Gann Global Financial

We are in the midst of a leg up in what we believe is a bull market. There is no other way to catalog it at this point given the follow through that we’ve seen to the upside above the January highs in the soybeans and the soybean oil. Assuming this is a bull market, this current move would be categorized as the second leg up in an overall bull market.  We are aggressively long in both call options and futures. Advance has moved from 30 at the recent March low to as high as 40.20, but what is critical at this point and what we’re conveying to subscribers is that the next $3.00 means everything in terms of risk reward and the multiples that we can get on our options.

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How Far Will this Leg in the Soybeans Continue Before Completion?

Essentially, on long 38 call options which we purchased at 60 points, those options have pushed up towards 300. If we hit up toward the 43 level those options will return approximately 10:1 return. I point that out because any time you have the options it’s the last 3.00 in this case.

You move from 30 to 40, that’s great. You’re seeing a good rate of return but the next $3.00 is where the multiples really kick in. The information we’re giving subscribers is very critical right now with respect to the termination point of this projected leg up.

Reviewing our research I don’t have anything that tells us that a final top for this leg should be in place at this point in time. It’s not to say that it can’t but the probabilities are very low, perhaps a 90% probability we have further to go to the upside, $3.00 further to go to the upside in the soybean oil and that means further upside in the soybeans.

I want to show you the charts and the forecast that we have and give you some very critical perspective with regard to the law of action and reaction. I’ll talk to you about that in a minute.

With regard to the soybean advance, this commodity forecast was based upon the closest fit advances in history; the closest precedents that matched this price curve.
They key one being the 1949 which is the 60-year cycle. In looking at our recent high of 1141 as of Wednesday, this advance has pushed up to what would be a minimum objective based upon the 1978 precedent. You can see that we would have quite a bit further to go if we were to replicate the 1949 precedent.

The cash soybeans gives us a different perspective, and I believe it’s more valid in terms of our forecast. During 1949, 1974, 1977, and 2005 precedents the advances off the comparable bear market lows to our December 5th low retrace the following percentages of the preceding bear market declines. The comparable bear market decline in 1949, the advance which followed retraced 65% of this decline. In 1974, 63%, in 1977, 66%, in 1975, 63%, and you can see that was the most modest in terms of price objectives. Also, the 1976 precedent I’ve added, that was 59% retracement because that was a very key precedent as it relates to the soybean oil and that would project at 1266½. We have these four precedents with the time frame of the advances are all very close, within a month of one another, projecting to approximately from the 1260 level up to the 1320 level.

Commodity Forecasting Methods – Action and Reaction

The Law of Action and Reaction. The action is the move to the downside. The reaction is the violent rally, a reaction to the oversold condition. We have a very high probability that this market has farther to go to the upside.

As you can see, thus far we’ve pushed to as high as 11, 11½. We have significantly further room to the upside based upon the 2005 precedent and even beyond that based upon these precedents.We’re really in a fascinating position having essentially purchased our long positions in the soybean oil very, very close to the March lows.

The previous chart was cash and in looking at the July futures contract the overall advance in the soybeans has been 36%, 34% in the bean oil, and 38% in the soybean meal. The meal continues to lead the complex higher.We have a breakaway decline which occurred in the July futures contract on the break of the 1150 low so there’s going to be some buy stops building above that breakdown low. You can see that after that low is broken the market should have declined into the final bear market low.

We’re approaching what was the breakaway point at 1150. There is going to be some buy stops there and that should be very interesting.

Also, in terms of monitoring this market and keeping our hands on the pulse, if we decline as much as 10.2% off any high we will overbalance the two minor corrections of 8.4% and 8.5%. We’ve had two minor corrections in a very aggressive runaway market, both of which were identical. The market time period on those was five and six days.

Off the current high at 1141, let’s assume that the market experiences a decline off this high. A 10.2% decline off that high would result in a decline of 1024¾, so if we dropped down into this region here that would be our first indication that the runaway configuration had been broken. That doesn’t mean that we turn into a bear market. It doesn’t mean that we would sell short, but it certainly means, depending upon where we are in our long futures and our long call option positions, that would have an impact on our thinking in terms of taking profits.

The other side of the equation, if we experience a decline exceeding six days we would overbalance time. When you overbalance either price or time, in other words you experience, in this case the biggest decline we’ve seen since March 2nd, that would indicate that the selling has been better than the buying for the first time since March 2nd and that is an indication that the market can be changing, at least over the intermediate term.

Commodity Market Observations – Soybean Oil

What we see in terms of legs up in bull markets, we are in a second leg up in a bull market and you can see the first leg up a December low, a correction, second legs having broken the January 7th high confirmed that we were in a second leg up.

