Gann Global Financial

It’s a fascinating place that we find ourselves in the financial markets. I want to deal with the soybean complex in terms of updating our overall forecast, and then look at it in context with what is happening in the financial markets. One of the things we know about the markets is that basically, all the markets are playing in tandem; playing to the same beat.

We’ve seen this dynamic inflationary move to the upside with the S&P 500. The stock market advancing 42%, the crude oil advancing over 100%; all of the markets inflating together, but our projections are calling for a major correction to take place. We are at, what could be, a very key inflection point for that correction to start.  At present, up until coming into yesterday, we had been long the soybean complex believing that that was going to be one of the leaders in terms of this inflationary push to upside, which we anticipated.

Soybean Futures Analysis and Trading

In looking at the soybean cash chart, these were the projections that we had placed on the market based upon the historic precedents which had the same DNA as our market; the 1974, ‘78, 1949, 1976, & 2005 markets.

These were the angles of ascent during those advances in those years, and we had put these angles on the chart back somewhere in April so you can see that the price curve has followed it almost perfectly, rallying to as high as almost 1228 on June 1st. The target zone with all four of these four particular markets called for a push possibly up to 1264. We are basically in the neighborhood with respect to the final top in the soybean, so we took all of our profits in up to yesterday.

We are completely out of the soybean complex at this point in time, but more than that, we are looking to reverse positions and go short. I’m going to give you the rationale for that. In this table (see video) I show every runaway move to the upside in soybeans in history, since 1936. This move that we’ve had off the March 2nd low to the June 1st high has been a runaway move defined as a very aggressive move with only minor corrections on the way up.

These are the most profitable moves that history has to offer in any market. When you see very aggressive runs to the upside, in this case to the upside, you can see that on the way down that this was a runaway move to the downside before you experienced a correction. Runaway moves are really the prize in any market whether to the upside or the downside. We’ve cataloged every runaway move in history in the soybeans.

In this table (see video) we sorted by the length of time with which the time periods, or advances, took place. Our advance off the March 2nd low, which is the start of the runaway at 841, to the June 1st high at 1227, experienced a 46% advance in two months and 30 days. Almost three months. We show the time periods that we have equaled or exceeded in our market. The shortest time period was one month, three days; and the top of this was three months, one day, which as of June 3rd, today, we would be three months and one day from the lows.

You can see here that there are only 12 markets, 12 occasions in history, out of 45, approximately 25%, which exceeded three months and one day. You can also see that the next five were complete within three months and five days; that would be June 7th.

What am I saying? We are very mature in this runaway move and we would be looking to be very cautious about long positions which we have taken profits in as a result. This is one of the reasons that we did that. Yes, we can see some higher trade. Four of the precedents advanced as much as three months, 20 days, and these were the aberrant moves which exceeded three months. We know that we’re very mature in this runaway advance. In other words, in our case, we are looking to take profits but now looking to get short.

In looking at the percentage advances, we sorted that same table by the overall percentage advances during those runaway moves; our advance being 46%. You can see that there are only 12 advances which have exceeded ours in terms of percentage terms. This is a very pricey move, so to speak; an overbought situation.

Based upon both price and time, it’s time to look for a turning point. In this case we would look at it in anticipation of a bull market correction, to see a significant correction.
That being said, the next question that we want to ask in history is, of our five historic precedents what were the declines which took place once the top was in place in the runaway advance?

The June 1st high was 1227. That’s the high for the move basis the nearest futures. Is that going to be the high for the move? We could move incrementally higher, that’s a possibility, but we’re running out of time, at least based upon history, to do so. At least the probabilities would be very low for that.

If indeed we do have a high on June 1st of 1227, what we have here is the price curves of the five closest fit precedents based upon 1936.

You can see in the video, I’ve whited out what the objectives were to the downside. I’ve also whited out a specific trade recommendation for subscribers, but what we have is what I believe is a very high probability that this market is, if we don’t have a high at 1227 then we are very close.

We are sitting on the edge as far as recommendations for our subscribers to enter short positions. In fact, I have a recommendation today, Wednesday.

