You don’t see this very often, but soybeans are making global headlines. This very unassuming oil-seed has been thrust into the centre of the US-China trade wars. And guess what? There is a very active futures market in them at the Chicago Board of Trade – which means profit opportunities await (see later).
Previously, China has been a huge importer from the US – in a recent month, over $4 billion worth was traded – and that ain’t hay! So when China announced its retaliation by slapping a 25% tariff on the US beans, prices slumped big time in Chicago.
But as a superb example of a Sell the News/Buy the Rumour event, this one has to take the biscuit (soymeal, of course). In just one month, beans sagged from the $10.50 area to a low of $8.50 which it hit on Thursday.
And that, dear reader, is a 20% move – magnified many times when using margin, as we do. See what I mean by profit potential?
I would say there are few UK based traders who trade the Chicago grains – but I maintain they can be one more market sector that is well worth looking into.
So hedge funds were busy selling the news in June and as of Tuesday, they were still piling into short trades – here is latest COT
Since hedge funds (the non-commercials) are mostly trend followers, they can be relied on to keep selling into a downturn – and that is precisely what they did by reducing longs and increasing shorts. They recognised that the impending 25% China tariff would collapse exports and pressure domestic prices.
And that is why they are the wrong way around at major turns, and why we often see very sharp snap-back short squeezes, as we had yesterday.
But of course, prices will be driven down so far that they are a bargain for other nations – and exports and demand picks up. Not only that, but China has to get its beans from somewhere (Brazil is top of the list) so not only will Brazilian prices rise, but will make US beans super-competitive – and prices will rise.
So on the very Friday that the China soybean tariff came into effect, guess what? The beans surged by 40 cents after a selling climax! Here is the action on the daily
How’s that for buying the news? In fact, I can set valid Elliott wave labels on the decline that strongly suggest we have seen a major low in five waves and with the strong momentum divergence at yesterday’s low, a vigorous rally phase can be expected.
Incidentally, the 20% decline is a near-prefect offset for the 25% tariff, so a Chinese buyer would see little added cost in fact. So even at current prices, theoretically,there could be little impact on trade. Hmm.
And at the recent $8.50 low, the market has fallen into a long-term support zone that stretches back to 2009. That is serious support.
And if my EW labels are correct, we are at the start of a very large wave 3 up which only a sharp break of the $8.50 support would jeopardise. But odds are high thatall the bad news is out now and if weather scares appear, prices will rocket.
The other Chicago grain – corn – is not implicated in the tariff wars. But it has been dragged lower perhaps in sympathy with the beans. is this a super buy here?
I am preparing new campaigns for VIP Traders Club members in soybeans, corn, wheat and cotton where I am setting big targets.
US Dollar declines as forecast
Back in Feb/March, the dollar had few friends and bullish sentiment was on the floor DSI at 8% bulls). That was when we started buying it just as conventional wisdom held out no hope for it. Buying the dollar was considered madness itself.
Then, as the market gathered upward momentum (to the surprise of most), bullish sentiment increased, which is entirely normal. And when it hit my 95 target, where we took profits, everyone had fallen in love with it (DSI at 94% bulls)!
Isn’t it wonderful how traders can hate a market when it is low and love it only when it is high? I believe this universal effect destroys any claim that markets are driven by ‘fundamentals’. It is the ‘fundamentals’ that follows the market. A bear market creates its own ‘bad’ news.
For the previous several posts, I have been calling for a renewed bear phase – and as if by magic, the market has the good sense to follow my roadmap. Here is the latest daily chart
A break of the lower blue tramline would set the stage for a further decline to one of my targets. That’s the way we are playing it.
Naturally, the DSI bullish count will decline as the market works lower and if it becomes extreme, that would be a signal to reverse positions and go long.
US Stock indexes rally
Our main trading vehicle is the Dow and we also trade the Nasdaq – and yesterday’s surge had a vastly different effect in both. Here is the Nasdaq daily
The wave 5 top occurred last month and I have a textbook five down in wave 2 to the lower blue tramline where we took part profits. But the large momentum divergence heralded a sharp rebound for wave 2 and yesterday, it carried to the vicinity of the Fibonacci 76% retrace resistance on a three up.
This is textbook action for a new bear trend.
Here is the Dow on the 4-hr
Recall it topped in January and the wave 2 rally ended last month. This is a different wave pattern from that of Nasdaq.
Wave 1 of 5 down ended on a momentum divergence and the wave 2 retrace has only reached the area of the Fibonacci 38% retrace – much weaker than in the Nasdaq. Recall the Dow wave 2 also retraced a large percentage of wave 1, so the pattern of large wave 2 retraces is repeating.
The max upside for the Dow is the Fibonacci 50% but may not make it that high. When wave 3 of 3 starts, the journey south will be hair-raising.
VIP Traders Club members are ready for the ride!