Soybeans, Corn & Wheat Confirming Lows; Projecting Accelerated Surges Ahead!
“Outlook 2020/2021 – Cycles & Fundamentals…
05-28-20 – Recent events in China and Hong Kong – and the corresponding action in Hong Kong’s Hang Seng Index – provide a textbook example of how cyclical and technical analysis can help anticipate the timing for related fundamental events. In order to best understand this, a few governing principles have to be understood and internalized.
First (in no particular order), there is the 90/10 Rule of Cycles in which a majority of a market move – or in this case, the majority of a corresponding fundamental event – occurs in the final phase of that cycle. There are many reasons for this but the greatest is market overreaction.
In short, a surprise event occurs and the market overreacts – to the upside or downside – and then snaps back toward its point of equilibrium… or at least a more accurate assessment of its true, current value.
Since that was an extreme event, and the market went much farther than it should have, the resulting high or low will likely hold for a substantial period of time – creating the fulfillment of that cycle high or low. A similar occurrence happens near the culmination of a market cycle – whether or not a surprise fundamental event drives that move.
In that case, a market will be building upside or downside momentum in a fairly rational move – until it ‘crosses the Rubicon’ or passes a point of no return. It is at that point that the emotional masses, many of which had not even been paying attention up until that point, suddenly panic to enter or exit that particular market.
Consequently, the market overreacts again (or at least the participants in that market overreact) and is driven to an extreme that does not reflect its true current value and should never have been reached in more sane and rational times.
That action often takes the form of a parabola – or an avalanche – accelerating in the final days or weeks of a much larger-magnitude trend. The result is that a large percentage of the overall move – much of which is completely unjustified by a more accurate assessment of that market’s value – occurs at the very end of that cycle, when everyone is scrambling to get in… or get out.
That principle of culminating overreaction has spurred such time-tested adages as ‘its always most bullish at a top’ or ‘its always most bearish at a bottom’. If everyone is bullish – and has made their move in the market – who is left to buy that market and drive it any higher?
Or, If everyone is bearish – and has made their move in the market – who is left to sell that market (or liquidate holdings) and drive it any lower?
H.A.M.C.
This principle often bleeds into another principle – the Axiom of Market Correlation. The primary reason has to do with these parabolic moves, which often occur in the very latter stage of a bull market (or a blow-off decline in a bear market). That is usually the time when time-tested market correlations fall into place and markets move in lockstep with one another… for a VERY limited time.
In this case, I am more focused on the moves at the culmination of a trend and how certain markets can be more revealing at that point in time…
Looking Ahead
The reason for reviewing this scenario is to illustrate how these cycles often give a precise timing aspect to the future extrapolation of developing fundamental events (or pinpoint when a Black Swan event could emerge and shock the markets).
That brings us to another review of the 2018 – 2022 outlook [reserved for subscribers]…
Soybeans, Corn & Wheat remain in a base-building phase that has been projected to lead to sizeable rallies… On a continuous basis, Soybeans dropped from the June ‘16 peak into May ‘19 – when they bottomed. From there, they experienced an initial ~8-month rally (into late-Dec./early-Jan. ‘20) and subsequent ~4-month correction (into late-Apr./early-May ‘20).
The Jan. ‘20 peak also perpetuated an ~8-month low (Jan. ‘18) – low (Sept. ‘18) – low (May ‘19) – high (Jan. ‘20) that projects a future peak for Sept. ’20…
If one examines the swings in Soybeans over the past ~5 years, a consistent 6 – 7 month cycle is very clear. Even more obvious, since 3Q 2013, is an over-arching ~14-month cycle that has governed Soybeans.
Those two cycles were evident in the lows set in Oct. ’14, May ’15 and Nov. ’15 – each 7 months apart. They were also observed in the 6 – 7 month sharp rally from the Nov. ’15 low – into the June ’16 peak. From there, it was 7 months until the secondary peak of Jan. ’17 was set.
Another pair of 7-month cycles unfolded between the Jan. ’17 and subsequent March ’18 peak – separated by 14 months. 14 months later, after another pair of 7-month cycles transpired, Soybeans set their lowest low in May 2019. That led to a 7-month rally into Dec. ’19.
7 months later (creating a potential 7-month low-high-high Cycle Progression), 14 months from the May ’19 major bottom, 28 months from the March ’18 peak (highest high in over three years), 42 months from the Jan. ’17 peak, 56 months from the Nov. ’15 low, 70 months from the Sept. ’14 low and 84 months from the Sept. ’13 peak… is July 2020…
Before that occurs, however, Soybeans need to signal a much larger and stronger rally. As conveyed throughout 2020, Soybeans had their best chance for a strong advance between mid-March and late-June ‘20
If a serious disruption occurred in this growing season (anything appears possible in this new norm), or a sudden unexpected demand (livestock? China?), Soybeans could rally as high as 1200/S and return to their mid-2016 peak… Corn has a different structure than Soybeans, but has tested and held major multi-year support around 300/C (325.0/CZ).
Wheat is the most positive, on a 2 – 3 year basis, but tested and held 3 – 5 year resistance near 600/W – in Aug. ’18, Jan. ’20 & Mar. ’20. It needs to break above that level to trigger a more accelerated advance (that would likely reach [reserved for subscribers]…
1 – 3 month and 3 – 6 month traders can enter long positions in Nov. Soybeans futures at current levels and average into these down to [reserved for subscribers]…
1 – 3 month and 3 – 6 month traders can enter long positions in Dec. Wheat futures at current levels and average into these down to 510.0/WZ. The risk on these (where to exit if they head lower instead of higher) is [reserved for subscribers]. (The WEAT ETF is often used as a substitute for those that avoid futures.) TRADING INVOLVES SUBSTANTIAL RISK”
Grains are all entering bullish cycles and the time when accelerated advances should take hold as they enter the culmination/crescendo of a 40-Year Cycle of Drought & 80-Year Cycle of Agriculture (2016 – 2021) that have had dramatic impacts on crop raising and food prices throughout America’s history. Since 2015, the focus on these cycles has projected an increasingly challenging period for crops and food prices leading into 2022 and the ensuing shift to Deluge Cycles (in 2022 and beyond).
~11-Year, ~40-Year & ~80-Year Cycles all converge in 2021/2022 and pinpoint the expected transition of natural, geopolitical and market cycles, at the same time many food cycles also culminate.
That is also when Corn has a corroborating 3-year low (July 2007) – low (Jun 2010) – high (July 2013) – high (June 2016) – high (May/Jun 2019) – high (May/June 2022) Cycle Progression – projecting a 1 – 2 year peak – that was reinforced by a 6 – 12 month peak in May/June 2019.
Wheat has a ~6-year low (2004) – low (2010) – low (2016) – high (2022) Cycle Progression that is being reinforced by a ~33-month low (3Q 2016) – low (2Q 2019) – high (1Q 2022) Cycle Progression. Soybeans have an ~8-month Cycle Progression that portends future peaks in Sept ’20 and then ~May ’21 & ~Jan ’22.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.