One of the comments I make here is, “Given the extreme velocity of the moves we continue to experience, I believe the odds greatly favor an angle of descent reminiscent of 1949, 1974, and 1976.” That is these angles of decent right here. In fact, there are two that exactly overlap one another, and that’s why it’s dark here.

“This is especially true if a serious correction is in the offing for the stock market once the current leg up is complete. As you know, that is my expectation.”

Looking at the soybeans, it is within context of what is taking place in the other markets. If a correction occurs in the stock market from what is also extremely overbought condition, up 42%; also in the crude oil which has advanced off the lows in December over 100%, if we see corrections in these markets, they should move in tandem and that would also reflect negatively on the soybeans, and the soybeans would be subject to that deflationary psychology. That is a favorable fundamental with regard to the context within which soybeans are trading.

Now, looking at the November soybeans, this is the new crop which is always important to watch at this point in the season. We rallied to as high as 1088, and we regained this low on September 18th.

We pointed out to subscribers that that would be a logical objective to having regained that low. If we reversed lower from here the market could be in serious trouble.

The July soybean meal, which has been far and away the leader, the strong sister in the soybean complex, this chart actually issued a sell signal in the last couple of days. We exceeded this 392.20 high, initially hit 392.40 then exceeded it fractionally to 393.90 on June 1st.

You can see that as of the close on Tuesday, June 2nd – I’m coming to you before the opening on June 3rd – we sold off a little bit, but this has just been an incredible aggressive move to the upside.

These are the comments that we made the day of the high. “Important pit had broken in the 392.20. The only resistance above that is the all-time high of 434.90. This would be a logical point for the market to fail.” In other words, our current price point is a logical point for the market to fail.

“However, we must contextualize what is taking place.” So what I was telling subscribers was “Yes, looking at the soybean meal in isolation we have a sell signal, but we have to understand that given the extreme moves that we are seeing across the commodity board in all of the markets as well as the financials and the stock market, we are subject to all of these markets moving together in tandem.”

Our final comments today; “We experienced a second rally into new highs above the 393.20 high. If price fails from here an important price could be in place.” That was as of the high. We’ve seen the market come off to 384.70 when this chart was captured, and so it will be very interesting to see what happens Wednesday with regard to whether that sell signal at the high winds up being valid.

Stock Market Trading For Subscribers

As I speak, this is a critical, critical juncture with regard to specific recommendations to subscribers.

In looking at the S&P 500, we’ve pushed above a very critical high, this January 6th high, which was the last bear market rally high. The DNA of this advance, what we’ve experienced off the March 6, 2009, low, is a bull market first leg up. All the DNA points to that based upon price patterns in the 1886 stock market. The logical point for us to have targeted was a move above the January 6th high, so we triggered all the buy stops of overextended shorts.

Those on the short side are betting on a depression, or whatever psychology was motivating them, while the logical place for technicians to place stops above a previous high so we have fractionally exceeded those highs based upon the June contract, which I believe I have. We exceeded the high by about 1150 points so we can be assured that a significant number of shorts have been run out of the market.

That being said, if the S&P turns lower from here that is going to be very favorable to our targeted short position in the soybeans.

The same can be said of the dollar index. The other day we dropped to 7837; that was on June 2nd, so we broke this December 18th nearest futures low. We haven’t broken the cash low. If we reverse higher from here, that would be negative presumably for commodity prices. Again, that’s a very tactical price point which was reached.

A lot of technicians or technical analysis practitioners would have been blown out of the market on the break of that low.

The crude oil has been advancing as expected. We’ve had these price curves based upon other historic bull markets on the order of what occurred on the crude oil. Implosions took place in all of these markets; sugar in 1974, silver in 1980, cotton in 1960, 1864, and corn in 1864.

The culmination point led to significant leg to the downside so we’re becoming very mature as far as this leg up in crude oil is concerned, plus there is a significant carrying charge premium on the distant contracts which is going to be playing very favorably into short positions if a sell signal is given.