlessly lower. Unfortunately, they sure picked a bad time of the year to sell, it's harvest time, when the market usually makes seasonal lows.
Could this time be different? Farmers have already sold close to 40% of their new crop at much higher prices earlier this year, and they are not selling at these lower levels. As a result, the cash market is behaving much better than the paper futures market. And today, Soybean meal futures gained over 4%, easily outpacing the percentage move in Soybeans. If you ask an old-timer, he'll tell you that soybean meal always leads the way up. Will history repeat?
Q: What has happened in the past when, on a day in October, soybean meal futures gain more than 4%?
A: We were expecting a bullish answer; but seasonally, it's not the right time. December soybean meal futures have declined 57% of the time by the end of the first week. It then gets worse, with futures falling 69% to 86% of the time by the end of weeks two through four. The decline in soybeans has been similar, with prices falling 50% to 77% of the time, one to four weeks later.
The bearish edge peaks in strength 10 trading days (two weeks) after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Thursday, Oct. 23, 2008) is Thursday, Nov. 6, 2008.
SMZ declines in 86% of the cases (12 of 14) by an average of 5.4% relative to the close on the event date. The average of the two rallies is 3.5%. The overall return of the 14 cases is -4.1%, which, based on the close of SMZ on the event date (269), provides a target price of 257.97.
For more Market History go to www.markethistory.com
HYPERLINK "http://www.markethistory.com/staff/detail.html?s=bob"Robert J. O'Brien Jr. is President of County Cork, LLC, a Commodity Trading Advisor (CTA) based in Skokie, Illinois.
