How to Read the Signs of Change—Trend Change, That is… (Part 2)

03/17/2009 9:45 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Continuing our discussion of spotting trend change, let's see what happened to soybean futures after they made a high over $16 a bushel in late 2008…

Once soybean prices topped out, they formed another chimney formation. When the base of the chimney, at $13.50 a bushel, failed to hold, soybean prices headed lower. They rallied once and tested the base line, but when they were unable to break back above it, they began a near-vertical fall that ended under $8 a bushel!  The key to the change in behavior here was the break below the $13.50 base line and the failed test of that same baseline. Once it was clear prices were not going back above $13.50, the selloff was on.

chart

Soybean prices are now in an interesting formation. Price is congesting between $8 and $11 a bushel in a chimney-like formation. Should the base line of the chimney successfully keep soybean prices above $8 a bushel, expect beans to eventually begin a long summer rally. However, should prices successfully break below the base line price of $8 a bushel, the long run down from nearly $17 a bushel is not yet over and bean prices could be in for a deeper selloff this summer.

Tomorrow, we will look at another market that had an exceptionally large move in a very short time this past year—the US 30-year Treasury bond futures market.

More tomorrow in Part 3…

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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