Gann Global Financial

What we experienced this past week off the June 11th highs in the S&P 500 – the overall stock market – and in the crude oil as well as the Goldman Sachs index which represents overall commodities, was a break to new lows in the Goldman Sachs, the crude oil, and the S&P 500 are knocking on the door. The soybeans also have a June 11th high which is projected as a turning point high in the soybeans prior to a major correction, so it is going to be very interesting to see what the follow through is with respect to the energy markets and the stock market which should continue to trade in tandem, and whether the soybeans is due to follow suit because the soybeans experienced a very significant secondary rally after establishing what we believe was a final top in the market.

For subscribers we do have orders that we are working as I speak to enter short positions if certain contingencies are met starting in the electronic session on Sunday night, July 5th.

Key Observations Regarding the Context in Which Soybeans and Commodities are Trading

The soybeans and soybean meal are still trading within the context and are subject to the projected deflationary declines in the stock market and crude oil as well as the overall commodities. The highs in these two markets and soybeans were made on June 11th. From a money management standpoint, any shorts initiated in the soybeans “would be adding to profitable positions in the S&P 500 and the crude oil.” We enter positions on the short side of the S&P 500 at 917.20.

We entered put options in the crude oil with the August trading at approximately 71.00, the S&P closing at approximately 893 on Thursday, and the crude oil actually dropping into new lows in the electronic session on Friday.

We are adding to short positions and that is critical to understand as a money management practicality since we don’t want to go out on a limb and have too much of a core position with respect to just simply shorts. Now, in the soybeans and soybean meal down here, we’re also trading within something of a vacuum. The soybean oil, corn, and wheat have performed miserably.

History shows that when there is a dramatic divergence like this, once the turning points are reached in the strong sisters, which are the soybeans and the soybean meal, the declines are invariably severe as the spreads between the markets realign themselves. I’m going to be showing you the soybean oil, wheat, and corn in a minute.
There is tremendous divergence taking place, and I believe that this is a bearish omen. It’s not only a bearish omen for the soybean meal and soybeans, but it means that those markets can come down very quickly.

Now, this is the Goldman Sachs index. We have Thursday’s low, which is the last trading session before the holiday. You can see that we’ve broken to new lows. This is as we had projected and desired would take place, so very significant trade on Friday.

The soybean complex, in a sense, is swimming against the tide as far as what we perceive to be, at this time, the trend. It can be a very severe correction in the Goldman Sachs index, overall commodity prices, and a severe correction in the stock market.

Looking at the July soybean oil, you can see that this historic bust cycle, the decline which occurred in the oil has been followed by, basically, two legs to the upside here, but very anemic. This market was the weak sister of the soybean complex, but it did not trade in lock step with the soybeans and soybean meal, so the implication is the fact that it has not followed suit.

The wheat hasn’t followed suit, having broken to new lows basis the July this last week. The corn market has not followed suit on the threshold of breaking to new lows. That is a real damper for the soybean and soybean meal party.

We’ve had a squeeze situation in soybean and soybean meal, but all of our work tells us that all of our tops are in place. Now, in the soybean cash, if you’ve seen any of our videos actually going back three or four months, we had projections once this low is in place on March second. Our target zone for the cash soybeans was for the market to rally into this target zone (See video) based upon the 1974 precedent. The 1978, 1949, 1976, and the 2005 precedents don’t actually show a projected top until the latter part of July, but we hit these four closest fit projections so the geometry of our bear market and bull market has matched these four and are the closest fit since 1936, when futures began.

Our projection had been that we would hit this projected area and that could set the stage for a very severe correction. In this short chart, which is the August soybeans, I want to show you what those corrections look like during those five historic precedents. I say this, as was the case in the S&P. If our projections are correct, prices running behind time.
This suggests the market could come down very quickly. These are the angles of the descent which took place during these historic moves. In four of the five the legs down were corrections in an overall bull market. Those are the green ones. The red was a first leg down in an overall bear market.

