Behind The Bean Blow Up

June 15, 2001
Marc Dupee

What got into beans today? Traders abandoned them like a bad smell, sending the
July contract
(
SN1 |
Quote |
Chart |
News |
PowerRating)Â 12 1/4 lower to 458 1/2. Favorable weather
forecasts in the Midwest improved the crop forecast at home while rain in China
brought additional sellers into the pit. Private estimates that the number of
acres planted may be larger than previously believed also spurred selling.Â

Notice that the previous sharp decline in beans that culminated on May 30 was
also 18 points, the equivalent of the past two days’ decline. Beans are also
down just a few cents off both the 20-day moving average and the 38.2% retrace
of the past six weeks’ run. This could be a good point for momentum to reassert
(beans and meal are both on the Momentum-5
List).Â

Japan remains mired in economic stagnation and comments from bank officials
served to exacerbate fears about the prospects for recovery. Interest rates are
near zero and the Bank of Japan (equivalent of our Fed) has bought more bonds
(in attempt to providing liquidity and stimulus to the economy) than investors
want or banks can use to re-lend. The economy is in an 11-year slump and six of
those years have been with a near-zero interest rate, to no effect. Economic
activity is stagnant as banks hold vast sums of bad debt and the government’s
attempts to fiscally buy Japanese economic health through pork-barrel spending
projects have failed (Japan now has approximately 10-times the public debt of
its industrialized peers).Â

In short, the central bank’s hands are now tied and it
is, therefore, up to the politicians to devise a scheme to write off the bad
debt and restructure myriad inefficient business relationships that hamstring
the nation. And this is essentially what Bank of Japan Governor Masaru Hayami
said to parliament yesterday, basically leaving it up to the body politic to
take some kind of decisive action toward reform before it moves on the monetary
front. Emphasizing the government’s glacial rate of change and reform, Hayami
understated there has been “little progress so far.”

This negative reading of the economic situation — and
the end of new prime minister Koizumi’s honeymoon — sent the Sep yen
(
JYU1 |
Quote |
Chart |
News |
PowerRating)
lower in an outside day out of a two-day pullback, breaking a well-defined trend
line. The yen found support at theÂ one-month low level. But given the
extended range, today’s breakdown is ominous and any support will probably come
from levels where it is believed the BOJ will intervene to support the currency.
The JYU1 closed .0119 lower at .8200.

Also in a short Pullback From Highs setup and from the Momentum-5
List, August lean hogs
(
LHQ1 |
Quote |
Chart |
News |
PowerRating) rallied .850 to 66.925.

Heating oil
(
HON1 |
Quote |
Chart |
News |
PowerRating)Â gave
back almost all of its gains from yesterday, falling to make good on its Turtle Soup Plus One
Sell signal and close .0283 lower at .8045.

From the Implosion-5 List,
copper
(
HGN1 |
Quote |
Chart |
News |
PowerRating)Â traded to a new
contract low, highlighting tepid demand for the industrial metal and severe
weakness in the the US industrial economy. The cluster of candlestick
Doji stars on the low is often indicative of a reversal. Copper settled down
.85Â at 71.95.

Behind The Bean Blow Up

BUY THE FEAR, SELL THE GREED

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