Over the years, I have noted that ‘surprise’ price thrusts often occur on Fridays. During the week, the market is relatively quiet which lulls traders into a state of lethargy. And on Friday many professional traders are glad to escape the boredom and leave their desks early for the weekend get-away. This allows for the market devils to do their work.
In particular, the grains were going nowhere until they caught a bid late yesterday. Most comment had been neutral to bearish given the large crop surpluses and good growing conditions around the world. So why should prices rally?
Until yesterday, it appeared the path of least resistance for Soybeans was down off the 13 October rally high. The lower pink tramline had been well and truly broken. In fact, hedge funds went along with this scenario and added to shorts by almost 20% in the latest week to Tuesday. Remember, hedgies are mostly trend-followers and believe the major trend is down – a conclusion based on their reading of the ‘fundamentals’.
But observe what happened yesterday
A jump of 20 cents! That took it to the underside of my lower tramline resistance. I have marked my best guess for the Elliott wave labels. The rally starting in August off a three down is wave 1 of red 3 and the recent dip is a three down to purple wave 2 which turned last week at the Fibonacci 50% support on the nose.
How about that for another demonstration of a perfect Fibonacci retrace? How did the market (that is, all the soybean traders human and otherwise) know that if they measured the August low and the October high, and then worked out what a simple 50% measure would be, then that would be the precise target for the dip low? With that knowledge, you could have set resting buy orders there at 987 days ahead of the event!
If my bullish scenario is to pan out, I need to see the market overcome the tramline resistance at the 992 area and push up in wave 3 of 3. Because this is the most powerful wave in the book, its evidence should soon present itself next week – or not.
And in that related market – corn – we had a similar thrust up yesterday
The market had been going nowhere since at least September and frankly, I almost lost total interest in it. The main trend remained down and with the lower pink trendline broken, it looked as if we would see new lows ahead. The hedgies evidently also thought so as they added to their short positions so as to now be 1.5:1 short.
As with soybeans, will the hedgies get caught short again?
So now the corn market is also pushing up against major trendline resistance and to verify the budding trend reversal, I need to see a strong push up past the 350 level soon. Of course, a push up to the yellow band of resistance at the 360 area could be a major sign a new bull trend had started.
And not to be out-done, Wheat futures rallied yesterday – and right up against major resistance at the upper wedge line
I have a good momentum divergence at the wave 3 low and wave 5 low was short of the line of support. Normally, this indicated strong support at current levels. The fundamental data for wheat does not look great with record levels of stock surpluses. But weather patterns the open question, a strong rally here would likely me an omen for weather disruptions to this year’s crop.
With Friday’s strong showings, I am re-awakening my interest in the grains.
Gold and Silver surge on Frantic Friday
I had noted that the gold market – as with the grains – had almost fallen asleep in recent days. The short term waves were very unfathomable. But yesterday saw a surge of around $15 (with silver up over 20 cents). Sometimes, it pays to go back to the very long tern chart for perspective. Here is my best guess
We are still in wave C of 4 and when it tops, we should see a major decline to below the wave 3 low at $1045. But there should be more upside in the meantime and the next major target is the A wave high at the $1380 area.
Only a break of the $1210 low would amend my stance. Silver is in a similar position.
Natural Gas also has its Frantic Friday!
This is another market we are trading in the VIP Traders Club – and yesterday after planting a regulation kiss on upper wedge line (also the Fibonacci 38% level), surged upwards to maintain its uptrend.
This is yet another terrific demonstration of the power of the kiss! Move over, Rodin!
And inside the wedge there lurks the large gap which looks very much like a Breakaway Gap – and this kind of gap usually heralds a very strong trend.
With crude oil also surging yesterday, my outlook is for higher prices to come.
Is the Dow forming a Head & Shoulders top?
As I outlined last time, I managed to catch top tick on 7 November at 23,620 right in the correct time slot of early November. And action since then has helped confirm my view that we have seen the major top in the 300-year old bull market in assets.
Incidentally, was last week’s stupendous auction result of the dubious da Vinci painting at an all-time record $450 million the final bell rung at market tops? My guess is that when we are well into the bear market, some expert will announce it as a genuine fake!
With yesterday’s close at 23,340 we are about 300 pips off the top and with Thursday’s aborted rally, the daily chart is shaping up this way:
On Thursday, I noted the very sharp rally had carried to the Fibonacci 62% retrace (I label it RS) and also met a minor tramline resistance line. That was the opportunity to take short positions and yesterday, the market declined hard. That strong bounce and retreat certainly verified my observation that stock market tops are usually rolling affairs with gut-wrenching counter-trend rallies.
That is why shorting on rallies is most often the safest policy, rather than selling downward breaks.
My neckline lies at the 23,240 area and a sharp break below that would indicate a measured target at the 23,000 area, which is also a significant Fibonacci level.
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