The probabilities favor that this was obviously a second leg up in a bull market. First leg, second leg, I’ll tell you that this will probably be a correction in an overall bull market and will be followed by a resumption of the advance. We are looking at this as a counter-trend trade, which we only do maybe 10% of the time. Ninety percent of the time we want to be on the long side of markets in favor of the trend.

However, by virtue of the extreme overbought condition, not just in the soybeans, but in the crude oil market, in the stock market, in many of the markets across the board. Certainly all of the energy markets by the law of action and reaction, we would expect to see significant corrections here. Therein lays the impetus for us being on the short side.

You can see that the market, after establishing selling off sharply, an initial little push here, a little bit of a decline, and then just surged the last two or three days of this last week. This puts the market in a very, very interesting position for us in that we closed at 11.54 basis the August, and in a sense, we’re running behind time.

These cycles should be pulling price lower at this point in time, and that means we can play catch-up very quickly. As far as the August soybeans are concerned, I’m breaking it down in this chart and really getting into the minutia because the overall trade pattern here is great for potential shorts.The first observation on July 1st, we exceeded the June 18th high at 11.62. Buy stops were hit on this three-cent minor breakout, but the market immediately reversed lower. This issued a minor sell signal. This is the pit session, by the way.

This is as of Wednesday that you can see that we saw this dramatic reversal to the upside on this first day, gapped up the next day above this minor high on 11.37, moved straight up to 11.65, would have run buy stops at 11:62 making it very difficult on those committed to the short side of the market.

On Friday we opened lower, and I’ll get to that in a minute, then rallied throughout the day to the 11.54 close on Thursday, which was the last trading session. After putting in this July 1st high, I say this: the next day the market opened 21½ cents lower in response to the dramatic selloffs in the S&P 500 and the crude oil. That would have been Thursday.

At the opening of the grain markets, the S&P was down 2100 points on Thursday, which was 2.3%, and the crude oil was down 260 points, 3.8%. The soybeans opened down 1.8%, and that was this open right here, but did not follow through to the downside, whereas the S&P and the crude oil continued making lower lows into the close. This resiliency indicated the market was not ready to give up the ghost; at least, not on Thursday.

It was a very good performance in the face of what happened in the crude oil and in the S&P 500. A very good performance on Thursday for the August beans. Now, notice also on Thursday the low at 11.33 retraced beneath the previous minor breakout high at 11.37.

We saw this breakout above 11.37, on Thursday we saw the dramatic opening lower, a little bit of follow-through, hit 11.33, and then immediately reverse to the upside. So anyone that bought the breakout above this 11.37 had to endure a selloff which would retrace beneath that low.

Any of the technicians that bought on the advance of 11.37 and placed their stops too close beneath this breakout price would have been stopped out on the break to 11.33. In addition, anyone who entered short positions on the decline beneath the 11.37 previous minor top had to withstand an intraday advance to almost unchanged at 11.60 – that’s as of Thursday – and then a close at 11.54.

Whether you were on the long side or short side of the market, it was very difficult conditions. As I said here, this was a difficult day for a contingence of bulls and bears alike. It was kind of a slice-and-dice situation. This is what we like to see in advance of a potential decisive price move in a market; longs and shorts not knowing whether they are coming or going. This is so typical prior to very significant moves that markets can move very quickly. It’s where there is price action, and this is what we look for; price patterns.

We have one here that makes the trade very difficult on both sides of the market, and the market stopping out people on both sides before the genuine move takes place. So the bottom line, starting Sunday’s electronic session if we break the 11.33 low by four cents, I believe the odds would be very high for July 1st having established a very important secondary lower top with the potential for the market coming down very quickly.

If we break this 1133 low by four cents, we should have what will define a very key high on July 1st. Not only that, but the probabilities would be really outstanding that we are going to see a continuation of what should be a very severe correction. In fact, I say the pattern is very similar to the topping patterns which took place in the September S&P and also in the August crude oil.