What we had placed on the charts sometime back in early April was our forecast based on average legs up in history, so what we find is the median leg up in every leg since 1949 in the soybean oil had been three months, twenty-three days. That is where this diamond is here and that’s why this relates to this. That would be in the early second week of July that we would project a median move to the upside.

Also, only 8 of 46, or 17% of the legs up in history were less than one month and twenty-three days. As of May 9th we have crossed that one month and twenty-three day threshold. We find that 23 of 46 legs up in history, 50% of all the legs up in history, lasted between two months and three days which is as of May 18th, and four months and twenty-four days which is as of approximately the second week of August.

Fifty percent of all the legs up in soybean oil fall within this time band here. We enter that time band as of May 18th and that tells us that when you see a market move up like this, the further down the road you get and the more mature that leg gets the higher the probabilities become for a high being established; a final high in that current leg up.
Now we are very much on point as far as watching the market very closely. We want to realize as much profit as possible and also move our stops up as need be. We’re monitoring the situation very closely.

What we also find in history in terms of legs up, the median percentage advance was 46%. We’ve advanced 34% in the soybean oil thus far. The median advance, in other words right in the middle of all of the advances in history, was 46%.

A 46% advance off the 2966 low basis the nearest futures would project to 4330. If we advance to that price level, the July 38 calls purchased at 60? would be in the money by 530 points and this would result in at least an 8:1 risk reward payoff.

We wrote this back in April 8th, back when the price was down here anticipating that the market would continue higher. Now we’ve pushed up as high as 4020 basis the July futures contract and if we push up to 43 which would be right in here and not too much further to go, at least relative to the move so far, those options are going to reward at least 8:1. If we continue higher from there the risk reward can become higher.

Commodity Trading Strategies – Current Soybean Option Positions

We are aggressively long for subscribers, 150% long in fact. That’s just on the options side of the equation and we do have the latitude to make partial profits but I’ve made no recommendation to do so yet.

There is a pivot at 4310. In the July soybean oil you can see that there was a low at 45, 46 on the way down. Our low was 4310 basis the nearest futures. Basis the July soybeans we noted that it was 1150. Those are important price points that technicians will be watching to see if the market can regain those lows.

We have a minor intermediate low which occurred on the way down at 4310. I believe this is a reasonable objective to the upside and coincides very closely with our original objectives for this leg up. We have an additional rationale for why this market has the potential to move higher and regain that 4310 as a minimum objective to the upside. One note here, I am cognizant of the impact a dramatic and now a projected correction in the stock market could have on the commodity market board.

I’ve made subscribers aware of this as well. Obviously when there have been these violent moves in the stock market it has had an impact on the commodity board. Also, the commodity board has had an impact on the stock market because they’ve been moving in tandem.What occurred in the soybean oil back in December is that the market established a higher bottom coincident essentially with the stock market experiencing its final bear market low.

One of the reasons that we turned so bullish in the soybean oil is that the market did not move to a new low in spite of the stock market and all the fear and panic and deflation that was taking place in equity prices.Nevertheless, by virtue of this very aggressive move in this leg up in the stock market, there will be a correction at some point in time. I am cognizant of the impact that could have in stalling out a soybean advance.

I have not projected a top for this move in the stock market. I don’t know that I’ll even be able to do that with respect to my analytical tools with respect to that, but I am cognizant of that possibility. That is, in a sense, a wrench in the works that must be at least acknowledged.

Commodity Analysis – July Soybean Oil

Lastly, in the July soybean oil, everything is tracking very well. You can see that we exceeded the January 7th high only by about $2.00 so far. It’s not like we’ve had a dramatic break out above this January high.In a previous video we had gone through these projections based upon our historic precedents showing that the advance of the January high should be at least an 18% advance above that high. Let me give you that number. That’s an important calculation and that would take us up to 45 and that was something of a minimum forecast as well.

That would stall out having exceeded that January high by just $2.00 doesn’t make any sense to me. We also have a minor pivot that occurred here which was a buy signal. No outstanding pivots till we get to the 45, 46 level. It does get very interesting.

You can see how far we have come from the ’08 high and it’s going to be very interesting to see how high this advance can carry price. Essentially a bull market in and of itself and I would expect it to fall short of retracing this entire bear market by a long shot as we saw in the soybeans the retracement on average was about 60%. That does give us room to the upside in the soybean oil as well.There is no telling what can happen. We are, in my estimation, in a bull market in overall commodity prices and they are all starting to play the game together but it can be somewhat of a choppy affair depending on what markets that you’re in, but we have targeted the soybean complex as the key complex.

The next number of days is going to be very interesting to see if the continued runaway of the soybeans continues and I will update you with regard to tracking these forecasts.

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