Now, there is a video that I’ve produced, Dramatic Declines in the S&P 500 and Crude Oil, with respect to what is taking place in the financial, specifically the S&P and the crude oil, which very much plays into the equations as far as the soybean complex. That video is also being produced concurrently with this one, so that is something that’s available. If you’ve not seen that video it does have a very important reflection upon our thinking in the soybeans, so I want to encourage you to see that video as well.

Projections for Agricultural Commodities and Soybean Complex

In looking at the September soybeans I want to make a note with regard to what’s taking place in the distant contracts. We’re into delivery in the July soybeans. The August contract is now the front month trading contract. The September and the November contracts are telling an interesting story as well. The more distant contracts are trading a significant discount to the front July and have been showing relative weakness. This is an indication the bloom is off the bull. We have the spot, the cash, at approximately 12.04. The November is down at approximately 10.18. That means that the new crop, as the result of fundamentals, is discounting the fact that the cash will be coming down. The cash price is going to be coming down, and this is the seasonal time frame for the cash to establish a very significant high.

All of the probabilities point to lower prices. It’s just a question of a price pattern setting up which would allow us to get short, but we have that going into the Sunday night electronic session.

The September soybeans rally has fallen short of this previous minor rally to the upside, whereas the August soybeans actually exceeded it by three cents in the pit session and a little bit further basis the electronic session. We have what would amount to bearish divergence, the relative weakness in the September contract and also the November contract, which has had some major price machinations with the market declining sharply, as of I believe this was Tuesday, dropping to 943½, running under all these minor lows, dramatic reversal to the upside, and rallying above the previous minor high.

This has made life very difficult on both longs and shorts, and that’s what we want to see. So I say here, very volatile trading conditions. This is a healthy precursor to continuation of this projected leg to the downside.

The other part of this equation, which is so interesting, is in looking at the soybean meal. This has been the strong sister of the complex. This is led the soybean’s higher and has been basically the center of the squeeze. There has been a short squeeze there.

The recent run to the upside in August Soybeans appears to be an extreme historic overbought condition as of June 11th, only minor corrections on the way up. We saw this very significant sell-off and we’re in the midst of this secondary rally to the upside.

But what is interesting about Thursday’s trade in the August meal is that unlike the soybeans in the electronic session, we did not move to new highs above the Wednesday high. We made a slightly lower top. As of the close at 382.20 on Thursday we are also closer to these two daily lows, 375.80, than we are in the soybeans.

We’d mentioned that the soybeans hit 11.33. That would be a critical price point and breakdown point for the soybeans. The critical price and breakdown point for the meal is 375.80, and we are closer to that low on a percentage basis than we are in the soybeans. The long and the short of it for us is that meal, which has been leading the bull market, we’re starting to see a chink in its armor.

That’s very critical since it’s the leader and has been the leader. It is subject to the greatest percentage decline once the top is in place, so this August soybean meal contract is likely in the most vulnerable position if we are right in our assessment that both soybeans and soybean meal have their highs in place. We are not sure of these markets yet, but we do have orders that we are working as of the electronic sessions on Sunday, and obviously it should be a very fascinating week this week to see how Friday’s dramatic sell-offs in the S&P and the crude oil are digested. That’s certainly going to play into this soybean equation as well.

I’m not presenting this information from the standpoint of saying, as a prospect, as someone who is not a subscriber, to motivate you in a sense of doing something in the markets. Obviously we are looking for people that will come on board, understand what we’re doing, understanding the proprietary nature of it, the fact that we’re doing work that isn’t available anywhere else.

It’s not because we have a historic database that’s second-to-none. There is a philosophy that we’re always trying to inculcate into our subscribers; the idea of us giving you the trade of the week or the trade of the day is not the point. Overall, if you’ve been listening to us for any period of time you know that as far back as I can remember, prior to the bust last year, we’ve pretty much had the inside track on all that’s taking place, so it’s on that basis that we’d love to have you come on board as a subscriber.